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Bermuda: The world’s blockchain laboratory?

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There is a sense of optimism in Bermuda that the success it has enjoyed over the years in respect of the ILS industry can, over the coming years, be replicated in the cryptocurrency and blockchain arena.

ILS fund managers like the fact that Bermuda has a lot of professionals working on the ground, from legal to administration and auditing. This is particularly important under Solvency II, which places a big focus on substance and physical presence.

“This has been fantastic for the funds industry,” says Dawn Griffiths, Director and Head of Bermuda Funds Practice at Conyers Dill & Pearman, one of Bermuda’s leading law firms. “The world’s biggest ILS managers are based here running funds and we hope some of that success will be replicated in the blockchain and crypto space.

“At a broader level, I think as hedge funds face more corporate governance and substance requirements, they too will look to develop more of a nexus. It is something that Bermuda can offer given its close proximity to New York and we expect to see more managers and family offices beefing up their operations.”

The Bermuda Government recognises that the growing prominence of digital assets represents a perfect opportunity to make Bermuda a leading blockchain jurisdiction.

“Bermuda’s Class A and Class B Exempt Funds and the surrounding framework will be helpful in the emerging crypto fund space, particularly for those managers wishing to launch private funds with fewer than 20 investors who wish to build a track record without being subject to regulation by the BMA. Some of our major clients have started to introduce crypto futures into their investment strategies and are starting to ask questions about setting up dedicated funds in this space,” confirms Griffiths.

Chris Garrod is Director at Conyers Dill & Pearman and heads their Blockchain and ICO practice. He explains that the Hon. E. David Burt, Bermuda’s youngest ever Premier, is extremely tech savvy with a desire to make Bermuda the world’s pre-eminent blockchain jurisdiction.

“I am in discussions presently with government officials on proposed ICO legislation and Bermuda is also thinking about setting up a dedicated government-regulated virtual asset exchange. We are already getting cryptocurrency fund queries from managers wishing to list products on such an exchange. That said, the Bermuda Government is very mindful of AML and ATF safeguards in this space. They are collaborating with the private industry and the BMA to determine how best to introduce new legislation,” outlines Garrod.

In its current form, ICO legislation will require a token issuer or a coin issuer to provide sufficient documentation to potential investors and meet certain minimum criteria similar to one would expect with a traditional fund prospectus.

This offering document would need to be filed with the Bermuda Government’s Ministry of Finance, with Garrod adding: “Before the ICO commences, it will have to be reviewed and vetted by the Ministry to make sure certain requirements are met. Examples include: who are the people establishing the issuer? Do they have the appropriate expertise to launch an ICO? What is the exact nature of the cryptocurrency business?”

Bermuda is the second largest global reinsurance hub and was once described as the “insurance laboratory of the world”.

With the savviness and determination Bermuda has displayed in the past in both the reinsurance and funds space, it could possibly soon be branded as the “blockchain laboratory of the world”. 

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