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Benefits and characteristic on Assetization or Tokenization (of asset) are in part I and II of this series. We also looked already in detail at #STO_in_USA (II), since the US market displays strong interest and offers a large market-size. We also covered most of the EU in part III, APAC and MENA in part IV. The goal of this series is to show that in theory everything can be tokenized, tangible and intangible, as token embedded smart contracts serve the same function as traditional paper-contract, and to showcase different legislations in different jurisdictions. Token have certain advantages over paperwork, some obvious, some not, eg. automatization of renewals, improved security through distributed technology consensus mechanism, impossibility to tamper, convenient reconciliation and auditability, and many more.
Tokenized Offering Caribbean Sea
Tokenized Offerings in Bermuda
The Bermuda Monetary Authority (the “BMA”), the territory’s financial regulator and issuer of its national currency, and the Financial Action Task Force (the “FATF”) focus their efforts on convertible virtual currencies (i.e. those which can be converted into and out of fiat currencies), on the basis that these currencies presented the highest money-laundering risk. The BMA published a new Digital Asset Business Act (DABA), which will specify the digital asset-related activities to which it applies, impose a licensing requirement on any person carrying on any of those activities, lay out the criteria a person must meet before it can obtain a license, impose (and permit the BMA to impose) certain continuing obligations on any holder of a license, and grant to the BMA supervisory and enforcement powers over regulated digital asset businesses.
Carrying on digital asset business without a license will be a criminal offence punishable by a fine of up to US$250,000, imprisonment for a term of up to five years, or both.
Tokenized Offerings in British Virgin Islands
The British Virgin Islands (“BVI”) regulator, the Financial Services Commission (“FSC”), recognizes Bitcoin- and Ether- focused funds. This has resulted in leading fintech companies such as Bitfinex being incorporated in the BVI. The primary focus of the service providers in the jurisdiction relates to initial coin offerings (“ICOs”) and initial token offerings (“ITOs”). Most ICOs and ITOs established in the BVI use the structure of a business company incorporated under the BVI Business Companies Act 2004 (the “BCA”). This provides corporate flexibility, relative free-flow of funds, and low comparative establishment costs associated with a BVI company.
At the present time neither the FSC nor the BVI Government have given any form of regulatory advice or guidance in respect of ICOs or ITOs, nor have they issued any guidance for cryptocurrencies, blockchain or financial technology more generally.
While the consensus is that ICOs and ITOs will not be subject to securities legislation in the BVI, whether or not the legislation applies will be fact-specific and driven by the nature of the underlying assets of the respective offering. In particular, if a company wishes to: (a) collect and pool investor funds for the purpose of collective investment; and (b) issue fund interests that entitle the holder to receive, on demand or within a specified period after demand, an amount calculated by reference to the value of a proportionate interest in the whole or in a part of the net assets of the company, then it will be deemed open-ended and need to be licensed.
The Securities and Investment Business Act 2010 (“SIBA”) regulates, amongst others, the provision of investment services from within the BVI. SIBA provides that any person carrying on, or presenting themselves as carrying on, investment business of any kind in or from within the BVI must do so through an entity regulated and licensed by the FSC (subject to the safe harbors in SIBA). “Investments” is also widely defined and may include: (i) shares, interests in a partnership or fund interests; (ii) debentures; (iii) instruments giving entitlements to shares interests or debentures; (iv) certificates representing investments; (v) options; (vi) futures; (vii) contracts for difference; and (viii) long-term insurance contracts.
There are a number of fund options in the BVI, including public funds, professional funds, private funds, approved funds and incubator funds.
Tokenized Offerings in Cayman Islands
The Cayman Islands Government, the Cayman Islands Monetary Authority (“CIMA”), and industry bodies such as Cayman Finance, acknowledge the importance of continuing to attract fintech business to the jurisdiction and ensuring the further growth of the sector.
There has been no precipitous introduction of new regulation of the Digital Asset space, but rather a more judicious review of the sector and existing regulatory framework. Currently, the Cayman Islands Government is in the process of considering the proposals of an industry working group convened by CIMA regarding the adoption of any additional regulatory measures or governance standards for the marketing or trading of Digital Assets within and from the Cayman Islands.
Pursuant to the Mutual Funds Law of the Cayman Islands, an entity formed or registered in the Cayman Islands that issues equity interests and pools the proceeds thereof, with the aim of spreading investment risks and enabling investors to receive profits or gains from the acquisition, holding, management or disposal of investments, may come within the ambit of that statute and be required to obtain a registration or license from CIMA. The particular nature or classification of the Digital Assets will not generally be of relevance, provided they are being held as an investment. As such, any pooling vehicle that is investing into the Digital Asset space or accepting Digital Assets by way of subscription and then investing into more traditional asset classes, would be advised to seek Cayman Islands legal advice on the point.
Pursuant to the Securities Investment Business Law of the Cayman Islands, an entity formed or registered in or that is operating from the Cayman Islands which engages in dealing, arranging, managing or advising on the acquisition or disposal of Digital Assets, may come within the ambit of the Securities Investment Business Law and be required to obtain a registration or license from CIMA. This will, however, only apply to the extent that such Digital Assets constitute “securities” for the purposes thereof. The statute contains a detailed list of assets that are considered securities thereunder, except Digital Assets. It seems clear that certain Digital Assets are likely to fall outside the definition, and thus outside the scope of the law (for instance, pure utility tokens and some cryptocurrencies).
Tokenized Offerings in Guernsey
The Bailiwick of Guernsey (“Guernsey”), as one of the world’s leading financial centers, has always been an early adopter of financial innovation and has a reputation for expertise and stability. The first ever commercial deployment of blockchain technology for the private equity market in early 2017, which was pioneered in Guernsey by Northern Trust and IBM, demonstrates that Guernsey is very much open to new innovation and development.
The Guernsey Financial Services Commission (the “Commission”) is the body responsible for the regulation of the finance sector. The Commission has issued advice calling for caution in the field of digital, virtual or cryptocurrencies (“Virtual Currencies”) and initial coin offerings (“ICOs”). The Commission has indicated that whilst it has a broad policy of encouraging innovation, and is keen to liaise with firms or individuals to discuss potential applications, it believes that there are potential risks in the use of Virtual Currencies especially for retail customers. The Commission has indicated that it would be cautious about approving applications for ICOs which could then be traded on a secondary market, or the establishment of a digital currency exchange within Guernsey, due to the significant risk of fraud and/or money laundering, and has generally issued advice to investors that when investing in Virtual Currencies they should act with extreme caution – and be prepared to lose the entire value of their investment.
In general, funds seeking to invest in Virtual Currencies should be aware that whilst the Commission is generally cautious about the regulatory approach which should be taken in relation to Virtual Currencies and ICOs, Guernsey as a jurisdiction is keen to encourage financial innovation, and provided that an applicant can satisfy the Commission that key controls are in place for the protection of investors, there should be no reason why a responsible fund should not be regulated in Guernsey by the Commission.
Guernsey does not at present have any specific regulatory laws or guidance relating to any form of Virtual Currencies or ICOs
...to be continued...
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Sources: Blockchain Advisory, GBBC, CB Insights, Dilendorf Khurdayan, BlockState, Manhattan Street Capital, Investopia, Reuters, IWS FinTech