Smith in limbo after cryptocurrency embargo

  • Damon Smith (Photograph by Akil Simmons)

    Damon Smith (Photograph by Akil Simmons)

  • Denis Pitcher

    Denis Pitcher

An embargo has been imposed on the formation of companies involved in cryptocurrencies.

The government move was designed to allow for time to create a regulatory framework for the growing financial technology sector.

The temporary ban was welcomed yesterday by tech specialist Denis Pitcher.

But would-be cryptocurrency entrepreneur Damon Smith complained he had been left “in limbo” after he tried to set up an online trading exchange.

Mr Pitcher, a Bermudian tourism tech entrepreneur, said he “absolutely” supported the moratorium.

He added: “Cryptocurrencies have thus far flourished by enabling fundraising that avoids stringent regulations that protect investors.

“This is partially what has made it so popular. It is a tremendous opportunity for both legitimate businesses that want to raise money without having to deal with time consuming bureaucracy, just as it is an opportunity for con artists to rob people of their money.

“As a result, we have seen numerous scams, which have taken advantage of people and damaged the cause of legitimate businesses that could benefit from this new and more efficient means of raising capital.”

Mr Smith, 55, a retired firefighter, said he had worked with Canadian developers to create his platform for more than a year but his lawyers were told by the Registrar of Companies that no firms involved in that kind of activity could be incorporated at present.

The Registrar’s office told Mr Smith’s lawyers: “This is an area of business that Government intends to regulate because this type of business will raise anti-money laundering and know-your-customer issues.

“Government is diligently working on establishing policy and legislation, but until such time as this process is complete, there will be no incorporation of companies with these types of activities.”

Mr Pitcher said: “It is absolutely essential that Bermuda adheres to existing AML/KYC regulations in order to protect our reputation. It is also essential that we provide the right regulatory framework to ensure that all participants, especially investors, are protected from fraud and unnecessary risks.”

Mr Smith said he was frustrated by the hold-up, particularly as some companies in Bermuda were already involved in the virtual currency sector.

He added: “I’m in limbo and you have got these other people who are advancing themselves in that area or who already have.

“They have got a leg up on me. I’m sitting here doing nothing. Even just registering the company would be a benefit.”

Mr Smith said: “I don’t know whether or not, when they lift the moratorium, the bar is going to be so high that I can’t make it.”

Bermuda has still to set up digital asset exchanges — but as the Government seeks to create and encourage a strong fintech sector on the island, it is likely they will go ahead.

Mr Smith hopes to be ahead of the pack by setting up the Bermuda Digital Currency Exchange, a platform where people could buy and sell virtual currencies.

The name was rejected by the Bermuda Monetary Authority, according to correspondence from Mr Smith’s lawyer, because the company could not contain “Bermuda” in its title because of the newness and “type” of the virtual currency industry.

Mr Smith changed the name to DES Digital Currency Exchange, after his initials, but was told by the Registrar of Companies that no incorporation applications involving digital currency activities could be processed “for now”.

Wayne Caines, the Minister of National Security, who is leading the Government’s cryptocurrency programme, told Mr Smith in an e-mail that the Government had “a responsibility to make sure that the correct legislation and regulation(s) are in place”.

The minister added: “We have a global reputation that must be safeguarded at all costs. We will do what is best for the country.”

A national security ministry spokeswoman added that the Government had established advisory teams on the virtual digital asset sector, which were reviewing virtual asset exchanges.

She added: “We are currently putting in place a comprehensive strategy that will govern and oversee the administration of the asset exchanges.”

The spokeswoman added: “Once the process is complete, it will be open and transparent. We anticipate that any entity which meets our regulatory criteria should be able to gain access into this space.”

Mr Pitcher said: “If a digital currency exchange is required to adhere to the same regulations that govern the Bermuda Stock Exchange in all aspects of its business then I see few risks for Bermuda.

“Cryptocurrencies have the potential to provide a wealth of new and more efficient means of capital raising but present considerable risks if not regulated correctly.

“If we do not ensure client identification and investor protection mechanisms that adhere to KYC and AML regulations and uphold our reputation as a low-risk jurisdiction, then there are tremendous risks for Bermuda.”

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Published Apr 11, 2018 at 8:00 am (Updated Apr 12, 2018 at 11:50 am)

Smith in limbo after cryptocurrency embargo

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