On 26 July 2024, the Securities Commission of the Bahamas (SCB) announced the Digital Assets and Registered Exchanges Act, 2024 (DARE Act) which came into effect on 29 July, 2024. It aims to establish a clear legal framework for the issuance, sale, and trade of digital assets, including NFTs and stablecoins, and to oversee the operations of digital asset businesses and exchanges. The Act replaces the Digital Assets and Registered Exchanges Act, 2020, providing more detailed regulations to adapt to the growing complexities of digital assets and their associated technologies.
The Act establishes a comprehensive regulatory framework for various key structures in the digital asset industry. It mandates that Digital Asset Businesses, including exchanges, custody services, and staking operations, must be registered and regulated. The Act also enforces transparency and investor protection in Token Offerings and imposes stringent requirements on Stablecoins, including adequate reserves and regular audits. The Act introduces detailed provisions for digital asset derivatives and digital asset structured products. Derivatives, which derive their value from underlying digital assets, and structured products, which bundle multiple assets to offer investors regular income, are both subject to stringent regulatory oversight. Digital Asset Derivatives are subject to strict registration, risk management, and capital requirements, while Digital Asset Structured Products must meet thorough disclosure and reporting standards to ensure investor awareness of risks and returns.
The registration requirements under the DARE Act, 2024, mandate that all digital asset businesses must submit a comprehensive application to the Securities Commission, including detailed information about the business structure, key personnel, and specific activities. This includes completing prescribed forms, providing necessary documentation, and paying the required registration fees. Additionally, businesses must demonstrate they have sufficient financial resources, robust systems, and controls in place to operate within the regulatory framework. Schedule 1 contains the essential forms that digital asset businesses must submit for registration, updates, and compliance reporting, ensuring that all necessary details about business structure, key personnel, and activities are documented and accessible to the Securities Commission. Schedule 2 outlines the fee structure associated with various regulatory activities, including registration, annual renewals, and penalties for late submissions.
Key ongoing obligations under the 2024 Act, include financial reporting and auditing, maintaining capital and solvency requirements, ensuring client asset protection, compliance with AML and CFT regulations, notifying the Securities Commission of material changes, implementing market surveillance and anti-fraud measures, undergoing regular audits and inspections, and promoting public education and awareness. These obligations are designed to ensure transparency, financial stability, and investor protection.
The Act prohibits the mining of digital assets as a business activity within The Bahamas unless it is ancillary to a registered digital asset business. Mining involves validating transactions on a blockchain network, often through complex computational processes, in exchange for digital assets such as cryptocurrencies. This means that only entities that are already engaged in other registered digital asset activities may include mining as a part of their operations. Moreover, the Act distinguishes between proprietary mining, where individuals or businesses mine digital assets for their own benefit, and mining conducted on behalf of others. The strict regulation of mining activities is intended to prevent energy-intensive operations from undermining environmental sustainability and to ensure that mining practices do not disrupt the financial stability of the digital asset market.
The Act imposes strict fines and penalties for non-compliance, including operating without proper registration, providing misleading information, or engaging in market manipulation. Penalties can include significant fines, imprisonment, or both, depending on the severity of the offense. The Securities Commission also has the authority to impose administrative sanctions such as freezing assets, issuing compliance orders, and barring individuals from participating in digital asset activities.
In addition to these regulatory measures, the Act emphasizes the importance of public education and awareness. Digital asset businesses are required to provide clear and accessible information about the risks and benefits of digital assets, promoting informed participation in the market. This focus on education reflects The Bahamas’ commitment to fostering a well-informed investor base and a transparent digital asset market. By implementing a comprehensive and forward-thinking regulatory framework, the country is setting a high standard for the governance of digital assets. This legislation not only protects investors and maintains market integrity but also encourages innovation in a sector that is rapidly transforming the global financial system.
