Building upon the foundation laid by the DARE Act 2020, the legislation introduces comprehensive reforms designed to address the evolving landscape of digital assets and cryptocurrency markets.

Key highlights of DARE 2024 include:

1. Expanded scope: The law now encompasses a wider range of digital asset activities, including advisory or management services, digital asset derivatives and staking services. The Securities Commission also has the flexibility to add additional activities as the space evolves.

2. Enhanced digital asset exchange requirements: Digital asset exchanges must adhere to increased investor and consumer protection requirements including stringent systems and controls requirements, which enhance the integrity and security of transactions.

3. Robust custody framework: New provisions bring custody of digital assets or custodial wallet services under DARE 2024 and enhance the protection of client interests by requiring accessibility of digital assets, among other provisions.

4. Staking framework: DARE 2024 introduces a first-of-its-kind disclosure regime for staking digital assets belonging to clients or the operation or management of a staking pool as a business.

5. Comprehensive stablecoin framework: The Act provides a clear definition for stablecoins, provides for the registration of existing stablecoins, specifies acceptable forms of reserve assets and establishes new requirements for custody and management, segregation, reporting and redemption of reserve assets. The issuance of algorithmic stablecoins is expressly prohibited.

6. Digital asset issuers: Investor protection measures are enhanced by the inclusion of fit and proper standards for digital asset issuers, in addition to new disclosure and financial reporting requirements. 

Other notable provisions of DARE 2024 are "robust standards addressing conflicts of interest and connected third-party relations." The Act also addresses the categorization of non-fungible tokens as either "financial or consumer assets", provides for liquidity and reporting requirements, prohibits privacy token issuance and introduces certain restrictions on proof-of-work mining. 

SFIs should take a "risk-based approach, factoring in their Board approved risk appetite and their resources. Where there may exist additional risks posed by digital assets, SFIs should ensure that the risks are promptly identified, measured, and mitigated."

The DARE Bill 2023 encompasses a "comprehensive range of digital asset activities and establishes appropriate protection mechanisms for the registration and ongoing supervision of operators that align with prevailing international standards."

The new Bill represents "an even greater focus on consumer and investor protection, robust risk management as well as market development and innovation. Furthermore, the Bill explicitly addresses staking services in the context of international standards, making it among the first legislation of its kind."

This policy paper provides a synopsis of key consumer-centric provisions provided under draft Regulations published in February 2021 for public consultation.

The draft Regulations are intended to enhance the existing legislative framework governing Payment Services Providers (PSPs), specific to their provision of central bank digital currency (CBDC) linked services.

These include specific obligations to safeguard the security of the financial market infrastructure, affirmed obligations around the financial integrity (AML/CFT) of digital currency transactions, and intensive focus on financial inclusion and consumer protection. After the consultation period closes on 31 March 2021, the Bank will finalise the Regulations for issuance by 1 May 2021. 

The aim of the project is for all Bahamian residents to be able to use a central bank digital currency, on a modernised technology platform, "with an experience and convenience — legally and otherwise — that resembles cash", even though they should not expect the anonymity that comes with its use.

"It is expected that this will allow for reduced service delivery costs, increased transactional efficiency, and an improved overall level of financial inclusion," the central bank said.

The central bank said that the first phase of the rollout, "focused on the immediate readiness within the private sector", will cover all three tiers of authorised accounts. The second phase, which is expected for early to mid-2021, will target government services and public utilities.

Further, the sand dollar has undergone a "rigorous cybersecurity assessment" so as to reassure the public about the safety of conducting online transactions. The digital currency's infrastructure is also said to incorporate strict attention to confidentiality and data protection.

"Each wallet provides a unique set of data encryption to ensure privacy and confidentiality. However, all transactions are linked to an anti-money laundering/counter financing of terrorism (AML/CFT) engine to safeguard regulatory compliance and governance," the central bank said.

The central bank added that the digital currency framework will rely on an evolved regulatory structure for domestic payments and other financial services. It said:

"The Central Bank remains actively engaged with stakeholders to ensure that the legal framework develops in tandem with payments systems needs. The Central Bank is also ensuring that adequate safeguards and policies are imposed to address the integrity of financial transactions, aligned with best international standards for AML/CFT and that resilient mechanisms are instituted to preserve financial stability and maintain private financial institutions’ central role in the financial intermediation process. As such, draft regulations are under final review and will be crystallised in the public space over the month of October."

The Bill should provide market participants with clear rules to adhere to and a legislative structure to follow.

The Bill will regulate the issuance and sale of digital tokens, as well as the conduct of issuers and providers of intermediary services related to the issuance of digital tokens.

More specifically, the Bill will apply to any organiser, issuer, founder, sponsor, wallet provider, exchange, purchaser or investor that participates in "the formation, promotion, maintenance, organisation, sale or redemption of an initial token offering".

The Bill specifies who may participate, the level of capital required, the rules for reporting and seeking the Commission’s approval, as well as the penalties for failure to comply.

Participants will also be expected to adhere to anti-money laundering/combating terrorism financing laws, take data protection measures related to the personal information of clients, and implement measures to prevent data breaches that would endanger the cryptoassets of clients.

Other elements of the bill

• An offering memorandum should disclose all the information potential purchasers would need to make an informed decision about the project. The memorandum needs to be posted on the issuer's website and any changes in the project should be reflected promptly. The issuer should identify the class(es) of tokens available for subscription in the offering memorandum, with the information being be kept up to date. The issuer also needs to get a "legal opinion" from a domestic law firm "concerning the classification of its tokens" in a form the Commission finds acceptable.
• The Commission will also have to approve any applications for asset tokens and check whether the tokens are a security.
• An issuer will have to apply to a "sponsor" (for example, a lawyer or chartered accountant in the Bahamas or an unrestricted fund administrator) to register the ICO, including complete a prescribed form and pay an application fee and a prescribed fee. The application needs to be submitted 45 days before the start of the ICO. The sponsor will have to pass on the project's particulars and fee to the Commission within 10 days of receipt. Failure to submit all the required documents will result in a daily fine of BSD$500 until the correct documents have been submitted.
• When registering the digital asset business, applicants will have to submit, among others, a detailed and accurate business plan, including financial and operational projections, staffing and technological requirements. They will also have to able to demonstrate financial resources for the scope of their operations, be able to meet the risks of their financial services or corporate services operations, have adequate insurance in place, keep accounts for at least seven years, implement and maintain data protection measures and have measures in place to prevent money laundering and terrorism financing. 

The bill also explains the powers the Commission will have in connection with ICOs, how it will maintain a token register, what rights purchasers will have, including withdrawing from the purchase. 

Some penalties 

Failure to comply with the legislation can lead to a BSD$500,000 fine or to five years in prison.

Wilful misrepresentations in registration documents, false statements and information or failing to disclose any fact or information that should be disclosed will also attract a BSD$500,000 fine and up to 10 years in prison.