Bermuda Financial Regulator Releases Draft Regulation for Crypto Custodial Services

Bermuda’s financial regulator has released draft regulation for crypto custodial services, according to an official press release issued on Tuesday, Dec. 18.

The Bermuda Monetary Authority’s (BMA) draft regulatory document, entitled “Digital Asset Custody Code of Practice,” seeks to clarify the regulator’s stance on crypto custodial services in Bermuda and to protect clients’ assets.

The document provides a detailed regulatory basis for offering crypto custody services, including both business management and technology issues, such as transaction handling, incident reporting, keys generation and operating hot and cold storage.

Aiming to deliver a high level of protection for crypto custody clients, the BMA has suggested that a Digital Asset Business (DAB) must ensure that “any assets belonging to clients are kept segregated” from their own assets.

According to the document, a DAB is allowed to put client assets in a trust with a qualified custodian, or use indemnity insurance and take other measures to guarantee the return of client assets in case a DAB is suspended or disqualified, or has losses due to theft.

Moad Fahmi, the BMA’s senior advisor of financial technology, claimed that the authority takes the issue of supporting a “healthy digital asset ecosystem” seriously in order to encourage involvement by “quality players,” which will have a positive effect on the whole financial system.

The Bermuda Monetary Authority is an integrated regulator of the financial sector in Bermuda — not a central bank — which also functions as an issuer of Bermuda's national currency.

In April 2018, the BMA published a consultation paper in order to receive feedback from public on regulation of crypto-related services, as well as the associated regulatory steps concerning Anti-Money Laundering (AML). In the paper, the financial watchdog revealed its plans to monitor a number of crypto-related activities in order to prepare an official framework on crypto.

In October, the government of Bermuda granted the first license for an initial coin offering (ICO) project under the nation’s new crypto and blockchain regulatory framework, which was introduced in July 2018.