Premier David Burt, the leader of the island nation of Bermuda, has boasted that the current situation that embattled Canadian crypto exchange QuadrigaCX finds itself would have been prevented if the exchange’s crypto keys had been kept in his country.
Speaking in an interview with Fortune’s Balancing the Ledger segment on March 25, Premier Burt argued that such a situation would have been averted because of the existing legislation in Bermuda that governs the operation of its native crypto space.
His comments were made following the death of Gerald Cotten, the founder, and CEO of QuadrigaCX, the Canada-based crypto exchange platform, in December 2018. Cotten died suddenly in India, taking the location of the private keys to the exchange’s cold wallets to his grave.
This is Not Canada. We have Rules here in Bermuda
Since then, QuadrigaCX has been unable to gain access to the cold wallets, where a vast majority of the exchange’s reported 190 million CAD (about $145 million at the time) in customer and operating funds were kept. It’s been one financial hardship after another since then.
In part, he said:
“If QuadrigaCX was licensed under the Bermuda Monetary Authority, what has happened would not have been able to happen, because we have rules regarding the custody of master keys and making sure they’re not held by a particular individual.”
As it would seem, Burt was referencing the country’s Digital Asset Business Act, a new regulatory framework that provided clear boundaries for the operation of blockchain and crypto-related businesses in Bermuda.
The Act, which was enacted in 2018, was promulgated by the Bermudian financial regulatory authority as a means of ensuring the protection of the rights of both current and prospective clients of these companies. Speaking on the Act, Burt said, “It basically states what you have to do with the master keys, how those things have to be handled, and making sure that they cannot be lost, or if they are lost, there’s a way for that recovery to happen.”
Canada Responds in the 11th Hour
Canada’s securities commissions (@OSC_News et al., coordinated as @CSA_News) & @IIROCinfo are asking about their roles regulating crypto-asset exchanges. They’ve built a “Proposed Platform Framework”, and posed 22 questions to answer, by May 15. https://t.co/dMROMJo6kW pic.twitter.com/ybUi7UPT7e
— Bram Abramson (@bramabramson) March 14, 2019
While it’s true that the investors who trade on QuadrigaCX were the real losers here, but the Canadian regulators have decided to take steps to prevent such from happening again. The Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) have called for input on the regulation of crypto exchanges operating in Canada through a consultation paper.
The paper reads:
Platforms may not have necessary processes and controls in place to segregate participants’ assets from their own and to safeguard those assets, including maintaining and safeguarding any private keys associated with wallets held by the Platform.
Crypto Loving Bermuda
For years now, the island of Bermuda has been known to be a crypto-friendly state. Just last year, the government amended the Banking Act to establish a class of banks that will serve its native blockchain and FinTech organizations. In April, Premier Burt signed a Memorandum of Understanding (MoU) with Binance, one of the world’s largest crypto exchanges, to provide funding for FinTech and blockchain educational programs.