On The Brink with Castle Island - Premier David Burt on Bermuda's Emerging Role in the Digital Asset Ecosystem (EP.461)

Episode Date: October 18, 2023

Nic travels to Bermuda to sit down with the Premier, Hon. E. David Burt to discuss digital asset policy and the emerging crypto ecosystem on the island. In this episode: The origins of the Digital Asset Regulation in Bermuda Catalysts that have led crypto firms to take Bermuda seriously as a domicile Premier Burt's evangelization of Bermuda regulation on the crypto circuit Why Bermuda is a good place for a crypto firm to do business The "bermuda triangle" (government, industry, and regulator) How Bermuda straddles the risk of digital assets with the potential for innovation How the Premier aims to incorporate local residents into the tech industry here What the Premier is happy about regarding Bermuda's regulatory strategy for digital assets Which sectors within the crypto space the Premier is focusing on at the moment How Bermuda is situated relative to other financial regulators Premier Burt's view on regulatory passporting Thanks to Penrose Partners.

Hello and welcome back to On the Brink. I'm Nick Carter. Today we have a very special episode for you all. This week I traveled to Bermuda to try out the rum swizzle and also to attend the Tech Summit there. While I was there, I had the opportunity to sit down with Premier David Burt, who is actually Bermuda's youngest ever premiere. He's been in office since 2017. And throughout that time has stewarded the process of making Bermuda. Muta quietly one of the most innovative regulatory domiciles for digital asset companies. Bermuda has been crafting their digital assets policy for about six years now. I learned about Bermuda's regulatory environment through a deal we recently led Mountain Protocol. Our episode with Mountain came out about a month ago,

and I realized that Bermuda has achieved exit velocity as a regulatory domicile for crypto startups. I'm very impressed with what I've seen there and with the Premier's guidance and leadership. So here's my conversation with Premier David Burt. So we're here with Premier Bert in the in Bermuda. What do we call this building? This is the cabinet office. We're in the cabinet office in Bermuda. Very excited to be sitting here with you.

Thank you for the time. Oh, no problem. It's an absolute pleasure to be with you. Okay, first question. The Bermuda shorts is part of formal wear. critical is that how often do you wear the shorts as part of your outfit um i do not wear them very often uh but that's a personal choice um i'll probably get back to them soon i refuse to buy new ones i can't fit in my old ones and so when i slim down enough you'll see them again i look for i'm

going to be picking up a pair later because i actually love the look you should they're nice they're traditional they're classic especially when it's warm it's very cool yeah and i'm in Miami and we have to wear pants all the time. Oh, no. What's up with that? I think there might be a Bermuda short store opening in Miami soon, actually. I hope so. Okay, so we're here for the tech summit.

I'm very impressed with it so far. The reason I'm here is we're now doing deals in Bermuda as a venture firm because Bermuda has become one of the most interesting jurisdictions, I would say, for digital assets. So especially as the U.S. has become more hostile, Bermuda has. kind of a track record of building policy and regulation. Can you tell us about that journey, I think started maybe five years or so ago, what it's been like between kind of 2017-18 and today and how far you've come there? Great. Well, thank you, Nick. I mean, the journey itself, it did start. It was just shortly after I was elected, so about four days after I went to a hub

culture event, and this was the first exposure that I really had to digital assets. We'd spoken about fintech we're in opposition, but just in a broad and general term of the overall and broader fintech landscape. And then around September of 2017, the same person from Hub Culture, Stan Stoner, who chairs our Global Digital Asset Advisory Board currently. He had said, you know, Bermuda can play an important role because some of these companies are looking for regulation at a place to be regulated in order to grow, and there is no such thing. And then a few more persons were coming up with the same item. I said this is something that could certainly make sense.

So in November 2017, we formed a blockchain task force. This was dealing with the regulatory side and also the business development side. And that morphed into us in 2018, introducing what at that point in time was the ICO Act in April. And then in May, we introduced the Digital Asset Business Act. The Digital Asset Business Act actually went live in September 1st. 2018 and so it's been up and running for about five years now. The one thing I can say is that we have no turnover in our regulator whereas a lot of people have. So these are persons who have been regulating digital assets for five years. They know it, they understand it. And as you can see,

we took the approach of making sure that digital assets were their own asset class spelled out, provided that clarity and also provided them with access to an international renowned financial services regulator, who I think can give any business credibility, certainly businesses that are startup businesses or businesses that are more mature business in order to possibly look to attract an additional capital knowing that they've actually met the test of being in Bermuda. So that journey happened. We put a few things along the way, introduced a new class of licenses, the test license, introduced clarity for derivatives.

We introduced some entire digital asset industry as well, which I think is particularly important, Is that something that is necessary for the digital asset industry to function well? And so from that perspective, I think we've done relatively well. And you say that the approach that you see here is impressive. And that's just because we have a very good regulator. And this government is fully committed to innovation and supporting companies that want to innovate. Yeah, I've seen a real acceleration, too, in the rate of new firms getting these licenses, whether it's the sandbox provisional, on the more startup side,

and then larger established crypto firms. I mean, you've some of the largest digital asset businesses in the world now coming here to get regulated. What are the catalysts that have driven that change? I would like to say it was me, but no. I can't take full credit. I mean, our team has been working at this for a number of years. And so whether it's traveling, as IFX, she refers to it as a crypto circuit,

So whether it's consensus, whether it's CFC, whether it's even over in Davos or whether it's at certain founders' events and other things, that's the way that we have just approached it. And we did change our strategy. Because remember, in 2018, when we're at events at consensus and other items, we were trying to be all things to all people. And though the government can say we have an amazing place for you to come, when you get to the regulator, the regulator is not under the control of the government. And the regulator has very strict rules. and what we found very early on was that, you know, if you weren't, you know, a well-positioned company, you would find it difficult going through that regulatory process. And that's why we introduce a test license. It's why we did a few more things in tweaking. And that is a process that still needs to happen. But I think that as we continue to go on, whenever we meet with some of these large companies, they are stunned at what they can do with a remuda license. And so it's just the continued item of continuing to talk to continuing to share. And I think that that is what has, you know, led also great assistance with our law firms. Our law firms are the ones who are, you know,

reaching out when these people come and say, you know, you might actually want to do it in Bermuda. There is a good setup that you have there and the types of things which you're actually looking to do can be done under a fully regulated environment with a regular that has experience in Bermuda. So for those aren't as familiar. And over the course of myself making investments, into companies registered here. I've learned about what the regulatory financial environment is like the business environment, legal context. But for those aren't familiar, what would you say are the conditions which make Bermuda a great place to do business from the digital assets perspective? Well, we'll start from the fact that Bermuda is an international financial services

center. Our biggest industry in Bermuda is insurance, but it is only one part of financial services. We also have a thriving asset management business in addition to matters related to, of course, investment funds, trusts, and other things, those types of matters related to financial services. And so we basically took the template of success from insurance and transfer that to the digital asset industry. And from that perspective, it allows persons to be inside of a regulator that takes a principles-based approach, not a rules-based approach, to these types of problems. of which we go with. And so the ecosystem here as well is very well advanced from the other areas of financial services. So when you talk about all the law firms that we have here, all the

accounting firms that we have here, all the compliance and support firms we have here as well that make it very, I guess, I would say, easy for persons to go ahead and go through the process because there's plenty of help and assistance out of there and people who know the regulator well and know the types of things of which the regulator is looking for in order to be able to advance their particular business. So I think from that person, The other thing is that you have a government that is firmly committed to innovation. One of the things we always talk about we're on the road is we call it the Bermuda Triangle. And it's not the one that we, you know, learn about when we were young where ships disappear,

which by the way no longer happened after the invention of satellites, where they can actually see the storms. We're debunking the triangle. Thank you. That's all it is. That's all it is. When satellites prevented things stop disappearing, you're like, oh, there's a storm there. You might not want to fly. That's good to know. But the Bermuda triangle that I refer to is the relationship between the government, industry, and the regulator.

And it's the industry that says these are the types of things at which we're looking for. They come to the government to see if the government has the appetite to do it and to go down those roads, whether or not it matches with the overall risk environment of the country. If the government says yes, we then go to the regulator and the regulators say, you know, come up with this. This is something that can work. And once all three are on board, then we can quickly advance it. legislation through. And I think that's, I think that there's no better example of that when you look at what happened with the Digital Asset Business Act. I mean, we formed a task force in November of 2017,

and by May of 2018, we were tabling legislation in Parliament to, you know, to fully regulate the digital asset industry. And so some people say that, you know, as fast as the purviewed government operate, we operate the speed of a startup, and that's, we have to, because seeing on the forefront of innovation is key and critical. And from the perspective, of a regulator and a governmental body that is interested in innovation. At the same time, there's a degree of risk that's fraught with incubating a novel industry like this, especially one like digital assets where I don't even need to recap, you know, some of the calamities that can occur in that space.

How do you think about striking that favorable balance there between the two? Well, I think that the, I trust the regulator. our regulator has an excellent history in dealing with these matters in areas, areas of financial services, and certainly also on digital assets. And so we understand the risks that may be inherent in a new industry such as this, but what we also understand from a government perspective is that we have to trust our regulator. And that's hard. That's hard from a business perspective.

That's hard from a political perspective. that's hard from a on the road perspective because, you know, people are like, well, you know, what companies do you have? What's that? And they are all focused on quantity. Whereas from our perspective, we are focused on quality, knowing that people can't get past the bar. But I mean, there's, you know, there's been companies that, you know, have tried to come that didn't make it that are no longer existing. There's been others that I've been politically criticized for letting go to other jurisdictions and that didn't exactly work out well. And so I just have to, trust the regulator and that's the approach which the government takes we trust the regulator to examine whether or not these people are really what they say they are or they're going to increase risk inside of our ecosystem and put negative reputational impact which we want to avoid well i think you're certainly vindicated by your more let's say stringent approach given uh what we've seen elsewhere and politically that's not easy right it's not easy to make the argument that you you're advancing when other people will see flashy companies going to other places. And we were

heavily criticized internally, domestically, politically for the fact that FTX went to a different jurisdiction. And I remember speaking to my political colleagues at the time that we have to trust our regulator. There may be a reason why they're not. And we just have to continue and stay our course and be confident in our goal. We're not trying to lower our standards or adjust or change. The regulator is there to protect our reputation and to ensure to protect consumers as well. and we just have to be okay with that. When you think about the relationship between the island's local economy and sort of these global financial institutions coming in,

how do you think about integrating the local population into this kind of broader, more globalized capital landscape? What are the touch points there? Well, I mean, from the workforce perspective, I think that what you've seen in insurance is just a perfect example of how to make it work. I mean, we've been doing insurance Bermuda at the captive side since the 60s.

but on the very large commercial side, I would say, since, you know, the late 80s and really coming to swing in the 90s. And so from that perspective, when, you know, it started, the amount, the percentage of Bermudians working in those industries were 5%. Now, if you look at our insurance industry, when you take Bermudians and permanent residents, we're up to 70% now. So, I mean, it's a huge change, and that just takes time, that takes investment. And that's why at the digital asset side, we're focused. I mean, we did free fintech training for every single person in the country, anyone who wants to get certifications and upgrade their skills and to learn more about this. They're welcome to go ahead and engage in that.

That's something that we've done. We continue to do that level of education inside of our schools and others, and we encourage internships. We run programs on that level. And so that's just copying what we did in insurance because we know in the end of the day that works. And so we do have a fintech internship program that we run on every summer. and we know there's people who graduate from there and able to go in and enter industry. So from that perspective, we are confident.

But the thing to remember is from a Bermuda perspective, you know, you talk about big companies like Coinbase. Clearly, Coinbase is not going to move all of their employees, Bermuda. And so from the perspective, we know that there are certain operations here that we have, and we believe that we can appropriately human resource for there. But we know that not all the people are going to be inside the jurisdiction, but that's no different from our insurance industry or other areas of financial. services. We focus on head office. We focus on the regulation stuff. We focus on those particular items, but there may be needs for, you know, operational things to happen at other places.

And we accept that and we understand that. When you look at the licensees so far, I think it's maybe just under three dozen or so that have achieved provisional or full licensure. There's some huge names in there. Of course, you've circle Coinbase, Cash App, XPTO, BitTrex, and then also some startups, what are you proud of? What are you happiest with in sort of the five years of data you have? I'm happiest with the growth. I mean, and that's really what it is. I'm happy it was the vindication of our strategy

because the vindication of our strategy was to focus on high-quality companies and to make sure it's seen as a space for innovation. I mean, you know, it's a huge mark of success that, you know, you have a company like Coinbase who now has two licenses here and have, you know, publicly stated what they're going to do with their Bermuda licenses. And, you know, when you look at the history of companies like

that tracks what they've done, when you look at the countries like XPTO and how they are, you know, recognize. These aren't small companies. And so from that perspective, I mean, Circa was our first big name in 2019, but we just continue to press through, you know, that. And so the pride is vindication that our strategy of focusing on high-quality companies is bearing fruit. And, you know, that process is continuing.

and people are recognizing Bermuda as a place for innovation in the digital asset space that you can do in a regulated market, which I think certainly helps companies gain credibility and be able to raise capital. When you look at the digital asset sector, it's so broad. I mean, it's really more like a cluster of distinct industries. I mean, you have obviously the tokens and the ICOs, which was kind of earlier on. You have sort of the Cussian Exchange portion. You have now the tokenization of RWA is this kind of the hot theme in the market. You, of course, have stable coins.

You have now, you know, Mountain is one of the stable coins. They got a license here. We'll probably see some others. What trends within the digital asset space excite you particularly? Oh, that's interesting. I mean. Or none of them. You don't have to be excited about it.

I mean, now here's the thing. I don't keep up with, you know, the trends. I have a wonderful team that, you know, are the ones who advise me around those. things. But I know where we're trying to go. And what we're trying to go is to continue to make sure that as this industry becomes more and more mature, that we are able to stay on the forefront of innovation. And saying of the forefront of innovation means that we can't rest on our laurels, that we have to continue to advance and look, what is coming next? And so, you know, there's the things around D5. How do you regulate D5? There's things around D5. There's things around Dau's.

I hate that name. We need to come with something else. Our legislation will most certainly have a different name that's not called this thing that sounds like some crazy robot out of science fiction that might take you out. And then there's also digital identity, which we think is huge for the future. Because, of course, when you're a government and dealing on a government level and a regulatory level, one of the biggest risk inside of this area is certainly anti-money laundering and all those items. And we believe that digital identity and reg tech can actually help companies. do that in a better way, more efficient way, can actually reduce bad actors that are inside the space, can find them a little bit more quickly. And I think add to additional credence inside the industry.

So if we look at the ways of which we're going, I think those are the trends. You talk about tokenization real-world assets. You were able to do that in Bermuda in 2018. And so the fact is that, you know, our licenses are there, our structure is there, and we're now looking for what are the things, which may take another three or four years to develop, but we want to make sure if that innovation is happening, it's happening here, which is where we started on this. Because if you remember back in 2017, it was blockchain will kill everything. Blockchain will kill everything.

There'll be nothing left. It's going to take over this. It's going to take over this. And from a policymaker perspective, when you're looking at your massive insurance industry and the view that, you know, blockchain is going to kill insurance, then you want to make sure that you can innovate in that space or else people innovate somewhere else and you'll lose. the advantage of what you have. So that was really the impetus of where it came from. And so it's getting back to the fact that we need to now look at what are the next things that are coming. And when we talk about DOWs, we talk about DFI and when we talk about digital identity,

those are the next three places where we'll be going from a regulatory perspective. This year has been so interesting, 2023 in the U.S., we saw overt hostility against the digital asset space, both from the banking perspective, from the SEC with securities regs, with the CFTC moving against defy, generally administration saying unfavorable things about it. Now you see capital fleeing the U.S. venture firms like us looking at other jurisdictions, right? I was just in Hong Kong, just in Singapore, now I'm here. So you see this kind of mobility of crypto capital, entrepreneurship. We see startups redomisiling, right? This is certainly something we're seeing from our perspective.

How do you think about how Bermuda is situated relative to both the U.S. as it becomes more hostile relative to the UK, of course, the FCA, the EU, and then some of these other newer jurisdictions, which are trying to attract the cryptospace, Hong Kong, Singapore, and the UAE. I'll start with this. I mean, Bermuda is unique around international financial services center. We like to share that there is, you know, we're in a class of our own, and there's only two jurisdictions on the planet that has regulatory equivalents in risk with both the European Union and the

United States and that's Bermuda in Switzerland. So we, you know, we are in it, we consider ourselves in a different class of regulatory excellence. Insofar as, you know, what the other jurisdictions may or may not be doing, what we're seeing in America or in the EU. I was just in Brussels. I was speaking to the Director General in charge of the implementation of MECA and speaking about those various things. And, you know, they recognize, you know, they say there are spaces that we may question, but we know anyone who gets a license to renew the monetary authority has been checked and verified. And so we recognize that. But that still doesn't get past their issue of that you have to be licensed in one of the EU countries. And I think that these regulatory barriers which are coming

up are some of the things that, you know, are that concern me. Because I think that, you know, regulating this industry is not easy and learning how it's regulating any experience of it is not easy and I think that it's a in my view a not wise policy direction to assume that every member state in the European Union can stand up a regulator of this particular item clearly the US hasn't figured out what they're doing and the challenges of which they're having over there in getting anything forward because they're still squabbling over, you know, who has jurisdiction, I guess. And so that's hard. So from our perspective, I know that there's lots of persons that will,

you know, present themselves. We're just going to continue to push forward with what we do. We think that we have excellent geographic proximity. We think that we have a regulator with experience and we know that we have a stable of companies and a wonderful supporting infrastructure. And so from that perspective, we think that we're well positioned, whether it's Hong Kong, Singapore, UAE, others remains to be seen. But, The fact is that we have a good working relationship with the MAS in Singapore. We have a good work relationship with the regulators in Hong Kong. And we have a good working relationship with the regulators over in the UAE, mainly when we're dealing with Abu Dhabi.

And do you see your future as regulatory passporting or striking your own way or just following in the footsteps of the SEC, whatever they decide? Well, I think that on a broad level, I think that passporting is. going to be difficult in the near term just because people don't trust. And from the perspective of Bermuda, what we want to do is we want to make sure that we are identifying companies or countries that may not want to take on the risk of regulating this stuff and want to make sure that they can rely on what it is that we do. And those that are direct conversation which we have, we also will deal with regulatory bridges. So those are discussions which we're having with Al-Badavie. And as I said, we have these relationships with all the regulators around the world. So we'll see where it takes us.

But we know that our regulations have been copied by a number of jurisdictions, and we're fine with that. Because we know that we can't have all of the companies. But, you know, it remains to be seen. There's been many, you know, places that wanted to be king of crypto and are no longer care. It just keeps happening. We're just on our steady pace because we are focused on our strategy of attracting the best companies that want to be regulated that can make it through our tough regulator. So you've been on the road at Crypto-Comfer. conferences for a few years now.

And now we're at a conference in Bermuda with a lot of folks like myself here. What is it that you try to convey to entrepreneurs, investors in the digital asset space? You have to come here to see. You need to come here to understand. It's one thing if your lawyer is telling you all the rest, it's a different thing to come to the island experience and see for yourself. the ecosystem and the environment of innovation that we have here. The message is that there is no better regulator for digital assets on the planet. Full stop.

I have no fear of contradiction in saying that. We've proven that to be correct. When you talk to companies, they are stunned with conversations with regulators, how forward thinking they are, how smart they are, how they make their businesses better because they present them with risks that they may not have been aware of and thought of around that. And so I think that it's important for persons to come and to engage. And if you are a well-regulated company, if you know, if you are or some of the people who are in your industry as well, VCs are looking for a place to, for their portfolio companies to go ahead and get them set up,

our doors are open and we're always welcome to have a conversation with new and innovative companies. The worst thing that can happen is we're not a good match. But more times than not, we are. And if you're looking to serve the world, this is a good place to do it for. Well, I think we're at a stop, so we'll leave it there. Premier Bert, thank you for your time. Thanks for being with us. I must say I have been tremendously impressed by the conversations with the BMA. Certainly, the level of sophistication is off the charts. So whatever you're doing, it's working. Well, thank you, everyone's stick. And I hope you come back to review again. I certainly will. I promise.