The use of virtual assets/digital assets has grown exponentially over the last couple of years. According to recent statistics, over 300 million people around the world use/own cryptocurrencies in 2022, with the global crypto market cap at $1.06 trillion as of August 1, 2022.[i] 

Given the dynamic growth and rapid evolution of this fairly new sector, policymakers and regulators around the world have been working towards putting in place appropriate regulatory frameworks to support innovation in a way that, inter alia, promotes the integrity of the financial system and ensures, as far as possible, investor/consumer protection. 

In the Caribbean, several countries have enacted legislation to regulate the conduct of digital/virtual asset business with some jurisdictions actively working towards implementing appropriate supporting measures (i.e. regulations/rules/guidance) to expand upon the general framework created by legislation.

The Bahamas, Bermuda as well as Antigua and Barbuda have all enacted legislation to regulate the conduct of digital asset business; while the Cayman Islands, Grenada, St. Christopher and Nevis (St. Kitts and Nevis) and Dominica have legislation in place for the conduct of virtual asset business/services.

Definition of digital asset versus virtual asset

Digital Asset Definition:

The Digital Assets Business Act, 2018 of Bermuda defines a digital asset as:

“anything that exists in binary format and comes with the right to use it and includes a digital representation of value that—

(a) is used as a medium of exchange, unit of account, or store of value and is not legal tender, whether or not denominated in legal tender;

(b) is intended to represent assets such as debt or equity in the promoter;

(c) is otherwise intended to represent any assets or rights associated with such assets; or

(d) is intended to provide access to an application or service or product by means of distributed ledger technology; but does not include—

(e) a transaction in which a person grants value as part of an affinity or rewards program, which value cannot be taken from or exchanged with the person for legal tender, bank credit or any digital asset; or

(f) a digital representation of value issued by or on behalf of the publisher and used within an online game, game platform, or family of games sold by the same publisher or offered on the same game platform.”

A similar definition[ii] was adopted by Antigua and Barbuda in the Digital Assets Business Act, 2020 (DABA 2020).

The Bahamas Digital Assets Registered Exchanges Act 2020 (the ‘DARE Act’) takes a simplified approach and defines digital asset as a “digital representation of value distributed through a DLT platform where value is embedded or in which there is a contractual right of use and includes without limitation digital tokens”.

Virtual Asset Definition:

The Virtual Asset Services Providers Act (2022 revision) of the Cayman Islands (VASPA 2022’), the Virtual Asset Business Act 2021 of Grenada (‘VABA 2021’), the Virtual Asset Business Act 2022 of Dominica (‘VABA 2022’) and the Virtual Asset Act 2020 of St. Kitts & Nevis (‘VAA 2020’) have all adopted a FATF styled definition of virtual asset[iii]:

“virtual asset” means a digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes but does not include a digital representation of fiat currencies (or security).”

What activities are covered?

The DARE Act facilitates the registration of digital token exchanges and any services related to a digital asset token exchange, as well as payment service providers utilizing digital assets. It also covers digital asset service providers facilitating exchanges or transfers of digital assets and for financial services related to the creation, issuance or sale of digital assets. The Financial and Corporate Service Providers Act, 2020 in Bahamas separately provides for the custody of digital assets and wallet service providers.

The Bermuda and Antigua & Barbuda DABA requires licensing for operating as a digital asset derivative exchange provider, a payment service provider utilizing digital assets, offering custodial wallets services; as well as carrying on digital asset trust services. Digital asset exchanges and digital asset services vendors are also required to obtain a licence. Moreover, Antigua & Barbuda DABA requires licensing for special purpose depository services and the issuance, sale or redemption of digital assets. Bermuda’s Digital Asset Issuance Act 2020 covers digital asset issuance.

The Cayman Islands VASPA, Grenada and Dominica VABA and the St. Kitts & Nevis VAA requires authorization for exchanges or transfers of virtual assets, virtual asset custodial services, the issuance or sale of a virtual asset; as well as financial services related thereto.

It is notable that the VASPA requires registration for virtual asset issuances and financial services related thereto but requires licensing for the exchange or transfer of virtual asset (i.e. trading platforms) and virtual asset custodial services. By contrast, the Grenada and Dominica VABA and the St. Kitts and Nevis VAA require registration for all activities.

The VASPA also contains a sandbox regime for VASPs and fintech service providers.

Common Requirements

There some key criteria that must be met to be able to conduct virtual/digital asset services in most of the Caribbean jurisdictions noted above. Notably:

• fitness and propriety of the entity and relevant officers (and in some cases also beneficial owners),
• clear systems, policies and procedures that demonstrate compliance with the Terrorism, Money Laundering Prevention and Proceeds of Crime Acts, among other things.
• adequate cybersecurity systems,
• audited accounting by an approved auditor and the submission of financial statements,
• appropriate policies and procedures for data protection,
• risk assessment and adequate controls in relation to products or services offered, and
• policies and procedures for the safeguarding of investor assets.

Each jurisdiction also provides for the issuance of regulations relevant to the conduct of virtual/digital asset services, with some jurisdictions also empowering the relevant authority to make rules and/or issue guidance.

Final thoughts

Given the continuous expansion and evolution of the digital assets sector, as evident by the last couple of years, it is encouraging to see that several Caribbean countries have made substantial strides to regulate crypto activities that may pose threats to the financial system. 

It is also clear that while bespoke legislation may differ from jurisdiction to jurisdiction, there exists key common elements that are applied across each jurisdiction, which bodes well for the possible harmonization of key provisions in future. 

Indeed, the International Monetary Fund has called for a global, coordinated and consistent response to the regulation of crypto assets. Notably, “a global regulatory framework will bring order to the markets, help instill consumer confidence, lay out the limits of what is permissible, and provide a safe space for useful innovation to continue[iv]”.

In the interim, it is commendable that Caribbean countries are making concerted efforts to learn more about this evolving sector and creating frameworks for its regulation.

References

[i] Statistics taken from: 63+ Cryptocurrency Statistics, Facts & Trends (2022) (buybitcoinworldwide.com)

[ii] Albeit with some minor insertions (see the definition here: https://www.fsrc.gov.ag/images/pdf/digital-assets/No.-16-of-2020-Digital-Assets-Business-Act-2020.pdf

[iii] the Cayman Islands VASP Act has one small difference in its definition of virtual asset in that it does not contain the word ‘security’.

[iv] Aditya Narain, Marina Moretti: ‘Regulating Crypto’ , https://www.imf.org/en/Publications/fandd/issues/2022/09/Regulating-crypto-Narain-Moretti