BMA launches consultation on use of stablecoins
The Bermuda Monetary Authority has launched a consultation on proposals that would allow certain regulated insurance and investment structures to use recognised stablecoins.
The consultation paper outlines a proposed guidance note covering the use of recognised stablecoins within limited-purpose insurers, insurance-linked securities structures, investment funds and insurance intermediaries.
Commercial insurers are excluded from the initial framework and would continue to be assessed separately under existing regulatory rules.
The BMA said stablecoins, which are digital assets designed to maintain a stable value by being linked to a fiat currency such as the US dollar, are increasingly moving beyond cryptocurrency markets into mainstream institutional finance.
The BMA pointed to the rapid expansion of the global stablecoin market, which it said exceeded $300 billion by the middle of this year, alongside regulatory developments in the United States, Europe, Hong Kong and Singapore. Bermuda’s insurance, ILS and investment fund sectors, it said, are well positioned to benefit from the technology because of their international focus and capacity for innovation.
Potential benefits identified by the BMA include faster and cheaper cross-border payments, more efficient collateral management, greater treasury flexibility and support for future digitally enabled insurance products.
However, the regulator stressed that the guidance would not place stablecoins on the same footing as cash or legal tender and would not represent blanket approval for their use. Each proposal would continue to be assessed individually through existing supervisory processes.
Only high-quality, fiat-backed stablecoins would qualify under the proposed framework.
The guidance says eligible stablecoins would need to be fully backed one-for-one by cash or cash-equivalent assets, redeemable at par value, supported by transparent reserve management and subject to regular independent audits.
Algorithmic, crypto-backed and undercollateralised stablecoins would generally not qualify.
The authority proposes allowing recognised stablecoins to be used for activities including investment fund subscriptions and redemptions, treasury management, premium collection, claims payments and certain capital or collateral arrangements. It also leaves the door open to future use in parametric and digitally enabled insurance products, subject to additional oversight.
The draft guidance places significant emphasis on governance and risk management and proposes detailed expectations for due diligence on stablecoin issuers and third-party service providers. Entities would also be expected to monitor risks such as blockchain outages, cyberattacks, redemption delays and sanctions restrictions.
The authority is seeking industry feedback on several areas, including the proposed eligibility criteria for recognised stablecoins, permitted use cases, exposure limits, anti-money laundering controls, custody requirements and the supervisory notification process.
The consultation is open until September 30, with comments invited from industry participants before the guidance is finalised.
• See the consultation paper in Related Media
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