The Bahamas Strengthens Digital Asset Regulations with DARE 2024, Learning from FTX Collapse
The Bahamian Parliament has introduced groundbreaking legislation with the Digital Assets and Registered Exchanges Act, 2024 (DARE 2024), setting a new standard in digital asset regulation. This move strengthens The Bahamas' position as a global leader in the digital asset market, building on the DARE Act of 2020. The new law addresses the rapidly changing world of digital assets and cryptocurrencies.
The collapse of FTX, a major cryptocurrency exchange, has highlighted the need for robust regulatory frameworks. This incident underscored vulnerabilities within the digital asset market and the critical need for stringent regulations to protect investors and maintain market integrity. The lessons learned from the FTX debacle have been instrumental in shaping DARE 2024.
Christina Rolle, Executive Director of the Securities Commission of The Bahamas, highlighted the importance of this legislation, stating, "DARE 2024 establishes a new benchmark in digital asset regulation, emphasizing our commitment to risk management. Our framework not only protects investors but also promotes responsible innovation, placing The Bahamas at the forefront of digital asset regulation worldwide."
The Securities Commission ensured that DARE 2024 aligns with international best practices and recommendations from key organizations like the International Organization of Securities Commissions and the Financial Action Task Force. This law reflects extensive research on global regulatory advances, emerging risks, and input from industry experts.
Key Features of DARE 2024:
- Expanded Scope: The law now covers a wider range of digital asset activities, such as advisory or management services, digital asset derivatives, and staking services. The Securities Commission can add new activities as the industry evolves.
- Enhanced Exchange Requirements: Digital asset exchanges must follow stricter rules to protect investors and consumers, ensuring secure and reliable transactions.
- Robust Custody Framework: New rules govern the custody of digital assets and custodial wallet services, enhancing client protection by ensuring assets are accessible and secure.
- Staking Framework: A first-of-its-kind disclosure regime for staking digital assets and managing staking pools sets a global precedent.
- Comprehensive Stablecoin Framework: The Act defines stablecoins, requires their registration, specifies acceptable reserve assets, and sets new rules for custody, management, reporting, and redemption of reserves. Algorithmic stablecoins are prohibited.
- Digital Asset Issuers: New standards ensure digital asset issuers are fit and proper, with enhanced disclosure and financial reporting requirements.
DARE 2024 also introduces strict standards for conflicts of interest and third-party relations, categorizes non-fungible tokens (NFTs) as financial or consumer assets, enforces liquidity and reporting requirements, bans privacy token issuance, and sets restrictions on proof-of-work mining.
The implementation of DARE 2024 is expected to create a competitive and robust regulatory environment for fintech startups and established digital asset businesses in The Bahamas, further enhancing the country's status as a leading international financial center. This legislation reflects The Bahamas' commitment to evolving its regulatory framework to provide better protection for consumers and investors.
In addition, the Securities Industry Act 2024 was passed, updating the regulatory regime for the securities industry to ensure a resilient and flexible framework that meets global standards and best practices.