Concerns raised about Arbitrade’s AML plans

  • Businesses in Bermuda are registered at the Registrar of Companies and some require licences from the Bermuda Monetary Authority (File photograph)

    Businesses in Bermuda are registered at the Registrar of Companies and some require licences from the Bermuda Monetary Authority (File photograph)


An acting Registrar of Companies found “no obvious deficiencies” in a business licence application from cryptocurrency firm Arbitrade, but compliance checkers said there were problems with the company’s plan to combat money laundering and terrorist financing.

Correspondence provided by the Government to The Royal Gazette in response to a public access to information request showed concerns outlined by a Registrar of Companies team, that found three requirements in Bermuda’s initial coin offering regulations were not satisfactorily met.

A note to the Fintech Advisory Committee sent from Sameera Hasan Swan, the assistant registrar for compliance dated January 7 said the ROC’s compliance unit considered an Arbitrade application to carry out ICO business in December last year.

An ICO is an offer by a company to the public to buy or acquire digital assets.

The letter said Gladwina O’Mara, the acting registrar, “conducted a review of the application package for completeness”.

It added: “Noting no obvious deficiencies in the application package as a whole, on 27 December 2018, Ms O’Mara forwarded the application package to Cheryl Mapp, chairperson of the Fintech Advisory Committee to circulate to the whole Fintech Advisory Committee for consideration and review.”

The letter advised the fintech committee of the compliance team’s comments after consideration of Arbitrade’s anti-money laundering and antiterrorist financing compliance programme outline, which was dated December 18, 2018, and submitted in relation to the ICO application.

It added that responses were based only on the documents reviewed and did not include “an opinion on the quality of the business model” or other matters.

The compliance unit said the company should submit a final version of its AML/ATF plans “containing no place holder or bracketed parts”.

It found the compliance programme outlined by Arbitrade Ltd “sufficiently” addressed regulations on identity verification, measures to cease transactions with an ICO participant if necessary and record-keeping.

But the unit said the AML/ATF compliance programme outline did not properly address “how the company will apply enhanced due diligence to business relationships on a risk-sensitive basis” or how it intended to use third parties. It advised that Arbitrade should submit an outline that contained information which had been referenced in brackets to rectify the two issues.

The unit also found that the proposal did not sufficiently address requirements to audit the ICO.

Two pages of the document were among a number of items provided to The Royal Gazette but the note had no closing remarks or signature, so it was unclear if it was written by Hasan Swan or whether the original included further pages.

No response was received to a request for clarification on Friday.

The Pati disclosures also contained an e-mail from Troy Hogg, an Arbitrade founder, that revealed he was considering the introduction of a Bitcoin exchange traded fund on the Bermuda Stock Exchange that would make it easier for investors to gain exposure to the cryptocurrency.

Mr Hogg told Wayne Caines, the Minister of National Security, who had responsibility for fintech at the time, that he was “curious” as to whether there would be any objection to him “launching another crypto asset in Bermuda”.

He added in the e-mail on January 14: “If not, I am interested in launching a Bitcoin ETF on the BSX.

“Since it’s an actual traded commodity on the stock exchange, would I need to obtain a digital asset licence in order to launch that on the exchange if the BSX was willing to do it?”

The request was forwarded to David Burt, the Premier, Wayne Smith, the head of the fintech business unit, and Moad Fahmi, a senior adviser for fintech at the Bermuda Monetary Authority.

Mr Smith suggested a digital asset licence may be needed for Mr Hogg’s proposal, but if Arbitrade had already applied for one it might not be necessary.

Mr Fahmi said the regulator could not disclose whether or not any such applications had been received.

He added that issues related to a bitcoin ETF were “not simple”.

Mr Fahmi added: “I find the US experience with Bitcoin ETF very telling of the complexity of such products that should be deployed with great care by a sophisticated ETF provider.”

Several attempts to establish a Bitcoin ETF in the US have been blocked by the Securities and Exchange Commission, the US financial services watchdog, over the past three years because of concerns about a lack of transparency and the potential for fraud and price manipulation.

Mr Hogg did not respond to a request for comment on his Bitcoin proposal.

To view the Pati request and response, click on the PDF links under “Related Media”

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Published May 6, 2019 at 8:00 am (Updated May 6, 2019 at 6:37 am)

Concerns raised about Arbitrade’s AML plans

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