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The Barbados Jurisdiction, Crypto Assets, and the International Securities Market


2019-01-23 00:00:00

By Barry Blenman, Operations Supervisor and Terry Belgrave, ISM Business Development Associate, Barbados Stock Exchange

 


Barbados is currently experiencing a renaissance of sorts. Now governed by a new administration, under the leadership of Prime Minister the Honourable Mia Amor Mottley, Q.C., M.P., Barbados is focused on restoring its economic fundamentals while strategically positioning itself as the innovation center of choice in the Caribbean and Western Hemisphere.

Cultivating and promoting innovation in Barbados (at all levels) will be two of the primary tasks of policymakers going forward. The first task is a primary function of the Government: preparing an efficient and effective entrepreneurial framework that enables private businesses – regardless of sector – to convert innovative ideas into useful products and services. Whether onshore or offshore, this output must look to satisfy the needs and/or expectations of a global customer base. The second task is, decidedly, fundamental: policymakers must themselves embrace new technologies at both macro and micro economic levels.

Several jurisdictions across the globe have adopted a host of new financial technologies (FinTech). These technologies can be beneficial on many levels: not only can they improve the cost and ease of transacting business in a jurisdiction, there is also scope for the creation of employment and further revenue generation should technological deployment occur within a regulatory framework that is both progressive and flexible by design. As such, the Barbados government has launched a regulatory sandbox to facilitate further growth of the financial technologies (FinTech) sector on the island.

Barbados


Barbados has been an early adopter of FinTech in the region. In fact, Bitt Incorporated, a Barbadian startup in the Distributed Ledger Technology (DLT) and blockchain space, created a virtual currency in 2016 that was pegged to the value of the Barbados dollar – essentially a digital Barbadian dollar. Bitt would go on to launch its mobile money (mMoney) application – a digital wallet – in 2017, allowing locals to purchase products and services from registered mMoney merchants with their smartphones. The application also allows users to send funds to other mMoney users via the app. Bitt is currently working towards the development of a settlement network to facilitate payments across borders in the Caribbean, and has engaged approximately 12 regional governments to ensure that this initiative is a success.

The Barbados Stock Exchange Inc. (BSE) has also embraced developments within the FinTech sphere. The exchange’s recent goal – deploying a trade engine solution, particularly for the trading of securitized crypto tokens – is part of a larger strategic shift for the company aimed at providing new and innovative financial products for market participants. The BSE intends to position this product offering on its well-regulated International Securities Market (ISM). Additionally, the BSE helped to found a working group in mid-2018 that would explore the opportunities present within the blockchain space (while remaining cognizant of any and all implications for the jurisdiction). This working group is still operational, and is presently comprised of members from the BSE’s ISM Executive Team, the Financial Services Commission (FSC) – the Regulator, and a number of experienced service providers in Barbados. The working group submitted its first official paper on digital assets to the FSC and is awaiting its ratification.  

Crypto Assets


Crypto assets are set to change global business. However, greater awareness is still needed on the distinction between crypto assets (which are broadly used to make payments or other processes faster and more efficient) and the blockchain (which has many different purposes, including powering some crypto asset ecosystems). To be clear: some crypto assets do not make use of blockchain technology at all.

For its part, blockchain technology is already considered the next evolutionary step for the internet. This technology can facilitate peer-to-peer transactions (without the use of an intermediary or governing body) while validating and maintaining permanent public records of all transactions. Cryptography is used to secure personal information, and ensures activity conducted between individuals or entities can be stored privately on sequentially linked blocks that are transparent and virtually incorruptible. This list of blocks (or “ledger”) is preserved by a distributed network of users (or “nodes”) that collectively validate each new block while synchronizing replicas of the entire ledger. In sum, it is the very nature of blockchain technology – i.e., the decentralization of ‘trust’ – that gives it its power and ensures that the tech remains significantly less vulnerable to failure or malicious attack especially when compared to centralized counterparties such as banks or centralized governments.

At present, there are roughly seven types or categories of crypto assets currently in existence:


1.    Cryptocurrencies
2.    Crypto-fiat currencies
3.    Crypto-collectibles
4.    Platform tokens
5.    Utility tokens
6.    Natural asset tokens
7.    Security tokens


Cryptocurrencies, like Bitcoin and Ethereum, have gained much recognition in the mainstream. These digital, virtual currencies operate independently of a central bank and can store value, function as units of account and are used as instruments of exchange. However, their independent, and somewhat deregulated nature, have brought them under global scrutiny – for e.g., in some jurisdictions, using fiat currencies to purchase cryptocurrencies has been banned. The general outlook, nevertheless, has softened on DLT on a whole as greater understanding is being garnered about its usefulness.

The success and fallout from the Initial Coin Offering (ICO) – the cryptocurrency world’s rough equivalent of the traditional initial public offering (IPO) – and the current move towards tokenisation (the cryptocurrency world’s rough equivalent of the equitisation of assets) have led regulators to investigate the inclusion of this type of asset (tokens) into the regulatory forum. Security tokens are currently in vogue – they are widely viewed as giving blockchain-oriented companies a compliant means of raising capital towards the development of their business models. Broadly speaking, security tokens are digital assets that are analogous to bonds, equities or other securities. These ‘assets’ can then be traded peer-to-peer (without the need for financial intermediaries).
 
The International Securities Market (ISM)


Given the nature of securities tokens, the ISM Executive Team of the Barbados Stock Exchange was pleased to announce the approval of its sixth Listing Sponsor, Coin Start Ltd., on June 8th, 2018. Coin Start will engage companies domiciled in Barbados and abroad that may be seeking a primary or secondary listing of securities tokens representing debt, equity, real estate and futures. Their primary role is to conduct the necessary due diligence on the issuers of these tokens, liaising between the issuers and the BSE, with emphasis on ensuring that each issuer is fit and proper for listing on the ISM. They are also responsible for ensuring that, once listed, the token issuers comply with the continued obligations outlined under the rules of the ISM. Coin Start’s focus on procuring securitized token listings is welcomed as the BSE embraces the concomitant responsibility of providing leadership in this field for Barbados.

The inclusion of these new and innovative listings to the ISM lends further credibility to the competence and capability of the ISM ecosystem – we believe our efforts will be well received. The BSE, in concert with its stakeholders in Barbados and beyond, are pleased to play a part in the national effort of re-strengthening Barbados, the ‘Gem of the Caribbean Sea’.





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