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

At present however, the island is experiencing a renaissance of sorts. A new administration, led by Prime Minister – the Honourable Mia Amor Mottley, Q.C., M.P., has met with officials of the International Monetary Fund to discuss the current economic state of affairs and to explore a way forward for the country. Sweeping changes are in store. The path ahead will be arduous, but what is evident to many, including the new administration, is that it can no longer  be ‘business as usual’ for the country.

Historically, there have been many notable quotes about adversity and its relationship with opportunity and success. What matters most with adversity, however, is how it is perceived. As a nation, it is evident that Barbados’ citizens have recognised the monumental task faced by the country in both reinventing itself and rejuvenating the now ailing economy. At a macro level, there is a need to address the shortcomings in dated legislation to improve the jurisdiction’s attractiveness to foreign investors while also maintaining its credibility. Business facilitation – or lack thereof - must be improved. This has been a perennial concern for Barbados’ international business and financial services (IBFS) sphere. It is imperative that this is addressed, particularly if Barbados is to remain competitive with other international financial centers. Further, the promotion and cultivation of innovation at all levels in Barbados 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 allows private businesses – in all sectors – to not just innovate, but to also  convert innovative ideas into useful products and services. This output must look to satisfy the expectations and/or needs of consumers,  both onshore and offshore. Secondly, policymakers must also embrace new technologies at both  macro and micro economic levels. Several jurisdictions across the globe have adopted a host of new financial technologies (FinTech) such as distributed ledger technology (DLT), the parent of blockchain technology and crypto assets. These developments have been met with an expected level of skepticism. Ultimately however, as regulators and practitioners become more familiar with the technologies and their applications, there has been a softening in the ‘threat’ perception of these innovations. The application of 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.

The Caribbean region has been gradually embracing these new technologies. However, the rate of adoption in each jurisdiction has varied. In July 2018, the Bermuda Government passed its Digital Asset Business Act as well as an Initial Coin Offering (ICO) Bill. The former allows for a new class of bank to be established in the jurisdiction to work with startups in the emerging FinTech/crypto/blockchain sphere.

The latter prescribes the minimum requirements for ICO projects while outlining the compliance measures for companies looking to conduct ICOs in the jurisdiction. In August 2017, the Bank of Jamaica announced that it was building crypto awareness. The bank’s Deputy Governor Livingstone Morrison noted that the bank “must create opportunities for the exploitation of certain technologies, including cryptocurrency, while pointing out that such technologies should not pose undue risk to the local financial system.” One year later, the Jamaica Stock Exchange announced that it had partnered with a Canadian FinTech firm to pursue the trading of digital currencies and securities tokens. While in Barbados, Bitt Incorporated, a Barbadian startup in the 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 between Caribbean countries and has engaged approximately 12 regional governments to ensure that this initiative is a success. In 2017, the Barbados Stock Exchange Inc. (BSE) entered into discussions with an American FinTech firm to evaluate the possibility of deploying a trading solution that would facilitate the trading of securities tokens. Negotiations are in the final stages and the BSE intends to position this solution as part of the product offering on its well-regulated International Securities Market (ISM). In mid-2018, a working group comprised of members from the BSE’s ISM Executive Team, the Financial Services Commission (FSC) – the Regulator, and service providers, was established to explore other opportunities that exist for Barbados in the DLT and blockchain space, including the implications for the jurisdiction should it decide to open the market for activities involving other crypto assets. The working group has submitted its first official paper to the FSC and is awaiting its ratification. 

Powered by blockchain technology, crypto assets are set to change the way in which the globe conducts business irrespective of organisation type, size or activity. Considered the next evolutionary step for the internet, blockchain technology facilitates peer-to-peer transactions without the use of an intermediary or governing body while validating and maintaining permanent public records of all transactions and keeping user information anonymous. Using cryptography and special coding, all personal information and the activity conducted between individuals or entities, is stored privately and securely in linked blocks or nodes that are both transparent and virtually incorruptible. The reconciliation of information and activity is conducted by way of mass collaboration and stored in code on a digital ledger which is distributed globally. Trust is therefore inherent to blockchain technology rather than it being established by or being the responsibility of a third-party intermediary. The decentralized nature of blockchain technology is where it gains its power as it is less vulnerable to malicious attack or failure when compared to external intermediaries such as banks or centralized governments.

Essentially, there are seven types or categories of crypto assets currently in existence. These are:

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. Unfortunately, their independent, and somewhat deregulated nature, have brought them under greater scrutiny. Regulators in many jurisdictions have taken regulatory action against the use of fiat currencies to purchase cryptocurrencies, however, they have softened their outlook on the application of both DLT and blockchain as greater familiarity is being garnered about their significance.

The advent of the ICO – the cryptocurrency world’s rough equivalent of the traditional initial public offering (IPO) – and the move towards tokenization (the cryptocurrency world’s rough equivalent of the equitization of assets)  have led regulators to investigate the inclusion of this type of asset (tokens) into the regulatory forum. Securities tokens have been increasing in popularity as they are being used by tech startups to raise capital for the development of their applications and other services. They represent an asset, usually given to investors during the ICO and often take the form of digital bonds, equities or other securities. These ‘assets’ can then be traded peer-to-peer without financial intermediaries but are differentiated from cryptocurrencies in that they cannot be used as a form of currency outside the ecosystem in which they were created. Securities tokens operate much like traditional equity securities as investors purchase them in anticipation of the token appreciating in value at which point the investor can opt to sell the token and collect a profit on the initial investment. Where securities tokens differ from equity securities is that this type of asset does not give any ownership in the underlying company.

Given the nature of securities tokens the BSE’s ISM Executive Team was pleased to announce the approval of its sixth Listing Sponsor, Coin Start Ltd. on 8 June 2018. Coin Start is an enterprise established to engage companies  domiciled in Barbados and abroad which 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’ IBFS sector, are pleased to play a part in the national effort of strengthening Barbados, so that the country may regain its footing and stand once again as the ‘Gem of the Caribbean Sea’.

Terry Belgrave
Terry Belgrave is a financially-trained, development-focused professional with over a decade of experience in business development roles. He is a graduate of Western University in Canada where he paired a Bachelor’s Degree in Management and Organizational Studies (B.MOS) – Finance Specialization with an additional Minor in Economics. His track record of success, ultimately, is derived from the combination of his specific educational background and industry-agnostic corporate experience – a coalescence that established critical thinking for operating effectively through the intersection of human psychology, the capital markets and government policy.

Barry Blenman, MSc
Barry Blenman joined the Barbados Stock Exchange Inc. on February 2, 2009 in the post of Registry Services Assistant. At the time, his primary role was the management of Sagicor Financial Corporation Limited’s share register and the preparation of the BSE’s daily trading reports. On September 2, 2010, he was promoted to his current post of Operations Supervisor – Business Development reporting directly to the Managing Director. Mr. Blenman acts as liaison for external partners and internal groups with the key responsibility of identifying, negotiating and managing relationships with partners whose objectives and product/service offerings complement both the short and long-term vision of the Barbados Stock Exchange Inc. He still retains his reporting duties – researching, preparing and disseminating all market related information on behalf of the BSE, the coordination of all outreach programmes including conferences and seminars and all communications with various media outlets both local and international. Mr. Blenman has worked in the international business and financial services sector, the local manufacturing sector and the Civil Service. He holds a Master of Science Degree in Project Management, a Bachelor of Sciences Degree in Management (Upper Second-Class Honours) from the University of West Indies – Cave Hill as well as Associate Degrees in both Mechanical and Electrical Engineering.