As Canada’s blockchain industry grows, it’s important for us to learn from regions that are succeeding in bridging theiar traditional and digital economies.
What are the critical ingredients of a strong and innovative blockchain hub? It’s a question I think about a lot as the Executive Director of the Canadian Blockchain Consortium. Our mandate is to accelerate the beneficial growth of blockchain in Canada, and in the research we’ve done with partners in countries across the world, one thing stands out – government belief in the value of the technology.
Of course, there are many important factors – stable and clear regulatory frameworks, skilled talent, and innovative traditional finance sectors are all necessary. But government belief propels regulations forward and supports collaboration with the crypto industry, rather than animosity against it.
Government belief leads to programs that support blockchain education, start-up innovation, and the ecosystems that help the industry thrive. In the case of some countries, like the UAE and South Korea, government belief results in creative national strategies that put the technology at the center of virtually all industries and government functions.
In April, I had the great pleasure of travelling to another country where government belief has resulted in incredible growth in blockchain innovation – Bermuda. Long considered a premier hub for financial services, the tiny Atlantic island is home to 17 licensed firms, a nationally regulated stablecoin issued by a Bermudan bank, and ground breaking tokenized fund companies.
I was visiting Bermuda to speak at Penrose Partners’ International Technology Summit about consumer safety and our industry’s need for tailored insurance products – not a surprising topic, given that the country is the insurance and reinsurance capital of the world. And I was struck by just how much the Bermudan government representatives I connected with truly believe in blockchain.
According to Bermuda’s Premier and Finance Minister E. David Burt, “the future of finance is digital”. The country is firm in its conviction about the essential role that blockchain technologies like cryptocurrency, tokenization, and smart contracts will play in the evolution of the global economy, despite the challenges of FTX and continued market volatility.
“We’re navigating uncharted waters right now with increased regulatory oversight, and this presents an opportunity to build bridges between a new generation of infrastructure and traditional financial institutions.”
Sean Stapley, Penrose Partners
Not that Bermuda isn’t concerned about the same issues that are leading to more restrictive regulations by our Canadian Securities Administrators – the country has always had a strong focus on compliance, cybersecurity, and consumer protection. In fact, Bermuda’s world-leading regulations would never have allowed FTX to operate.
How did Bermuda successfully navigate the complexities of blockchain regulation, and become a world leader without sacrificing compliance? Regulators had to contend with many of the same issues as Canada – but as early as 2017, saw the important applications for blockchain to the next stage of finance, and was committed to finding ways to manage its early companies.
The first step was the launch, in 2018, of the Digital Asset Business Act, which created a new model for crypto businesses, rather than trying to force DeFi into existing TradFi regulations. The Act includes comprehensive rules that cover AML compliance, cybersecurity, consumer protection, custody, and token issuances, and importantly, was developed in collaboratively with industry consultation.
Regulators took the time to deeply understand blockchain technology and the ways it which it differs from traditional finance, and the Digital Asset Businesses Act reflects these nuances. Early on in Bermuda’s blockchain economy, it was debated whether a separate regulator should govern the industry to accelerate growth – but it was quickly shut down by the Bermuda Monetary Authority, the country’s financial regulator.
Instead, the government put an amazing amount of effort into quickly developing the Digital Asset Businesses Act, and it created and approved by the government within half a year – an astonishingly fast timeline. In Bermuda, blockchain is viewed as an evolution of the traditional economy, not a competitor, and it’s treated as a distinct, but complimentary branch of finance.
This was followed by the Digital Asset Issuance Act, which regulates cryptocurrencies, stablecoins, and tokens, under which any asset issuer is required to gain the permission of the Bermuda Monetary Authority. This ensures that digital assets are reviewed and have government approval before they are offered to consumers, and provides a safeguard that prevents the fraud and speculative bubbles that have damaged the reputation of the industry.
All digital asset businesses, like exchanges, payments companies, and tokenization providers, need to be licensed by the government and undergo a business plan, compliance, and risk assessment. For early-stage companies, Bermuda has a Sandbox license for testing innovative blockchain applications, which helps the country support businesses all the way from start-up to scaling and growth.
Throughout the week of events held by Penrose Partners and partners, Canadian digital investment managers 3iQ, in the capital city of Hamilton, it was clear that Bermuda’s regulatory strategy was working. Representatives from Canada, India, the UK, the US, and many other countries joined the Summit to learn about Bermuda’s progress and share their own innovation, and it was inspiring to see the possibilities for our own ecosystem.
At a time when our regulators are struggling to fully understand the industry and develop policy frameworks that protect consumers without stifling innovation, I’m excited that Canada will have the opportunity to learn from Bermuda and foster a strong reciprocal relationship. At the Consortium, we will be working to build bridges between our countries, leading to new opportunities for growth and blockchain innovation.