As we reported on July 19, 2018, Bermuda is determined to establish itself as the leading jurisdiction for fintech entrepreneurs, in particular those involved in initial coin offerings (ICOs), digital assets and virtual currencies. Having recently passed the ICO Act and the Digital Asset Business Act (DABA), Bermuda’s Premier and Minister of Finance, the Hon. E. David Burt, JP, MP, and his cabinet are now focused on creating a new class of bank to facilitate Bermuda’s fintech initiative.
The Bermuda Monetary Authority (BMA) has spearheaded a new bill, titled the Banks and Deposit Companies Amendment Act 2018 (Restricted Banks Act), that will establish a novel, restricted banking license to encourage banks to provide their services to fintech companies.
This legislation is vital, as to date Bermudian banks have been unwilling to provide banking services to the Island’s nascent fintech startups. The government of Bermuda and the BMA strongly believe that the Restricted Banks Act will resolve this impediment and propel Bermuda’s fintech initiative forward.
The Restricted Banks Act
On July 27, 2018, the House of Assembly passed the Restricted Banks Act and the bill now moves to the Senate for ratification. The government of Bermuda and the BMA designed the Restricted Banks Act to allow international participants to satisfy a critical need for the Island’s fintech companies. Of particular importance are Clauses Two and Three in the Restricted Banks Act.
Clause Two provides that the BMA has broad discretion in regards to the new, restricted banking license. The BMA may impose conditions on or restrict the services that may be provided under the license and may vary or revoke any such condition or restriction. Clause Two also provides that the Minister of Finance, acting on the advice of the BMA, may amend by order the Third Schedule, which specifies the persons to whom banking services may be provided.
Clause Three, which sets forth the Third Schedule, provides that the BMA may authorize banks licensed under the Banks and Deposit Companies Act 1999 to provide banking services to six defined categories of persons. Essentially, the BMA has broad authority to license banks to provide banking services to fintech companies that are licensed under the ICO Act or DABA or that have obtained consent from the Minister of Finance to launch ICOs, as well as to their affiliated companies and to certain of their agents and service providers.
Resolving the Current Impediment to Bermuda’s Fintech Initiative
The Bermuda Bankers’ Association has explained the domestic banks’ reluctance to enter the ICO, digital assets and virtual currency markets, citing their “ongoing need to manage their risks to continue to operate in accordance with their existing correspondent banking relationships.”
Notwithstanding these valid concerns and the Bermudian banks’ general aversion to risk in the wake of the global financial crisis, the Hon. E. David Burt is determined to propel Bermuda’s fintech initiative forward, having declared that Bermuda must evolve and innovate. According to the Premier and Minister of Finance, the reticence of the Bermudian banks cannot be allowed to frustrate Bermuda’s continued economic growth and success.
The Hon. E. David Burt and his Progressive Labour Party believe that the implementation of the Restricted Banks Act will resolve the current impasse, declaring that the bill will “ensure that the government [of Bermuda] is able to effectively execute on its fintech initiatives, as well as encourage responsible fintech innovation that provides fair access to banking services and fair treatment of consumers.”
Importantly, there appears to be key bipartisan support for the Restricted Banks Act. James Jardine, the independent Vice President of the Senate, has stated that, although the fintech industry poses its own idiosyncratic risks, he receives “some degree of comfort” from the BMA’s involvement in the drafting of the Restricted Banks Act.
Ultimately, if Bermuda’s fintech initiative is to be successful, fintech companies will require access to banking services on the Island like any other company authorized to conduct business by the BMA. The Restricted Banks Act should create a banking environment in which such access is possible.
With Increased International Competition for Fintech Business on the Horizon, the Time to Act Is Now
Bermudian fintech companies require access to requisite banking services as soon as possible, as, at this very moment, various other jurisdictions are working to surmount the same hurdle with their respective banking regulators
As is often the case with new technologies and new lines of business, first movers will be well-positioned to attract a lion’s share of the burgeoning fintech market. For example, Bank Frick in Liechtenstein, Fidor Bank in Germany and Bank Vontobel AG in Switzerland have been some of the first banks to service digital asset and virtual currency startups in Europe.
Unsurprisingly, these three banks have begun to siphon fintech business from neighboring European countries, who have been unable or unwilling to provide banking services to fintech companies.
Appreciating the urgency in Bermuda, the Hon. E. David Burt has avowed, “Bermuda must be nimble or we will be left behind.”
Based on this view, the government of Bermuda and the BMA appear to be propelling the Island forward with a prudent and practical new class of banking license that is designed to support the development of the country’s fintech initiative.
This is a guest post by Huhnsik Chung, a partner at Stroock & Stroock & Lavan LLP in New York, and Nicholas Secara, a senior associate in the firm’s New York office. It is provided for informational purposes and should not be construed as legal advice. Views expressed are their own and do not necessarily reflect those of Bitcoin Magazine or BTC Inc.
Huhnsik Chung is a partner at Stroock & Stroock & Lavan LLP in New York with more than 25 years of legal experience in the financial services industry. Nicholas Secara is a senior associate in the firm’s New York office practicing in the financial services industry.