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Conyers’ Barnabas Finnigan and Eric Flaye on how offshore jurisdictions have positioned themselves to reap the benefits of current developments
The event of blockchain functions and the speedy progress of cryptocurrencies and different digital belongings have opened up new alternatives within the fintech house lately. More and more, refined traders are in search of methods to entry this area of interest sector.
Now we have seen a flurry of funding funds being established to concentrate on decentralised finance (De-Fi) platforms and cryptocurrencies, whereas different entrants undertake coin and token choices and set up digital asset-trading platforms.
PwC’s third Annual International Crypto Hedge Fund Report 2021 highlights the sector’s speedy growth, noting that whole belongings below administration (AUM) of crypto funds virtually doubled from 2020 to 2021, rising from US$2bn to US$3.8bn. Conventional hedge funds are actively embracing this development, with round 20% at present investing in digital belongings, and over 25% of fund managers not at present invested on this asset class actively planning to take action. The report additionally highlights the UK’s significance on this house, being second solely to the US because the jurisdiction of alternative for managers of crypto-focused funds.
However the UK’s position in originating and managing investments in digital belongings, De-Fi buildings and crypto-focused funds are nonetheless predominantly structured by means of extra conventional fund jurisdictions, together with the US, Cayman Islands, British Virgin Islands (BVI) and Bermuda.
Offshore jurisdictions have positioned themselves to reap the benefits of current developments and put in place the suitable regulatory frameworks to help this rising trade.
Cayman Islands
The Cayman Particular Financial Zone has a powerful concentrate on supporting fintech-related companies and facilitates the institution of a bodily presence in Cayman by providing fast-tracked incorporation, five-year work permits and obligation waivers.
Cayman launched the Digital Asset (Service Suppliers) Act (VASPA) in 2020 to manage ‘digital asset service suppliers’ (VASPs) that present “digital asset providers” as a enterprise, or in the middle of enterprise, in or from throughout the Cayman Islands. Examples of those digital asset providers embrace providing an change between digital belongings and fiat currencies, and switch of digital belongings.
For the needs of VASPA, ‘digital belongings’ are digital representations of worth that may be digitally traded or transferred and can be utilized for cost or funding functions. Regulation of VASPs below VASPA is performed by the Cayman Islands Financial Authority. VASPA additionally introduces a regulatory sandbox regime.
Cayman doesn’t have particular laws regarding preliminary coin choices (ICOs) as these are ruled by the present securities and funding enterprise legal guidelines.
Bermuda
Bermuda has carved a distinct segment as a premier jurisdiction for digital asset companies wishing to arrange a presence offshore or meaning to conduct an ICO. With a really pro-fintech authorities, Bermuda has not too long ago attracted quite a lot of key trade gamers, and new initiatives are being developed to help companies on this space and within the wider fintech house.
Bermuda launched the Digital Asset Enterprise Act (DABA) in 2018 to manage entities carrying on digital asset enterprise in or from inside Bermuda. Underneath DABA, a ‘digital asset enterprise’ is one that gives sure providers to most people comparable to issuing, promoting or redeeming digital cash, tokens or different type of digital asset, or working as a cost service supplier enterprise utilising digital belongings. DABA requires any particular person finishing up digital asset enterprise to be licensed by the Bermuda Financial Authority (BMA).
Bermuda additionally has a Digital Asset Issuance Act to manage ICOs. A proposal by an organization or LLC to the general public to buy digital belongings will, topic to sure exemptions, be a ‘restricted enterprise’ requiring consent from the BMA, along with the publication and submitting of an providing doc.
British Virgin Islands
BVI has positioned itself as a versatile and enticing jurisdiction for progressive fintech companies, and has confirmed very talked-about for crypto exchanges, ICOs and crypto funds. The BVI Monetary Companies Fee launched a regulatory sandbox in 2020 focused at new applied sciences within the monetary providers sector.
In contrast to the Cayman Islands and Bermuda, there’s at present no laws in pressure in BVI particularly focused at cryptocurrencies or digital belongings. A BVI entity participating in enterprise or funding actions involving cryptocurrencies or digital belongings would want to evaluate any potential regulatory implications below the extra common securities and funding legal guidelines in place in BVI, primarily the Securities and Funding Enterprise Act.
A brand new regulatory regime is because of be carried out in BVI later this yr that can particularly regulate this sector for the primary time.
Why Select Offshore
For funding fund managers seeking to enter the De-Fi, cryptocurrency and blockchain house, the offshore jurisdictions of the Cayman Islands, Bermuda and BVI are a pure alternative. Not solely do they provide tax-neutral platforms and authorized programs based mostly on English legislation, they’re additionally commercially versatile and pleasant places from which to construction and function a crypto-focused fund or different digital belongings enterprise or platform.
For extra data, contact:
Barnabas Finnigan, counsel
barnabas.finnigan@conyers.com
+44 (0)20 7562 0353
Eric Flaye, counsel
eric.flaye@conyers.com
+44 (0)20 7562 0341This article just isn’t supposed to be an alternative to authorized recommendation or a authorized opinion. It offers in broad phrases solely and is meant to merely present a short overview and provides common data.
For additional data please contact: media@conyers.com
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