Bahamas to Strengthen Crypto Regulations in Response to Recent FTX Collapse

The Bahamas is proposing tougher regulations to govern digital asset firms five months after the collapse of crypto exchange giant FTX drew the world’s attention to the island nation. 

The country’s financial regulator, the Securities Commission of the Bahamas, released a statement on Tuesday announcing the opening of a consultation on the proposed new rules. The Digital Assets and Registered Exchanges (DARE) Bill includes expanding the definition of digital asset businesses, disclosure requirements for crypto staking activities, and tighter requirements for stablecoin issuers.

FTX’s collapse last year led to repeated attacks on Bahamian authorities from John Ray III, who was appointed to run the exchange after the resignation and subsequent arrest of founder Sam Bankman-Fried. 

Bahamas Proposes Amendments to the Digital Assets Bill, Including a Ban on Algorithmic Stablecoins

FTX’s new management claimed in legal filings that they had evidence that the Bahamian government directed unauthorized access to the exchange’s systems “for the purpose of obtaining digital assets” that should be controlled by FTX. In response, the SCB dismissed Ray’s “material misstatements.”

The DARE Bill includes a specific clause that “operators of a digital asset exchange must ensure the systems and controls used in its activities are adequate and appropriate for the scale and nature of its business” for anyone thinking of following in Bankman-Fried’s footsteps and running a crypto exchange from the Bahamas.

The Securities Commission of The Bahamas (SCB) has announced proposed amendments to the Digital Assets and Registered Exchanges Bill (DARE), which include a ban on the issuance of algorithmic stablecoins. The move follows the implosion of TerraUSD in May 2022. The amendments also aim to enhance protection mechanisms, such as new disclosure and reporting requirements, specific registration obligations, and ongoing supervision for digital asset space operators. 

According to the SCB, these enhancements will provide room for digital asset businesses to innovate and evolve while allowing the Commission to prescribe additional rules for digital asset exchanges and bespoke requirements for different registrant categories. The consultation period for the proposed amendments will end on May 31, with authorities aiming to pass the bill into law by the end of Q2.

FCA Calls for Collaboration with Crypto Companies to Develop Regulatory Framework

In other development news, the Financial Conduct Authority (FCA), the UK’s financial regulator, is seeking collaboration with crypto companies to establish a regulatory framework for the industry. During her speech at the City Week conference in London on April 25, FCA Executive Director Sarah Pritchard emphasized the importance of cooperation in regulating crypto assets. 

In her speech at #CityWeek2023, Sarah Pritchard spoke about the regulation of #cryptocurrency and how effective early engagement can support regulation that benefits all. https://t.co/w6Zv6K5FP1

— Financial Conduct Authority (@TheFCA) April 25, 2023

Pritchard acknowledged that while crypto was once seen as a symbol of alternative rebellion, it has become more prevalent in recent times. She further added that engaging with industry stakeholders early on would facilitate the development of regulations that are beneficial for everyone and enable companies to prepare for the implementation of such regulations.

During her speech, Pritchard highlighted the difference in approach between the FCA and financial regulators in the US, whom she claims are actively attempting to suppress the crypto industry through enforcement actions rather than collaborating with industry leaders to develop regulations. She stated that the FCA’s current responsibilities are limited to ensuring that crypto firms operating in the UK comply with AML and CTF legislation. 

Pritchard also mentioned that tangible change in the industry would only come through government legislation, including regulations on crypto promotions and advertising high-risk investments. Additionally, she noted that while the FCA has registered 41 crypto companies of all sizes, almost three-quarters of the 195 total registrations from overseas firms were rejected or withdrew their applications for a UK license.

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