The Companies and Limited Liability Company (Initial Coin Offering) Amendment Act 2018 (ICO Act) became operative on 9 July 2018 and the underlying Companies and Limited Liability Company (Initial Coin Offering) Regulations 2018 (ICO Regulations, together with the ICO Act, ICO Legislation) were published on 10 July 2018.
The ICO Legislation regulates all aspects of offering digital assets to the public in or from Bermuda. A digital asset covers anything that exists in binary format, including all forms of cryptocurrencies, digital coins and tokens issued in connection with Initial Coin Offerings (ICOs).
Who does this affect?
Persons who are interested in creating, promoting, investing in and using ICOs and digital assets as well as companies who are seeking to raise capital through ICOs.
The ICO Legislation does not seek to regulate persons or companies who are concerned solely with private sales of or whose ordinary business involves the acquisition, disposal or holding of digital assets.
Upon engagement, Appleby can review your business proposal and advise whether the ICO Legislation is applicable to you.
ICO – STEP BY STEP
Step 1 - Incorporate in Bermuda
Only companies registered under the Companies Act 1981 (as amended) or the Limited Liability Company Act 2016 (as amended) who have the consent of the Minister of Finance (Minister) are permitted to conduct ICOs in or from within Bermuda.
Step 2 – Make an application to the Minister for consent
Under the ICO Legislation, ICOs are treated as a restricted business activity in Bermuda, requiring prior consent from the Minister (who is assisted by a FinTech Advisory Committee to review all applications).
An application for consent shall be submitted to the Minister and shall include (i) the ICO offer document, commonly referred by the industry as a white paper (White Paper), and (ii) certain minimum required information as set out in the ICO Regulations.
The following non-exhaustive list of details must be included in an application for consent:
i. the names of the persons managing the business/project, conducting the ICO and the underlying digital asset offered;
ii. details on the development and implementation of any product, service or other project related to the ICO, including timeline for completion;
iii. projected amount of money to be raised through the ICO;
iv. description of the rights, features, functionality and intended transferability of the digital asset offered;
v. description of the technology to be used and confirmation of the ability of the technical platform to enable the collection, confirmation and storage of purchaser identity information; and
vi. details on compliance and auditing of the ICOs.
The proposed application fee for consent of the Minister to an ICO is BM$5,000 (N.B. an ICO fee will also be payable on or after closing of the ICO and will be calculated based upon the value raised. More details on this are expected in the coming weeks).
Appleby can assist with preparing and filing of the application and ongoing communication with the Bermuda Authorities to obtain the consent of the Minister.
Step 3 – Filing of the White Paper (if not exempted)
As soon as reasonably practicable after publication of the White Paper, a copy of the White Paper signed by or on behalf of the directors of the company should be filed with the Registrar of Companies.
The White Paper must contain the following minimum details:
1. information of the promoter;
2. information of the officers / managers of the promoter (where a corporate body);
3. the business or proposed business;
4. a description of the project, the proposed timeline for the project including any proposed project phases and milestones;
5. the amount of money equivalent (in Bermuda dollars) that the initial coin offering is intended to raise;
6. disclosure as to the allocation of the amounts intended to be raised amongst the classes of any issuance (i.e. pre-sale or post-initial coin offering);
7. rights or restrictions on the digital assets that are being offered;
8. the date and time of the opening and closing of the offering of digital assets;
9. general initial coin offering risk warning; and
10. a statement as to how personal information will be used.
There are certain statutory exemptions in the ICO Legislation that exempts an issuer from filing its White Paper, including but not limited to whether the digital assets are listed on an appointed stock exchange or appointed digital asset exchange or whether the company is subject to the rules or regulations of a competent regulatory authority which does not require filing.
The government filing fee of the White Paper is BM$95.
Appleby can assist with assessing whether your proposed business is exempt from the above White Paper disclosure requirements. If not exempt, we can review the White Paper and provide advice to ensure compliance with the ICO Legislation and applicable, ancillary regulations (including the code of conduct) issued by the Bermuda Authorities.
Step 4 – Launch of ICO and other ongoing compliance obligations
Once the ICO is launched, the promoter shall at all times maintain and provide an electronic facility (ICO Platform) such that relevant parties to the ICO have an opportunity to assess and enquire more about the ICO.
The ICO Platform should contain (i) a general risk warning statement and (ii) also specify how a participant in an ICO may withdraw its application. Under the ICO Legislation, an application can be withdrawn by the participant three (3) business days after such application is made.
The ICO Legislation also requires issuers to have appropriate procedures in place to ensure that they verify (on an enhanced due diligence basis) the identity of the participants in the ICO and also ensure that the issuer complies with all confidentiality, disclosure of information and connected matters under Bermuda laws.
Appleby can assist with additional support services in relation to requirements surrounding the compliance regime.
Step 5 – Audit of ICO
Within 90 days of completion of the ICO, the company must carry out an internal compliance review with respect to the conduct of its ICO and its financial operations and prepare a compliance report. Such compliance report should be filed with the Registrar of Companies.
The Bermuda ICO Legislation is now fully operative and whilst further ancillary guidelines are still being developed and finalised for publication, applications for Ministerial consent are now being accepted.
This brief is not intended as legal advice or exhaustive in nature. Should you have any queries, or wish to obtain any specific advice, please contact a member of our Technology & Innovation team in Bermuda.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.