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Technology & Innovation Update Q4 2020 – Technology – Bermuda – Mondaq News Alerts

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Technology & Innovation Update Q4 2020 - Technology - Bermuda - Mondaq News Alerts

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Whilst the pandemic has continued to present major challenges
for the business world, Fintech has gained tremendous momentum and
indeed become essential for many financial institutions and
companies in this new era.  The Hong Kong Fintech Week 2020
was held as a fully virtual event during 2-6 November 2020 and saw
a range of topics being explored, including development of central
bank digital currencies, virtual asset regulations, virtual banking
and related Fintech applications.  Most offshore jurisdictions
have already seen significant developments in the laws and
regulations in these areas, particularly as the pace of
technological change accelerates.

Appleby’s 2021 Offshore Technology and Innovation Guide
provides a detailed overview of the current legal and regulatory
position across a number of different technology sectors in eight
of the world’s largest offshore jurisdictions.  With
quick-linked answers to some of the most business critical issues,
the guide also has an “At a Glance” matrix to help with
identifying the most suitable offshore jurisdiction for specific
technological projects.  A copy is available here.

BERMUDA

DIGITAL ASSET BUSINESS ACT

The Digital Asset Business Amendment Act 2020 (Bill) was tabled
on 6 November 2020 following a period of consultation which ended
in September 2020.  This seeks to amend the Digital Asset
Business Act 2018 to introduce a new class of licence, to refine
the definition of digital asset exchange, digital asset derivative
exchange and digital asset services vendor and to revise the power
of the Bermuda Monetary Authority (BMA) to exempt
any undertaking from the payment of any fee imposed under the
Bermuda Monetary Authority Act 1969 in relation to digital asset
businesses, or to reduce such fees.  In particular, after its
first complete year of fintech operation, the BMA undertook a
review of its licensing procedure and came to the view that whilst
the current availability of classes M and F licences may seem
appropriate, the BMA considers the addition of a new class T
(“test”) licence to be useful in certain cases for
testing of a minimum viable product/service via beta testing or
piloting.  Further updates will be provided when the
amendments come into force in due course.

GFIN

The BMA has announced on 29 October 2020 that, as part of its
ongoing work with the Global Financial Innovation Network
(GFIN), it will be taking part in GFIN’s
invitation to participate in cross-border testing.  GFIN is
comprised of more than 60 international organisations with a
mission to support financial innovation in the interest of
consumers.  It aims to create a new framework for co-operation
between financial services regulators on innovation related topics,
sharing different experiences and approaches.  It also
includes a pilot for firms wishing to test innovative products,
services or business models across more than one
jurisdiction.  Firms interested in applying to participate in
the cross-border testing should, first, review the list of
participating regulators and their respective Regulatory
Compendiums, and then submit an application on the GFIN website no
more than the end of 2020.  More details can be found here.

PERSONAL INFORMATION PROTECTION ACT

We have previously reported the appointment of Mr. Alexander McD
White as Bermuda’s first Privacy Commissioner, who took office
on 20 January 2020.  The role of his office is to (among
others) regulate the use of personal information by organisations
in a manner which recognizes both the need to protect the rights of
individuals in relation to their personal information and the need
for organisations to use personal information for legitimate
purposes.  As part of his duty to oversee the implementation
and roll-out of the Personal Information Protection Act 2016
(PIPA), the Privacy Commission introduced a new
data protection “sandbox” to reflect new and innovative
technologies in responsible structures in data protection.
 The Privacy innovation and Knowledge-sharing
(“Pink”) Sandbox will serve as a formal mechanism to
allow the Privacy Commission to engage with organisations early, so
that issues and risks may be identified to avoid missteps and build
privacy into their products or services as a default setting. 
The benefit to participants is that they will have access to the
guidance and expertise of the Privacy Commissioner to enable them
to devise their product or service and their organizational
approach to privacy issues, and generally to get themselves ready
for PIPA (expected to become fully effective in 2021).

BRITISH VIRGIN ISLANDS

FINTECH SANDBOX

The new fintech sandbox introduced in the British Virgin Islands
(BVI) was opened for application on 31 August
2020.  The sandbox encourages technological innovation in
financial services under a lighter touch regulatory regime,
allowing specific provisions of the regulatory legislation and
regulatory code to be “disapplied” to participants in the
sandbox.  It looks to reduce the regulatory burden on
start-ups so they can focus on customer experience, whilst
maintaining regulatory oversight.  Participants will work with
the BVI regulatory, the Financial Services Commission
(FSC), to agree any deviation from regulatory
requirements on a bespoke basis.  The sandbox is open to any
BVI incorporated companies and limited partnerships, as well as
non-BVI companies who wish to conduct business in the BVI, whose
proposed business model involves innovative Fintech.  There is
no requirement to establish a physical presence in the BVI by
virtue of being a participant in the sandbox.

CAYMAN

DATA PROTECTION LAW

On 7 August 2020, the Office of the Ombudsman of the Cayman
Islands (Ombudsman) issued what is believed to be the first
enforcement order (Order) issued by the Ombudsman under the Data
Protection Law, 2017 (DPL) against the Registrar
of Companies (Registrar).  The Order followed an investigation
into a complaint asserting that the Registrar requested personal
information requested via the Registrar’s online payment
platform about individuals who were 1% shareholders in a company
when it did not have a legal basis to do so, as these individuals
would not have constituted registrable persons with respect to
beneficial ownership register in accordance with the Companies Law
(2020 Revision).  The Order noted that the complaint’s
argument that, under the DPL, personal data must only be obtained
for one or more specified lawful purposes and must not be further
processed in any incompatible manner.  The Order concluded
that the Registrar did not have a legal basis for processing
personal data of non-registrable individuals in a blanket fashion
and must cease gathering and further processing such data. 
The Order also requires that the Registrar (i) make available a
privacy notice to inform individuals who submit personal data using
its online platform of the purpose for which this information will
be processed and (ii) develop policies and procedures for
requesting information and make them available to the public.

VASP LAW

On 28 October 2020, the Cayman Government announced that the
Virtual Asset (Service Providers) Law, 2020 (VASP
Law
) will come into force in two phases, with phase one
commencing on 31 October 2020 and phase two expected to commence in
June 2021. The VASP Law aims to promote the use of new technology
and innovative enterprise in Cayman whilst complying with newly
adopted international standards set by the Financial Action Task
Force.  An overview of the VASP Law was included in our
previous update which can be accessed here.

Phase one focuses on anti-money laundering and countering the
financing of terrorism compliance, supervision and
enforcement.  Entities engaged in or wishing to engage in
virtual asset services must now be registered with the Cayman
Islands Monetary Authority (CIMA) under the VASP
Law by 31 January 2021, after which provisions of the VASP Law
relating to enforcement, penalties or offences will apply. 
Applications for registration or notification will need to be
submitted via CIMA’s Regulatory Enhanced Electronic Forms
Submission online platform.  CIMA have advised that for
registrations to be completed in time, applicants are encouraged to
apply before 12 December 2020.

Phase two will bring into force the licencing requirements
relating to virtual asset custodians and trading platform
operators, as well as the sandbox licensing regime.  Certain
sections of the Monetary Authority (Amendment) (No.2) Law, 2020 and
the Securities Investment Business (Amendment) Law, 2020 will also
be brought into force at phase two to empower CIMA to waive (or
impose additional) regulatory requirements applicable to a sandbox
licence issued under the VASP Law and generally relating to the
virtual asset trading platform introduced under the VASP Law. 
Relevant entities are required to register with CIMA in phase one,
and proceed to apply for licences when phase two commences.

Further updates will be provided when CIMA issues further
principles and guidance for the conduct of virtual asset activities
in or from Cayman.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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