Crypto mining ban ‘begs explanation’

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

A Bahamian digital assets entrepreneur says the Securities Commission’s decision to ban crypto currency mining in the revised Digital Assets and Registered Exchanges (DARE) Bill warrants further explanation.

Davinia Bain, Crypto Isle’s co-founder, told Tribune Business that banning crypto-mining “definitely begs an explanation” from the regulator as the company continues to review the recently-released proposed amendments to the existing DARE Act.

She said: “There are people in The Bahamas mining not as an ancillary business or ancillary support to their regular business, which the Act speaks to, because there are people that have bought miners and have been earning crypto in one way or the next, and it is a great way for Bahamians to engage in the industry.”

A foundation for obtaining crypto currency is mining via the Internet. It was the primary mechanism for obtaining crypto currencies prior to many of the respective coins becoming denominated in hard currencies.

Ms Bain added: “We’re excited about the openness of the Securities Commission to have a conversation, and so very soon we will announce that we are in consultations with the Securities Commission so we can get explanations on this.

“The Securities Commission of The Bahamas has released proposed amendments to the DARE Act aimed at further strengthening the country’s already world-leading regulatory framework for digital assets and registered exchanges. On Wednesday, May 3, Crypto Isle released a survey intended to gather feedback on those proposed amendments and aid in securing widespread private sector input on the revised regulatory framework.

“’The digital assets space is a crucial frontier for innovation, with the tremendous potential to provide access to financial and economic advancement and inclusion to a broad cross-section of our community. It’s all about how we can innovate, and these amendments set the parameters within which we will be able to exercise our collective genius. That’s why we need to make sure our voices are heard,” Ms Bain said.

Crypto Isle’s release added: “The proposed amendments also include a prohibition on mining which has not been met with enthusiasm by Crypto Isle or the industry. Sector participants and enthusiasts are eager to understand the rationale behind this prohibition and how they can advocate for adjustments to it. The position on privacy coins also comes as no surprise, but it is expected to draw spirited conversation in the space.”

The Securities Commission, in outlining the major reforms contained in the Digital Assets and Registered Exchanges (DARE) Bill’s 2023 version, listed the operation of digital assets exchanges as one area that will be strengthened, and referred to “lessons learned” from last year’s so-called ‘crypto winter’, but studiously avoided any link to FTX’s collapse.

Nevertheless, given the fast-paced evolution of the digital assets industry, the Securities Commission has constantly acknowledged that the DARE Act 2020 – the centrepiece of its regulatory regime – must be upgraded. It is hoping that Parliament will pass the Bill into law by the end of the 2023 second quarter, which is just two months away at end-June.

“In light of lessons learned during the so called ‘crypto winter’ of 2022, the Commission identified aspects of the DARE Act that require further consideration,” it told industry stakeholders. “In April 2022, the Commission began consolidating its ongoing review of DARE for the purposes of addressing any legislative gaps, ambiguities and procedural concerns within the legislation.”

The international law firm, Hogan Lovells, was hired to draft the new Bill, and the Securities Commission promised: “The DARE Bill 2023 will establish new regulatory frameworks to ensure the Bahamian legislative regime is current, proactive and compliant with international standards and best practices.

“The DARE Bill 2023 encompasses a comprehensive range of digital asset activities and establishes appropriate protection mechanisms for the registration and ongoing supervision of operators that align with prevailing international standards.

“The new DARE Bill represents an even greater focus on consumer and investor protection, robust risk management as well as market development and innovation. Furthermore, the DARE Bill 2023 explicitly addresses staking services in the context of international standards, making it among the first legislation of its kind.”

The Securities Commission described this as “a first-of-its-kind, dedicated disclosure regime that captures the activity of the staking of digital assets belonging to clients or the operation or management of a staking pool as a business.

“Under the DARE Bill 2023, authorised registrants must disclose certain information (where applicable), including a summary of the terms of the client agreement, details regarding the staking protocol, details of how the digital assets are staked (including how and for how long assets are locked up), details of rewards or interest to be earned, details of any penalties which may be imposed, and details of how staking participants are chosen to validate transactions,” it added.

Stablecoins will be regulated for the first time, with the issuance of algorithmic stablecoins prohibited. “The amendments provide a clear definition for stablecoins, provide for the registration of existing stablecoins, specify acceptable forms of reserve assets and establish new requirements for custody and management, segregation, reporting and redemption of reserve assets,” the regulator added.

As for the issuance of digital assets, the Securities Commission added: “The DARE Act requires that issuers of digital assets in or from within The Bahamas must comply with several obligations aimed at protecting investors, primarily as related to initial token offerings.

“These include fit and proper requirements for the issuer, the requirement to prepare an offering memorandum unless an exemption applies, continuing disclosure obligations and purchasers’ rights to rescission or damages and withdrawal.

“Under the DARE Bill 2023, a voluntary registration regime will be established for persons who issue digital assets from outside of The Bahamas to persons outside of The Bahamas or otherwise not in the scope of the issuer requirements under the DARE Bill 2023. The Commission will keep a register of initial token offerings containing specified information.”

Christina Rolle, the Securities Commission’s executive director, said in a statement: “I am pleased to present for consultation the Digital Asset and Registered Exchanges Bill 2023, which will modernise and strengthen requirements for conducting digital asset businesses in The Bahamas, and for the protection of consumers, investors and the markets.

“We invite the public to respond to this consultation process as we seek to develop and expand the legislative framework. Once passed, DARE 2023 will be among the most advanced pieces of digital asset legislation in the world and will align with The Bahamas’ commitment to facilitating development and innovation in a well-regulated environment.”