Bermuda's Global Leadership in Digital Asset Law: DABA, DAIA, and the Tiered Licensing Model

The jurisdiction of Bermuda has positioned itself as a global pioneer in regulating blockchain and cryptocurrency services. By establishing ...

The jurisdiction of Bermuda has positioned itself as a global pioneer in regulating blockchain and cryptocurrency services. By establishing one of the world's first comprehensive regulatory frameworks, the government aims to provide legal certainty to industry participants while adhering to the highest international standards of compliance and transparency. The entire framework is built around classifying all cryptocurrencies, tokens, and digital coins under the collective term "digital assets.

Core Legislative Framework

Bermuda's approach is defined by two principal legislative arms, designed to cover both the operation of digital asset businesses and the issuance of new tokens:

1. The Digital Asset Business Act (DABA): This act introduces a robust licensing regime for entities engaging in a "digital asset business." This includes activities such as operating a digital asset exchange, providing custodial wallet services, acting as a payment service provider, or offering digital asset trust services.

2. The Digital Asset Issuance Act (DAIA): This act regulates the offering of digital assets by way of an issuance to fund an issuer's or promoter's own business or project. It mandates specific documentation, ongoing disclosures, and compliance measures.

The Tiered Licensing Model

To foster innovation while maintaining regulatory oversight, the Bermuda Monetary Authority (BMA) offers a tiered licensing approach under the DABA:

• Class T Licence (Test): Designed for businesses conducting pilot or beta testing of their digital asset activities.

• Class M Licence (Modified): For persons who have developed a proof of concept and are looking to launch, but may not yet meet all the requirements of a full license.

• Class F Licence (Full): A full license to conduct any or all specified digital asset business activities without a time limit, subject to BMA discretion.

This framework allows startups to engage in proof-of-concept development in a supervised environment before scaling up to a full licence.

Regulatory and Compliance Pillars

Bermuda's commitment extends beyond simple licensing, focusing intensely on protecting consumers and maintaining global financial integrity:

• AML/ATF Compliance: All licensees must adhere to strict anti-money laundering and anti-terrorist financing (AML/ATF) regulations, ensuring due diligence on customers and transparency in operations.

• Consumer Protection: Licensees are obliged to disclose all material risks associated with their products and services to customers before entering a business relationship. For those holding client assets, they are required to maintain a surety bond, trust account, or indemnity insurance to protect against loss.

• Cybersecurity: The BMA has implemented the Digital Asset Business (Cyber Risk) Rules 2023, requiring Class F license holders to file annual cyber risk returns and maintain high standards of operational cyber risk management.

Bermuda's proactive stance, including launching an Insurtech Sandbox and investigating legal recognition for Decentralized Autonomous Organizations (DAOs), demonstrates an active regulator engaged in creating a stable yet innovative environment for the digital asset sector.