The Bahamas leads the way with release of progressive Digital Assets Policy
On 20 April 2022, the Government of the Commonwealth of The Bahamas released its Policy White Paper: “The Future of Digital Assets in The Bahamas” seeking to add another pillar to the Bahamian economy by attracting significant and innovative digital asset businesses to the country and to establish itself as a global leader in the digital asset space.
The Bahamas already paved the way for this with the introduction of the Digital Assets and Registered Exchanges Act, 2020 (the “DARE Act”), under the leadership of the Securities Commission of The Bahamas (“SCB”). It was also the first country in the world to issue a nationwide Central Bank Digital Currency (“CBDC”), aptly named the “Sand Dollar”, also in 2020, led by the Central Bank of The Bahamas.
These progressive initiatives, combined with The Bahamas’ natural beauty, excellent quality of life, advanced national broadband infrastructure, accessibility and proximity to the Americas, New York time zone, and existing financial services regulation, are already attracting significant players in the industry including the likes of a world-leading cryptocurrency exchange, FTX, which has established its global headquarters in The Bahamas.
In the policy, The Bahamas recognizes that it is essential for it to “strike the right balance between risk-adjusted regulation and supporting the growth and economic potential that innovative financial technology can bring”. The Policy document recognizes the importance of meeting international obligations and initiatives by the G20, Bank for International Settlements, Financial Action Task Force (“FATF”), OECD and IOSCO. The Government also provides reassurance that it remains committed to various tax transparency and compliance initiatives such as FATCA, CRS, Country-by-Country Reporting, Economic Substance and the array of Tax Exchange Information Agreements that The Bahamas have entered into over the years. .
As for all International Financial Centres (“IFCs”), The Bahamas has been a focus for the likes of the FATF. The last several years have seen The Bahamas working with the FATF, continuing to raise the bar in addressing Anti-Money Laundering (“AML”) and Counter-Terrorism Financing (“CTF”) and other financial crime. In 2020 The Bahamas was removed from the FATF List of Jurisdictions Under Increased Monitoring (Grey List) and in January 2022 was removed from the EU list of third country jurisdictions with strategic deficiencies in their AML/CTF regimes. The ongoing maintenance of this status is critical for The Bahamas as it moves forward with its Digital Assets regime and the DARE Act implements current FATF requirements relating to virtual assets. The policy commits to staying abreast of developments and ensuring the DARE Act stays current.
Key objectives of the new Bahamas digital assets policy include:
- addressing emerging digital assets including decentralized finance (“DeFi”), non-fungible tokens (“NFTs”), stablecoins and asset-referenced tokens;
- attracting well-run digital asset businesses to The Bahamas;
- keeping the DARE Act and regulatory environment up to date and effective;
- encouraging innovation in the Fintech space;
- exploring linkages between the new digital assets regime and existing international financial services such as the corporate and fiduciary services sectors;
- training and developing Bahamians to fill jobs in this sector;
- enabling Bahamians to access digital assets;
- building regulatory capacity at the SCB in this sector; and
- providing sustainable funding for its policies, initiatives and programmes.
The Government is also establishing:
- a Digital Asset Policy Committee (“DPC”) chaired by the Prime Minister, with members including the Financial Secretary, Executive Director of the Securities Commission of The Bahamas, Governor of the Central Bank of The Bahamas and chair of the Digital Advisory Panel; and
- a Digital Advisory Panel (“DAP”) to keep abreast of digital asset and related developments with a focus on regulatory standards, recommending strategic policy initiatives and changes etc.
Refreshingly, the policy also specifically targets the issue of sustainability and climate change. This is particularly relevant for The Bahamas which is extremely vulnerable to the impact of climate change, including rising sea levels. The Prime Minister of The Bahamas made this point clear at COP26, also recognizing The Bahamas has a role to play in leading the global fight to mitigate climate change. With its 700 islands and 2,400 cays spread across 100,000 square miles, The Bahamas has already been recognized as a leader in protecting its land and marine areas, with significant tranches of its near-shore environments designated and managed as National Parks and Marine Protected Areas. The Bahamas has extensive mangrove and sea-grass beds which absorb CO2 and proposes to lead the way in establishing a system of tokenized carbon credits and a Caribbean carbon digital market. The policy also talks to incentives for digital asset businesses that prioritize more energy efficient digital assets.
With the introduction of this very progressive policy coupled with the existing DARE Act, The Bahamas has positioned itself well to build a robust ecosystem in the Digital Asset space. Well managed, rapidly growing digital asset businesses that recognize the critical importance of regulatory, AML/CTF and international tax transparency and compliance to their own success and sustainability, are clearly welcome in The Bahamas.
About KPMG and our Digital Asset business
KPMG firms operate in 145 countries and territories, with more than 236,000 partners and employees working in member firms around the world. KPMG is working to shape change, integrating new technology into business models and innovating. We are in year 3 of our multi-year $5 billion investment focused on technology, people and innovation. Combined with our local, regional and global capabilities in deals, regulatory and tax issues affecting the digital business, we can add significant value for our clients across the world.
KPMG in The Bahamas is part of the KPMG Islands Group (“KIG”), with a significant presence across the International Financial Centres (“IFCs). Our advisory business in the IFCs is a single business offering seamless services to our clients. KIG firms are also recognized as a global leader in the audit of funds investing in digital assets. Our tax business is also highly digital enabled and can support digital asset businesses with their tax affairs across the 145 countries where KPMG operates.
If you are seeking to establish a digital assets business in The Bahamas, please do not hesitate to contact us.