18 January 2018Insurance

Bermuda warns of Initial Coin Offerings’ risks

The Bermuda Monetary Authority ( BMA) has warned about the risks involved when companies raise funds through cryptocurrencies such as bitcoin.

An Initial Coin Offering (ICO), sometimes referred to as an initial token offering is often used by startups to raise funds from various investors through the internet.

InsurePal, a new peer-to-peer insurer has for example recently raised £15 million ($18 million) in an Initial Coin Offering (ICO) to fund its UK motor launch in the first half of 2018.

With an ICO, investors are able to use cryptocurrencies (such as bitcoin) to purchase coins or tokens via the internet for a set period of time. The ICOs are often global offerings which can be created and accepted anonymously.

Currently, this form of investment vehicles may not be subject to prudential regulation, which among other things requires regulated entities to hold sufficient capital and have adequate risk controls in place, according to the Jan. 17 press release from the Bermuda Monetary Authority (BMA).

“Whether an ICO falls within BMA’s regulatory boundaries can only be decided on a case-by-case basis,” the press release said. “Many ICOs are unregulated because there are no requirements with which they are required to comply at this time.”

An ICO also offers no investor protection, the regulator noted. Bermuda’s regulated financial services companies have made a commitment to adhere to market codes of practice and transparency. These codes do not apply to an unregulated ICO.

Furthermore, projects making use of ICO’s are often at an early stage. Typically, their business models are experimental, although traditional businesses may also use ICOs. Instead of a regulated prospectus, ICOs usually present potential investors with a ‘white paper,’ the BMA noted.

“Today’s fast-paced global digital business environment needs to be accommodated for Bermuda to remain economically sound,” said BMA CEO Jeremy Cox. “Sometimes there may appear to be a contradiction between this fast forward new world and the BMA’s mandate to ensure that investors and other stakeholders can operate in a climate of confidence,” Cox added.

The BMA said that it encourages the investing public to be prudent and mindful of their accountability for their actions in this increasingly fast-moving and complex landscape.

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More on this story

17 January 2018   InsurePal, a new peer-to-peer insurer raised £15 million ($18 million) in an Initial Coin Offering (ICO) to fund its UK motor launch in the first half of 2018.
25 January 2018   Trade credit insurers are expected to pay some £31 million to help firms in the supply chain recover from the collapse of UK construction company Carillion, according to the Association of British Insurers (ABI).
4 July 2018   Intrepidus Insurance Services, a Bermuda insurance broker, has had its registration to operate revoked by the Bermuda Monetary Authority (BMA) following an investigation triggered by a complaint against the company.