Bermuda Financial Regulator Releases Draft Regulation for Crypto Custodial Services

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Bermuda’ s financial regulator has released draft regulation for
crypto custodial services, according to an official press release
issued on Tuesday, Dec. 18.
The Bermuda Monetary Authority’s (BMA) draft regulatory
document, entitled “Digital Asset Custody Code of Practice,” seeks
to clarify the regulator’s stance on crypto custodial services in
Bermuda and to protect clients’ assets.
The document provides a detailed regulatory basis for offering
crypto custody services, including both business management and
technology issues, such as transaction handling, incident
reporting, keys generation and operating hot and cold storage .
Aiming to deliver a high level of protection for crypto custody
clients, the BMA has suggested that a Digital Asset Business
(DAB) must ensure that “any assets belonging to clients are kept
segregated” from their own assets.
According to the document, a DAB is allowed to put client assets
in a trust with a qualified custodian, or use indemnity insurance
and take other measures to guarantee the return of client assets in
case a DAB is suspended or disqualified, or has losses due to
theft.
Moad Fahmi, the BMA’s senior advisor of financial technology,
claimed that the authority takes the issue of supporting a “healthy
digital asset ecosystem” seriously in order to encourage
involvement by “quality players,” which will have a positive effect
on the whole financial system.
The Bermuda Monetary Authority is an integrated regulator of the
financial sector in Bermuda — not a central bank — which also
functions as an issuer of Bermuda's national currency.
In April 2018, the BMA published a consultation paper in order to
receive feedback from public on regulation of crypto-related
services, as well as the associated regulatory steps concerning
Anti-Money Laundering (AML ). In the paper, the financial
watchdog revealed its plans to monitor a number of crypto-related
activities in order to prepare an official framework on crypto.
In October, the government of Bermuda granted the first license for
an initial coin offering (ICO ) project under the nation’s new crypto
and blockchain regulatory framework, which was introduced in
July 2018.

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