Source: http://lawsdocbox.com/Legal_Issues/79638800-Bermuda-virtual-currency-business-act-2018-br-2018-table-of-contents-part-1-preliminary.html
Timestamp: 2018-11-13 15:46:31
Document Index: 511490784

Matched Legal Cases: ['ART 1', 'ART 1', 'ART 1', 'ART 2', 'ART 3', 'ART 4', 'ART 5', 'ART 6', 'ART 7', 'ART 8', 'ART 9', 'ART 10', 'ART 11', 'ART 1', 'ART 2', 'ART 3']

BERMUDA VIRTUAL CURRENCY BUSINESS ACT 2018 BR/ 2018: TABLE OF CONTENTS PART 1 PRELIMINARY - PDF
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1 BERMUDA VIRTUAL CURRENCY BUSINESS ACT 2018 BR/ 2018: TABLE OF CONTENTS PART 1 PRELIMINARY 1. Citation 2. Interpretation 3. Meaning of "director", "controller", "senior executive" and "associate" 4. Carrying on business of virtual currency business in Bermuda 5. Authority s statement of principles and guidance provision 6. Codes of practice 7. Prudential and other returns 8. Authority may exempt or modify prudential standards or requirements or take necessary actions 9. Advisory Panel PART 2 LICENSING 10. Restriction on carrying on virtual currency business without a licence 11. Exemption order Page 1 of 90
2 12. Virtual currency business licence 13. Grant and refusal of applications 14. Determination of class of licence 15. Display and registration of licence 16. Fees 17. Separate Accounts 18. Custody and protection of client assets 19. Senior representative 20. Senior representative to report certain events 21. Head office 22. Material change to business 23. Restriction of licence 24. Revocation of licence 25. Winding up on petition from the Authority 26. Notice of restriction or revocation of licence 27. Restriction in cases of urgency 28. Directions to protect interests of clients 29. Notification and confirmation of directions 30. Surrender of licence PART 3 ACCOUNTS AND AUDIT 31. Duty to prepare annual financial statements and accounts 32. Appointment of auditors 33. Auditor to communicate certain matters to Authority PART 4 OBJECTIONS TO SHAREHOLDER CONTROLLERS 34. Notification of new or increased control Page 2 of 90
3 35. Objection to new or increased control 36. Objection to existing controller 37. Contraventions by controller 38. Restriction on sale of shares PART 5 DISCIPLINARY MEASURES 39. Power to impose civil penalties for breach of requirements 40. Civil penalties procedures 41. Public censure 42. Public censure procedure 43. Prohibition orders 44. Prohibition orders: procedures 45. Applications relating to prohibition orders: procedures 46. Determination of applications for variation, etc. 47. Injunctions PART 6 RIGHTS OF APPEAL 48. Rights of appeal 49. Constitution of tribunals 50. Determination of appeals 51. Costs, procedure and evidence 52. Further appeals on a point of law PART 7 NOTICES AND INFORMATION 53. Warning notices 54. Decision notices Page 3 of 90
4 55. Notices of discontinuance 56. Publication 57. Notification of change of controller or officer 58. Power to obtain information and reports 59. General power to require production of documents 60. Right of entry to obtain information and documents PART 8 INVESTIGATIONS 61. Investigations on behalf of the Authority 62. Investigations of suspected contraventions 63. Power to require production of documents during investigation 64. Powers of entry 65. Obstruction of investigations PART 9 CERTIFICATE OF COMPLIANCE 66. Certificates of compliance PART 10 RESTRICTION ON DISCLOSURE OF INFORMATION 67. Restricted information 68. Disclosure for facilitating the discharge of functions of the Authority 69. Disclosure for facilitating the discharge of functions by other authorities 70. Information supplied to the Authority by relevant overseas authority Page 4 of 90
5 PART 11 MISCELLANEOUS AND SUPPLEMENTAL 71. False documents or information 72. Offences 73. Prohibition on use of words "virtual currency business" 74. Notices 75. Service of notice on Authority 76. Civil debt and civil penalties 77. Regulations 78. Transitional 79. Consequential amendments SCHEDULE 1 Minimum Criteria for Licensing SCHEDULE 2 Consequential Amendments WHEREAS it is expedient to make provision for the Bermuda Monetary Authority to regulate persons carrying on virtual currency business and for the protection of the interests of clients or potential clients of persons carrying on the business of virtual currency business; and for purposes connected with those matters: Be it enacted by The Queen s Most Excellent Majesty, Page 5 of 90
6 by and with the advice and consent of the Senate and the House of Assembly of Bermuda, and by the authority of the same, as follows: PART 1 PRELIMINARY Citation 1 This Act may be cited as the Virtual Currency Business Act Interpretation 2 (1) In this Act, unless the context requires otherwise the Authority means the Bermuda Monetary Authority established under the Bermuda Monetary Authority Act 1969; code of practice means a code of practice issued by the Authority pursuant to section 6; company means a body corporate wherever incorporated; controller has the meaning given in section 3(3); Court means the Supreme Court; custodial wallet provider means provision of the services of storing or maintaining virtual currency or a virtual wallet on behalf of a client; cyber security event means any act that results in unauthorized access to, disruption, or misuse of the electronic systems or information stored on such systems of a licensed undertaking; decision notice means a notice prepared in accordance Page 6 of 90
7 with section 55; distributed ledger technology means a database system in which (a) information is recorded and consensually shared and synchronised across a network of multiple nodes; and (b) all copies of the database are regarded as equally authentic; director has the meaning given in section 3(2); documents includes information recorded in any form; and in relation to information recorded otherwise than in legible form, references to its production include references to producing a copy of the information in legible form; exchange means to assume control of virtual currency from or on behalf of a client, to sell, trade, or convert (a) virtual currency for fiat currency, bank credit or one or more forms of virtual currency; or (b) fiat currency or bank credit for one or more forms of virtual currency. financial statements, means the statements specified in subsection (1)(a) and the notes mentioned in subsection (1A) of section 84 of the Companies Act 1981 in relation to a licensed undertaking that is a company; financial year means the period not exceeding 53 weeks at the end of which the balance of an undertaking s accounts is struck or, if no such balance is struck or a period of more than 53 weeks is employed for that purpose, then calendar year; Page 7 of 90
8 fiat currency means currency issued by the relevant body in a country or by a government that is designated as legal tender in its country of issuance through amongst other things, government decree, regulation, or law; fit and proper person has the meaning assigned to the term in Schedule 1; licence means a licence issued by the Authority under section 8(2) and "licensee" and "licensed" shall be construed accordingly; minimum criteria means the minimum criteria for licensing specified in Schedule 1; Minister means the Minister of Finance; officer, in relation to an undertaking, means director, secretary or senior executive of the undertaking by whatever name called; qualified custodian shall mean a bank (as such term is defined under the Banks and Deposit Companies Act 1999) or an undertaking licensed under the Trusts (Regulation of Trust Business) Act 2001; or any other person recognized by the Authority for such purpose; senior executive has the meaning given in section 3(6); share has the meaning given in section 2 of the Companies Act 1981; shareholder controller has the meaning given in section 3(4); subsidiary has the meaning given in section 86 of the Companies Act 1981; transfer means to assume control of virtual currency from or Page 8 of 90
9 on behalf of a client for the purposes of: (a) crediting the virtual currency to the account of another person; (b) moving the virtual currency from one account of a client to another account of the same client; (c) relinquishing control of virtual currency to another person. undertaking means (a) a company; (b)a partnership; or (c) an individual; virtual currency business has the meaning given in subsection (2); virtual currency means: (a) a digital representation of value that: (i) (ii) is used as a medium of exchange, unit of account, or store of value; is not fiat currency, whether or not denominated in fiat currency; (b) and does not include: (i) (ii) a transaction in which an undertaking grants value as part of a rewards program, which value cannot be taken from or exchanged with another undertaking for legal tender, bank credit, or virtual currency; or a digital representation of value issued by or on behalf of the publisher and used within an online game, game platform, or family of games sold by the same publisher or offered on the same game platform virtual currency services vendor means a person that has Page 9 of 90
10 control of virtual currency solely under an agreement with a person that, on behalf of another person has the power to execute unilaterally or prevent indefinitely a virtual currency transaction. wallet means a software program that stores private and public keys and interacts with distributed ledger technology to enable users to send, receive and monitor their virtual currency. warning notice means a notice prepared in accordance with section 44. (2) Subject to section 4(4), in this Act, virtual currency business means the business of providing any or all of the following virtual currency business activities to the general public (a) (b) (c) (d) (e) issuing, selling or redeeming virtual coins, tokens or any other form of virtual currency; operating as a payment service business utilising virtual currency which includes the provision of services for the transfer of funds; operating as an electronic exchange; providing custodial wallet services; operating as a virtual currency services vendor. (3) The Minister may, after consultation with the Authority, by order amend subsection (2) by adding new provisions, or by amending suspending, or deleting any of the virtual currency activities set out thereunder. (4) An order made under this section is subject to the negative resolution procedure. Meaning of "director", "controller", "senior executive" and "associate" 3 (1) In this Act, director, controller, senior executive and associate Page 10 of 90
11 shall be construed in accordance with the provisions of this section. (2) Director, in relation to an undertaking (a) includes an alternate director and any person who occupies the position of director, by whatever name called; and (b) where it is used in subsections (6) and (7), includes a partner of a partnership. (3) Controller, in relation to an undertaking, means (a) a managing director of the undertaking or of another company of which the undertaking is a subsidiary; (b) in the case of an undertaking which is a partnership, a partner; (c) in the case of an undertaking which is neither a company nor a partnership, a sole proprietor; (d) a chief executive of the undertaking or of another company of which the undertaking is a subsidiary; (e) a person who satisfies the requirements of this paragraph; (f) a person in accordance with whose directions or instructions the directors of the undertaking or of another company of which the undertaking is a subsidiary or persons who are controllers of the undertaking by virtue of paragraph (e) (or any of them) are accustomed to act. (4) For the purpose of subsection (3)(e), a person is a shareholder controller in relation to an undertaking if, either alone or with any associate or associates (a) he holds 10% or more of the shares in the undertaking or another company of which it is a subsidiary company; (b) he is entitled to exercise or control the exercise of 10% or more of the voting power at any general meeting of the undertaking or another Page 11 of 90
12 company of which it is such a subsidiary; or (c) he is able to exercise a significant influence over the management of the undertaking or another company of which the undertaking is such a subsidiary by virtue of (i) a holding of shares in it; or (ii) an entitlement to exercise, or control the exercise of, the voting power at any general meeting of the undertaking, or as the case may be, the other company concerned. (5) In this Act, "majority shareholder controller" means a shareholder controller in whose case the percentage referred to in subsection 4(a) or (b) is 50 or more. (6) Senior executive, in relation to an undertaking, means a person (other than a chief executive) who, under the immediate authority of a director or chief executive of the undertaking (a) exercises managerial functions; or (b) is responsible for maintaining accounts or other records of the undertaking. (7) In this section, chief executive in relation to an undertaking means a person who, either alone or jointly with one or more persons, is responsible under the immediate authority of the directors for the conduct of the business of the undertaking. (8) In this Act, associate in relation to a person entitled to exercise or control the exercise of voting power in a company, or in relation to a person holding shares in a company, means (a) if that person is an individual (i) the spouse, child, step-child or parent of that person; (ii) the trustees of any settlement under which that person has a life Page 12 of 90
13 interest in possession; (iii) any company of which that person is a director; (iv) any person who is an employee or partner of that person; (b) if that person is a company (i) any director of that company; (ii) any subsidiary of that company; (iii) any director or employee of any such subsidiary company; (c) if that person has with any other person an agreement or arrangement with respect to the acquisition, holding or disposal of shares or other interests in that company or under which they undertake to act together in exercising their voting power in relation to it, that other person. (9) For the purpose of subsection (8), settlement includes any disposition or arrangement under which property is held in trust. Carrying on business of virtual currency business in Bermuda 4 (1) For the purposes of this Act and subject to section 11, a person carries on virtual currency business in Bermuda where (a) (b) it is incorporated or formed in Bermuda and carries on any virtual currency activity set out under section 2 (2); is incorporated or formed outside of Bermuda and carries on any virtual business activity set out under section 2 (2) in or from within Bermuda. (2) Notwithstanding subsection (1), a person shall be regarded as carrying on virtual currency business in or from within Bermuda where such person has been specifically regarded for such purposes in accordance with an order made by Page 13 of 90
14 the Minister under subsection (3); (3) The Minister, acting on the advice of the Authority, may make an order specifying the circumstances in which a person is to be regarded for the purpose of this section as (a) carrying on virtual currency business in Bermuda; (b) not carrying on virtual currency business in Bermuda; (3) An order made under this section is subject to the negative resolution procedure. (4) This Act shall not apply to any entity owned by the Bermuda government. Authority s statement of principles and guidance provision 5 (1) The Authority shall, as soon as practicable after the coming into force of this Act, publish in such manner as it thinks fit a statement of principles in accordance with which it is acting or proposing to act (a) in interpreting the minimum criteria and the grounds for revocation specified in section 24; (b) in exercising its power to grant, revoke or restrict a licence; (c) in exercising its power to obtain information and reports and to require production of documents; (d) in exercising its powers (i) under sections 39 to impose a civil penalty; (ii) under section 41 to censure publicly; (iii) under section 43 to make a prohibition order; and (iv) under section 56 to publish information about any matter to which a decision notice relates. (2) If the Authority makes a material change to the principles, it shall publish Page 14 of 90
15 a statement of the change or the revised statement of principles in the same manner as it published the statement under subsection (1). (3) The Authority may from time to time give guidance on the application of this Act and rules or regulations made under it. Codes of practice 6 (1) The Authority may issue codes of practice in connection with the manner by which licensed undertakings shall carry on virtual currency business. (2) Without prejudice to the generality of subsection (1), the Authority may issue codes of practice for the purpose of providing guidance as to the duties, requirements and standards to be complied with, and the procedures (whether as to identification, recordkeeping, internal reporting and training or otherwise) and sound principles to be observed by persons carrying on virtual currency business. (3) Before issuing a code of practice, the Authority shall publish a draft of that Code in such manner as it thinks fit and shall consider any representations made to it about the draft. (4) Every licensed undertaking shall in the conduct of its business have regard to any code of practice issued by the Authority. (5) A failure on the part of a licensed undertaking to comply with the provisions of such a code shall be taken into account by the Authority in determining whether the business is being conducted in a prudent manner as required by paragraph 2 of Schedule 1 (Minimum Criteria for Licensing). Prudential and other returns 7 (1) The Authority may make Rules prescribing prudential standards in relation to (a) disclosures to clients; Page 15 of 90
16 (b) risk management; (c) custody of client assets; (d) cybersecurity; (e) financial statements; (f) statutory returns which shall be complied with by all licensed undertakings. (2) The Authority may in such Rules or statutory returns prescribe standards that impose different requirements to be complied with by licensed undertakings in different situations or in respect of different activities. (3) Audited financial statements and accounts shall be in a prescribed form and different forms of return may be prescribed for undertakings holding different classes of license. (4) Not later than four months after the close of its financial year every licensed undertaking shall file with the Authority any applicable Rule or statutory return required to be prepared by it under this section. (5) Every licensed undertaking shall keep a copy of the most recent Rule or return filed with the Authority at its head office for a period of not less than five years beginning with its filing date under subsection (4). (6) Every licensed undertaking that fails to file audited financial statements, accounts, any applicable Rule or statutory return within the time specified in subsection (4) shall be liable to a civil penalty not exceeding $5,000 for each week or part of a week that it is in default. (7) Sections 6, 7 and 8 of the Statutory Instruments Act 1977 shall not apply to Rules made under this section. Authority may exempt or modify prudential standards or requirements or take necessary actions Page 16 of 90
17 8 (1) The Authority may where it has made a determination or on the application of a licensed undertaking, exempt it from the requirement to comply with any prudential standard or requirement applicable to it under this Act or modify any such prudential standard or requirement. (2) In granting an exemption or modification under this section the Authority may impose such conditions on the exemption or modification as it considers appropriate. (3) The Authority shall not grant an exemption or modification unless it is satisfied that it is appropriate to do so having regard to the obligations of the licensed undertaking towards its clients. (4) The Authority shall not grant an exemption or modification unless it is satisfied that it is appropriate to do so having regard to the nature, scale, and complexity of the licensed undertaking. (5) The Authority may revoke an exemption or vary any modification granted under this section and shall serve notice on the licensed undertaking of its proposal to revoke its approval and the reason for its proposal. (6) A licensed undertaking served with a notice under subsection (5) may within a period of 28 days from the date of the notice make written representations to the Authority and where such representations have been made, the Authority shall take them into account in deciding whether to revoke its approval. (7) Without prejudice to its powers under subsection (1), the Authority where it has made a determination, may take any action necessary or desirable to protect the public, clients or potential clients of the licensed undertaking. (8) Before taking any such action under subsection (7), the Authority shall serve notice on the license undertaking giving its reasons therefor. (9) A licensed undertaking served with a notice under subsection (8) may, within a period of 28 days from the date of the notice, make written representations to the Authority; and where such representations are made, the Authority shall take them into account in deciding whether to take the proposed action. Page 17 of 90
18 taken. (10) The Authority shall notify a license undertaking of any actions it has (11) The circumstances referred to in subsection (7) are such circumstances as would cause the Authority to conclude that due to the nature, scale and complexity and risk profile of the licensed undertaking, such action is necessary and in the interest of the public or is required to be taken for the protection of clients or potential clients. Advisory Panel 9 (1) The Authority may appoint a panel to advise it in relation to the effect of virtual currency business on (a) persons licensed or registered under the Insurance Act 1978; Banks Deposit Companies Act 1999; Trusts (Regulation of Trust Business) Act 2001; Investment Business Act 2003; Investment Funds Act 2006; Credit Unions Act 2010; Corporate Service Business Provider Act 2012 and Money Service Business Act (b) persons who conduct business with licensed or registered persons under subsection (a); (c) the economy of Bermuda; and (d) virtual currency business regulation. (2) In particular, the panel may advise the Authority about anything referred to it by the Authority. (3) The panel shall be appointed by the Authority and consist of (a) one or more persons, who in the Authority s opinion represents the interests of those persons under subsection 9 (1) (a); (b) one or more persons, who in the Authority s opinion have expertise in law relating to the financial systems of Bermuda; (c) one or more persons, who in the Authority s opinion has expertise in any or all of the virtual currency business activities set out under Page 18 of 90
19 section 2 (2); or (d) one or more persons, holding such qualifications as the Authority deems appropriate. PART 2 LICENSING Restriction on carrying on virtual currency business without a licence 10 (1) Subject to section 11, a person shall not carry on virtual currency business in or from within Bermuda unless that person is for the time being a licensed undertaking in one of the classes specified in subsection (2). (2) The Authority may license an undertaking to carry on one or more of the following virtual currency business activities for the period specified in the licence (a) issuing, selling or redeeming virtual coins, tokens or any other form of virtual currency; (b) operating as a payment service business utilising virtual currency which includes the provision of services for the transfer of funds; (c) operating as an electronic exchange; (d) providing custodial wallet services; (e) operating as a virtual currency services vendor. (3) A person who contravenes this section is guilty of an offence and liable (a) on summary conviction, to a fine of $25,000 or to imprisonment for one year or to both such fine and imprisonment; (b) on conviction on indictment, to a fine of $100,000 or to imprisonment for five years or to both such fine and imprisonment. Page 19 of 90
20 Exemption order 11 (1) Section 10 shall not apply to any person exempted by or under an exemption order issued in terms of this section. (2) The Minister acting on the advice of the Authority may issue an exemption order, which shall provide for (a) a specified person; (b) persons falling within a specified class, to be exempt from the requirement of section 10. (3) An exemption order may provide for an exemption to have effect (a) in respect of all virtual currency business activities under section 2(2); (b) only in respect of one or more of such virtual currency business activities; (c) in respect of specified circumstances. (4) An exemption order may be subject to conditions. (5) The following activities shall not constitute virtual currency business for the purposes of section 10 (1) (a) contributing connectivity software or computing power to a decentralized virtual currency, or to a protocol governing transfer of the digital representation of value; (b) providing data storage or security services for a virtual currency business and is not otherwise engaged in virtual currency business activity on behalf of other persons; (c) the provision of any virtual currency business activity by an undertaking solely for the purposes of its business operations or the business operations of any subsidiary of it. Page 20 of 90
21 order. (6) In subsection (3) (c), specified means specified by the exemption procedure. (7) An order made under this section is subject to the negative resolution Virtual currency business licence 12 (1) An application for a virtual currency business licence may be made to the Authority. required. (2) An application shall state the class of virtual currency business licence (3) The classes of virtual currency business licences referred to in subsection (2) which may be applied for under this Act are a (a) class F licence, under which a person shall be licensed to provide any or all of the virtual currency business activities under the definition of virtual currency business; or (b) class M licence, under which a person shall be licensed to provide any or all of the virtual currency business activities under the definition of virtual currency business for a defined period determined by the Authority. (4) The Authority, where it has made a determination or on the application of a licensed undertaking; may extend the defined period of a class M license for such additional period of time as it deems appropriate. (5) An application in respect of an extension to the defined period of a class M licence in accordance with subsection (6) shall be in such form as the Authority may direct; accompanied by such information as the Authority may require and the application fee of such amount prescribed by the Authority under the Bermuda Monetary Authority Act (6) An application shall be made in such manner as the Authority may direct Page 21 of 90
22 and shall be accompanied by (a) a business plan setting out the nature and scale of the virtual currency business activity which is to be carried on by the applicant; (b) particulars of the applicant s arrangements for the management of the business; (c) policies and procedures to be adopted by the applicant to meet the obligations under this Act and the Proceeds of Crime (Anti- Money Laundering and Anti-Terrorist Financing) Regulations 2008; (d) such other information and documents as the Authority may reasonably require for the purpose of determining the application; and (e) an application fee which shall be an amount determined by the Authority commensurate to the nature, scale and complexity of the virtual currency business to be carried on by the undertaking and as may be prescribed under the Bermuda Monetary Authority Act (7) An application may be withdrawn by notice in writing to the Authority at any time before it has determined the application. Grant and refusal of applications 13 (1) Subject to this section, the Authority may on an application duly made in accordance with section 12, and after being provided with all such information, documents and reports as it may reasonably require under that section, grant or refuse the application for a licence. (2) The Authority shall not grant an application unless it is satisfied that the minimum criteria set out in Schedule 1 are fulfilled with respect to the applicant. (3) A licence issued under this section may be subject to such limitations on the scope of the virtual currency business activity or the manner of operating the virtual Page 22 of 90
23 currency business as the Authority may determine to be appropriate having regard to the nature and scale of the proposed business. (4) The Authority may where it has made a determination or on application made by a licensed undertaking, vary or remove any limitation imposed on the scope of its licence. (5) A licence issued to a partnership shall be issued in the partnership name, and shall not be affected by any change in the name of the partners. (6) The Minister, acting on the advice of the Authority, may by order amend Schedule 1 by adding new criteria or by amending or deleting the criteria for the time being specified in the Schedule. Determination of class of licence 14 (1) Notwithstanding an application submitted by an undertaking under section 12, the Authority may determine whether an undertaking proposing to carry on virtual currency business shall be issued a different class of licence. (2) The matters the Authority may take into account in its determination under subsection (1), are the (a) interests of those clients or potential clients and of the public generally; and (b) obligations the Authority is of the view should be imposed on the undertaking due to the nature of the virtual currency business activities it intends to carry on. Display and registration of licence 15 (1) A licensed undertaking shall at all times keep the licence on display at its principal place of business in Bermuda. (2) The Authority shall publish a list of every licenced undertaking and the class of licence issued to it on its website. Fees Page 23 of 90
24 16 (1) A licensed undertaking shall pay such fee as may be determined by the Authority and prescribed under the Bermuda Monetary Authority Act 1969 (a) on the grant of a licence under section 12; (b) annually, before the 31 st of March in every year following the year in which it was licensed under section 12; of such amount; (c) at the time of making an application under section 8 in relation to exemption from or modification of, prudential rules or requirements; (d) at the time of making an application for an extension of a defined licence period under section 12 (5); (e) at the time of making an application for variance of a direction under section 29 (4). (2) Annual fees payable by all licensed undertakings in accordance with subsection (1) (b) shall apply to the twelve-month period ending on 31 st of December of that year. (3) For each week or part of a week that a licensed undertaking fails to comply with a requirement imposed on it by subsection (1), it shall be liable to a civil penalty not exceeding $5,000. (4) The Authority, if satisfied that payment of the annual fee in whole or in part is inappropriate after taking into account the diminution in the level of virtual currency business activity, may (a) defer payment of all or part of the annual fee otherwise due, to such date in the future as it considers appropriate; or (b) remit all or part of the annual fee otherwise due, on such terms and conditions as it considers appropriate. Separate accounts 17 A licensed undertaking holding client assets shall keep its accounts in respect of such assets separate from any accounts kept in respect of any other business. Page 24 of 90
25 Custody and protection of client assets 18 (1) A licensed undertaking holding client assets shall maintain a surety bond or trust account, or indemnity insurance for the benefit of its clients in such form and amount as is acceptable to the Authority for the protection of its clients or such other arrangements as the Authority may approve. (2) To the extent a licensed undertaking maintains a trust account in accordance with this section; such trust account must be maintained with a qualified custodian. (3) A licensed undertaking that has control of one or more virtual currencies for one or more clients must maintain in its control a sufficient amount of each type of virtual currency in order to meet its obligations to clients. is (4) For the purposes of this section, virtual currency referred to is that which (a) held by the licensed undertaking for the client entitled to the virtual currency; (b) not property or virtual currency of the licensed undertaking; and (c) is not subject to the claims of creditors of the licensed undertaking. Senior representative 19 (1) Every licensed undertaking shall appoint a senior representative that satisfies the requirements of (2). (2) The senior representative shall be a person approved by the Authority to act in such capacity on behalf of the licensed undertaking. (3) The approved senior representative shall maintain an office in Bermuda. (4) At the time of licensing, the licensed undertaking shall provide written notice to the Authority of the (a) location of the senior representative s office; (b) particulars of the senior representative. (5) If any information required by notification in accordance with subsection (4) is Page 25 of 90
26 altered, the licensed undertaking shall give particulars of the alteration in writing within fourteen days of the date the alteration was made. (6) Without reason acceptable to the Authority (a) a licensed undertaking shall not terminate the appointment of its senior representative; and (b) a senior representative shall not cease to act as such, until it or he gives thirty days notice in writing to the Authority of the intention to do so. (7) If a senior representative wilfully fails to give notice required in accordance with subsection (6) to the Authority he commits an offence. Senior representative to report certain events 20 (1) A senior representative shall forthwith notify the Authority, in such manner as it may direct, (a) on his reaching a view that there is a likelihood of the licensed undertaking for which he acts becoming insolvent; or (b) on its coming to his knowledge, or his having reason to believe, that an event to which this section applies has occurred. (2) Within fourteen days of such notification, the senior representative shall furnish the Authority with a report in writing setting out all the particulars of the case that are available to him. (3) As respects any senior representative, this section applies to the following events, being events in which the licensed undertaking for which he acts as senior representative is involved, that is to say (a) failure by the licensed undertaking to comply substantially with a condition imposed upon the licensed undertaking by the Authority; (b) failure by the licensed undertaking to comply with a modified provision, or with a condition, being a provision or condition specified in a direction given to the licensed undertaking by the Authority; (c) involvement of the licensed undertaking in any criminal proceedings Page 26 of 90
27 whether in Bermuda or abroad; (d) the licensed undertaking ceasing to carry on virtual currency business in or from within Bermuda; (e) a material change to the business of the licensed undertaking; (f) a cyber security event. Head office 21 (1) Every licensed undertaking shall maintain a head office in Bermuda, satisfying the requirements of subsection (2). (2) The virtual currency business of the licensed undertaking must be directed and managed from Bermuda and, in determining whether the licensed undertaking complies with this requirement, the Authority shall consider, inter alia, the factors set out in subsection (3). (3) The factors referred to in subsection (2) are (a) where the strategy, risk management and operational decision making of the licensed undertaking occurs; (b) whether the presence of senior executives who are responsible for, and involved in, the decision making related to the virtual currency business of the licensed undertaking are located in Bermuda; (c) where meetings of the board of directors of the licensed undertaking occur. (4) Notwithstanding the considerations set out in subsection (3), the Authority may also have regard to the following matters (a) the location where management of the licensed undertaking meets to effect policy decisions of the licensed undertaking; (b) the residence of the officers or employees of the licensed undertaking; or (c) the residence of one or more directors of the licensed undertaking in Bermuda. Material change to business Page 27 of 90
28 22 (1) Each licensed undertaking must make an application in order to obtain the Authority s prior written approval for (a) any plan or proposal to introduce or offer a new product, service, or activity, or to make a material change to an existing product, service, or where applicable virtual currency business activity. (b) amalgamation with or acquisition of another firm; (c) sale of a subsidiary; (d) acquisition of controlling interest in an undertaking; (e) outsourcing of the functions of the virtual currency business; (f) change to the most recent business plan submitted to the Authority. (2) An application under this section shall be in such form, shall contain such information and shall be accompanied by such documents as the Authority may require. Restriction of licence 23 (1) Subject to section 26, the Authority may restrict a licence (a) if it is satisfied of the matters specified in paragraph (a), (b), (d) or (e) of section 24, but it appears to the Authority that the circumstances are not such as to justify revocation; (b) if it is satisfied that a person has become a controller of a licensed undertaking in contravention of section 34 or has become or remains a controller after being given a notice of objection pursuant to section 36 or 37; Page 28 of 90
29 (c) in connection with the revocation of a licence (i) when giving the licensed undertaking notice that it proposes to revoke its licence; or (ii) at any time after such notice has been given to the licensed undertaking; or (d) at any time after the licensed undertaking has served a notice surrendering its licence with effect from a later date. (2) The Authority may restrict a licence by imposing such conditions as it thinks desirable for the protection of the licensed undertaking s clients or potential clients, and may in particular (a) require the licensed undertaking to take certain steps or to refrain from adopting or pursuing a particular course of action or to restrict the scope of its business activities in a particular way; (b) impose limitations on the acceptance of virtual currency business; (c) prohibit the licensed undertaking from soliciting virtual currency business either generally or from persons who are not already its clients; (d) prohibit the licensed undertaking from accepting new virtual currency business; (e) prohibit the licensed undertaking from entering into any other transactions or class of transactions; (f) require the removal of any officer or controller; (g) specify requirements to be fulfilled otherwise than by action taken by the licensed undertaking; the Authority. (3) Any condition imposed under this section may be varied or withdrawn by (4) The Authority may where it has made a determination on its own or on the Page 29 of 90
30 application of a licensed undertaking, vary any condition imposed on its licence. (5) The fact that a condition imposed under this section has not been complied with shall, where the restriction has been imposed pursuant to paragraphs (a) or (b)of subsection (1), be a ground for the revocation of the licence in question but shall not invalidate any transaction. Revocation of licence 24 Subject to section 25, the Authority may revoke the licence of a licensed undertaking if the Authority is satisfied that (a) any of the minimum criteria is not or has not been fulfilled, or may not be or may not have been fulfilled, in respect of the licensed undertaking; (b) the licensed undertaking has failed to comply with any obligation imposed on it by or under this Act or is carrying on business in a manner not authorised by its licence; (c) a person has become a majority shareholder controller of the licensed undertaking in contravention of section 33 or has become or remains such a controller after being given a notice of objection pursuant to sections 35 or 36; (d) the Authority has been provided with false, misleading or inaccurate information by or on behalf of the licensed undertaking or, in connection with an application for a licence, by or on behalf of a person who is or is to be an officer or controller of the undertaking; or (e) the interests of the clients or potential clients of the licensed undertaking are in anyway threatened; (f) the fixed period of a class M license has expired. Page 30 of 90
31 Winding up on petition from the Authority 25 (1) On a petition presented by the Authority by virtue of this section, the Court may wind up a licensed undertaking which is a company in respect of which a licence is revoked, if the Court is of the opinion that it is just and equitable that the undertaking be wound up. (2) Part XIII (Winding Up) of the Companies Act 1981 shall apply to the winding up of a licensed undertaking under this section. Notice of restriction or revocation of licence 26 (1) Where the Authority proposes to (a) restrict a licence under section 23(1); (b) vary a restriction imposed on a licence otherwise than with the agreement of the licensed undertaking concerned; or (c) revoke a licence under section 24, (a) to (f). the Authority shall give to the licensed undertaking concerned a warning notice under section 53. (2) Where (a) the ground for a proposal to impose or vary a restriction or for a proposed revocation is that it appears to the Authority that the criterion in paragraph 1 of the Schedule 1 is not or has not been fulfilled, or may not be or may not have been fulfilled, in the case of any person; or (b) a proposed restriction consists of or includes a condition requiring the removal of any person as a controller or an officer, the Authority shall give that person a copy of the warning notice but the Authority may omit from such copy any matter which does not relate to him. (3) After giving a notice under subsection (1) and taking into account any representations made under section 53(2), the Authority shall decide whether Page 31 of 90
32 (a) to proceed with the action proposed in the notice; (b) to take no further action; (c) if the proposed action was to revoke the undertaking s licence, to restrict its licence instead; or (d) if the proposed action was to restrict the undertaking s licence or to vary the restrictions on a licence, to restrict it or to vary the restrictions in a different manner. (4) Once the Authority has made a decision under subsection (3), it shall forthwith provide either a decision notice under section 54 or a notice of discontinuance under section 55, as the case may be. (5) The Authority shall publish in the Gazette, in such form as it thinks fit, notice of every revocation of a licence under the Act. Restriction in cases of urgency 27 (1) No notice need be given under section 26 in respect of the imposition or variation of a restriction on a licensed undertaking s licence in any case in which the Authority considers that the restriction should be imposed or varied as a matter of urgency. (2) In any such case, the Authority may by written notice to the licensed undertaking impose or vary the restriction. (3) Any such notice shall state the reason for which the Authority has acted and particulars of the rights conferred by subsection (5) and section 48. (4) Section 23(2) shall apply to a notice under subsection (2) imposing or varying a restriction as it applies to a notice under section 23(1) in respect of a proposal to impose or vary a restriction; but the Authority may omit from a copy given to a person by virtue of this subsection any matter which does not relate to him. (5) A licensed undertaking to which a notice is given under this section of the Page 32 of 90
33 imposition or variation of a restriction and a person who is given a copy of it by virtue of subsection (4) may within the period of 14 days beginning with the day on which the notice was given make representations to the Authority. (6) After giving a notice under subsection (2) imposing or varying a restriction and taking into account any representations made in accordance with subsection (5), the Authority shall decide whether (a) to confirm or rescind its original decision; or (b) to impose a different restriction or to vary the restriction in a different manner. (7) The Authority shall within the period of 28 days beginning with the day on which the notice was given under subsection (2) give the licensed undertaking concerned written notice of its decision under subsection (6) and, except where the decision is to rescind the original decision, the notice shall state the reason for the decision. (8) Where the notice under subsection (7) is of a decision to take the action specified in subsection (6)(b), the notice under subsection (7) shall have the effect of imposing the restriction or making the variation specified in the notice with effect from the date on which it is given. Directions to protect interests of clients 28 (1) The Authority may give a licensed undertaking directions under this section at any time if it appears to the Authority that a licensed undertaking is in breach of any provision of this Act, regulations or rules applicable to it. (2) Directions under this section shall be such as appear to the Authority to be desirable for safeguarding the interests of the licensed undertaking s clients or proposed clients. (3) A licensed undertaking which fails to comply with any requirement or contravenes any prohibition imposed on it by a direction under this section shall be guilty of an offence and liable Page 33 of 90
34 (a) on summary conviction, to a fine of $25,000; (b) on conviction on indictment, to a fine of $75,000. Notification and confirmation of directions 29 (1) A direction under section 28 shall be given by notice in writing and may be varied by a further direction; and a direction may be revoked by the Authority by a notice in writing to the licensed undertaking concerned. (2) A direction under section 28(1), except one varying a previous direction shall (a) state the reasons for which it is given and give particulars of the licensed undertaking s rights under subsection (3) and section 48 where appropriate ; and (b) cease to have effect at the end of any period which may be set out by the Authority in the notice. (3) A licensed undertaking to which a direction is given which under subsection (2) may, within the period of 14 days beginning with the day on which the direction is given, make written representations to the Authority; and the Authority shall take any such representations into account in deciding whether to confirm the direction. Surrender of licence 30 (1) A licensed undertaking with the prior approval of the Authority may surrender its licence by written notice to the Authority. (2) A surrender shall take effect on the date of the giving of approval by the Authority. (3) The surrender of a licence shall be irrevocable unless the Authority by notice in writing allows it to be withdrawn. PART 3 Page 34 of 90
35 AUDITED ACCOUNTS Duty to prepare annual audited financial statements and accounts 31 (1) Every licensed undertaking shall prepare annual audited financial statements or accounts as required by this section in respect of all transactions and balances relating to its business. (2) Financial statements must be prepared by an approved auditor. (3) Prior to appointment of an auditor, a licensed undertaking shall submit written particulars of such person to the Authority for approval. (4) Financial statements of licensed undertakings shall be audited by the approved auditor in accordance with generally accepted auditing standards for Canada, the United Kingdom, the United States of America or such standards as the Authority may recognise and the approved auditor shall be required to provide an auditor s report in respect thereof. (5) Not later than four months after the close of its financial year every licensed undertaking shall file a copy of its audited financial statements and auditor s report or accounts with the Authority. (6) A licensed undertaking shall keep a copy of the most recent audited financial statements together with a copy of the auditor s report thereon or accounts as the case may be, at its head office for a period of not less than five years beginning with its filing date under subsection (5). (7) Notwithstanding subsection (1), the Authority may require a licensed undertaking to prepare financial statements or accounts in such manner as it may direct. Appointment of auditors 32 (1) Every licensed undertaking shall annually appoint an approved auditor to audit its financial statements. Page 35 of 90
36 (2) If a licensed undertaking fails to appoint an approved auditor as required by subsection (1) or, at any time, fails to fill a vacancy for such auditor, the Authority may appoint an approved auditor and shall fix the remuneration to be paid by that virtual currency business to such auditor. (3) A licensed undertaking shall forthwith give written notice to the Authority if it (a) proposes to remove an auditor before the expiration of his term of office; or (b) proposes to replace an auditor at the expiration of the term of his office with a different auditor. (4) A licensed undertaking which fails to comply with this section shall be guilty of an offence and shall be liable on summary conviction to a fine of $25,000. (5) For the purposes of this Part, approved auditor means an auditor who is a person entitled to practise as a public accountant and is a member of a professional body approved by the Authority for the purposes of this Act. (6) No person having an interest in any licensed undertaking otherwise than as a client, and no officer, servant or agent of any virtual currency business shall be eligible for appointment as an approved auditor for that licensed undertaking; and any person appointed as such auditor to any licensed undertaking who subsequently acquires such interest or becomes an officer, servant or agent of that licensed undertaking shall cease to be an approved auditor. Auditor to communicate certain matters to Authority 33 (1) An auditor of a licensed undertaking shall in the circumstances specified in subsection (2) forthwith give written notice to the Authority of those matters. (2) The circumstances referred to in subsection (1) are (a) his resignation before the expiration of his term of office; (b) his intention not to seek to be re-appointed; Page 36 of 90