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Risks Of Initial Coin Offerings

January 17, 2018

HAMILTON, BERMUDA - Bermuda Monetary Authority (BMA) is committed to providing a regulatory environment for Bermuda’s financial services industry that both protects stakeholders and supports innovation.

Says BMA CEO Jeremy Cox: “Today’s fast-paced global digital business environment needs to be accommodated for Bermuda to remain economically sound. Sometimes there may appear to be a contradiction between this fast forward new world and the BMA’s mandate to ensure that investors and other stakeholders can operate in a climate of confidence.”

“Bermuda’s financial services industry has benefited from its reputation as a highly regulated jurisdiction and we continue to strive for global standards. We will not falter in this duty to safeguard the public and other stakeholders, but we are aware that the regulator’s role is not to stand in the way of progress.”

Mr. Cox notes that while the BMA can create a regulatory framework that enables new business ideas, potential investors also need to take their responsibilities seriously. For example, “disruptive technology” is becoming increasingly important in the wider financial services industry. However, because of its pioneering nature, disruptive technology is ground-breaking and therefore does not have a proven, longerterm track record. Indeed, in the early days, the telephone and personal computer were considered to be disruptive technology.

The BMA closely monitors global technological developments such as Initial Coin Offerings (ICOs). At this time, these forms of investment vehicles are not subject to prudential regulation, which among other things requires regulated entities to hold sufficient capital and have adequate risk controls in place.

An ICO - sometimes referred to as an initial token offering - may be an unregulated method of raising funds for new ventures depending on the nature of the offering. It is used by start-ups to raise funds from various investors through the internet, bypassing the rigorous and regulated capital-raising process required by venture capitalists or banks.

With an ICO, investors are able to use cryptocurrency (such as bitcoin) to purchase coins or tokens via the internet for a set period of time. The ICOs are often global offerings which can be created and accepted anonymously

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