The Bermuda Monetary Authority has stepped back from plans to create a new licensing regime for digital identity providers, saying there is not enough evidence that Bermuda’s small market could support a viable domestic industry.

Instead, the financial regulator will consider how banks and other financial firms can use digital ID tools under existing anti-money-laundering rules.

The decision marks a change in direction after the BMA spent almost two years consulting on a framework that would have licensed and supervised companies issuing and managing digital IDs in or from Bermuda.

A detailed proposal in July 2025 suggested three types of licence, minimum capital requirements, cybersecurity standards and a local presence for providers. The Government’s fintech strategy, published in March, said the BMA was in the final stages of completing the framework.

But, in a letter to stakeholders this week, the Authority said the responses it received had raised questions over cost, demand, interoperability and whether customers and businesses would adopt the technology.

It said: “Given Bermuda’s market size and the evolving nature of international digital identity ecosystems, there is currently limited evidence of a sustainable commercial basis for developing a domestic [digital identity service provider] market under a stand-alone prudential licensing regime.”

Digital identity tools could allow customers to verify themselves electronically when opening an account or using a service, rather than repeatedly submitting passports, proof of address and other documents to different financial institutions.

The BMA said the main obstacle was not the lack of a domestic licensing framework, but uncertainty over how digital identity systems — particularly those operating under overseas rules — could be used by Bermuda financial institutions.

It will now review existing AML and anti-terrorist-financing requirements and develop guidance on digital ID for customer checks.

The work will cover digital onboarding, how firms should decide the reliability of a digital identity provider, the use of foreign identity frameworks, record-keeping and the management of identities over time.

The BMA said regulated financial institutions would still be responsible for deciding whether a digital ID solution was appropriate for the risks involved.

It added that creating a Bermuda licensing regime would not automatically mean digital IDs issued here would be accepted overseas, where providers would still have to meet other countries’ rules.

The Authority said its new approach would offer a “more practical and proportionate response” to market needs while allowing it to revisit other options as international standards develop.