Apr 2018
On 13 April 2018, amendments were tabled in Bermuda’s House of Assembly to the Companies Act, 1981 (“Companies Act”) and Limited Liability Company Act, 2016 (“LLC Act”) to provide a legislative framework for initial coin offerings (“ICOs”). By implementing this new legislation, the Bermuda Government is laying the foundation for the Island to become a leading global blockchain and ICO centre. The Companies and Limited Liability Company (Initial Coin Offering) Amendment Act, 2018 (the “ICO Act”) will be debated in a later sitting of the House.
The ICO Act regulates offerings of ‘digital assets’, which are meant to capture all of the various categories of digital coins and tokens (whether they be utility, securitized, equity or otherwise) being issued as ICOs and via token sales. The purpose of the ICO Act is to only regulate those ICOs and token sales which are public crowdfunding or similar type projects. It is not intended to regulate either private sales or those which are engaged in the business of pure virtual currency issuances. In due course, a proposed Virtual Currency Business Act and a separate regime will regulate such businesses as well as those operating digital asset exchanges, e-wallets and similar structures.
ICO as a Restricted Business Activity
Under the new ICO Act (which contains largely the same amendments to both the Companies Act and the LLC Act), an ICO will be treated as a restricted business activity that will require the consent of Bermuda’s Minister of Finance prior to an offering being made to the public (an “ICO offering”). It is intended that a FinTech Advisory Committee will be appointed to assist with initial reviews of applications and to ensure that they meet certain minimum criteria regulations.
A company wishing to launch an ICO can incorporate within the typical timeframe of 24 to 48 hours using Bermuda’s usual incorporation procedures. However, it will not be able to commence its ICO offering without first obtaining the Minister’s approval. As part of that process, the applicant must provide a copy of the draft ICO offering document and any other documents required by the Minister. Note that the Minister may, if he deems necessary, impose appropriate conditions on the applicant or on its ICO.