COVER STORY www.captiveinternational.com
wise to start
as soon as is
result, some are considering legislation to give
them a competitive edge over other domiciles.
The Companies and Limited Liability
Company (Initial Coin Offering) Amendment Act
2018—also known as the ICO Act—is the latest
move on the part of Bermuda’s government to
expand the range of businesses that operate
on the Island, as well as to encourage more
technology-related companies to open on
Bermuda. ICOs can be used to raise funds for re/
insurers but in many places are not regulated.
This new legislation affects those who are
interested in creating, promoting, investing in and
using ICOs and digital assets, as well as companies
who are seeking to raise capital through ICOs.
Once the ICO Act receives the approval of the
Senate and Royal Assent, it will become operative
by notice of the Minister of Finance (Minister),
which is expected to occur during May 2018.
The point here is that new companies will
ultimately need insurance—a captive solution
could be a good one for companies managing
relatively unusual risks and operating with
funding secured in this way.
Equally, the Vermont legislature is in the
process of exploring cryptocurrency and
Senate Bill 269, introduced in January 2018,
proposes action on blockchain, cryptocurrency,
and other fintech initiatives, as recommended
in a report produced by the Center for Legal
Innovation (CLI) at Vermont Law School.
Highlighted in the CLI report are provisions for
formal structuring options for cryptocurrency
limited liability companies (LLCs), personal
data/identity trust companies, and autonomous
David Provost, deputy commissioner of the
captive insurance division of the Vermont
Department of Financial Regulation (DFR),
explains that the DFR has been working with
companies to get training and education on the
subject for its staff, and that some cryptocurrency
and blockchain businesses have approached the
regulator about forming captives.
Internal studies carried out by the DFR
determined that cryptocurrencies qualify as
securities and can be regulated as such.
While Provost suggests that a captive could
invest some of its assets into cryptocurrencies,
it would not be without risk. There may be
potential gains to be made, but a clear drawback
in his eyes were the potential losses from such
a volatile currency.
“I don’t yet see a big opening for cryptocurrency
in the captives industry,” Provost says. “Certainly
some crypto-related businesses may form
captives for various reasons, and some may
even pay claims or collect premiums in crypto,
but I don’t see the ‘next big thing’ here.”
He adds: “I do not expect to see existing
captives owned by traditional businesses either
investing in cryptocurrency or transacting with
cryptocurrency any time soon. In the words of
Sir Charles Barkley, ‘I may be wrong, but I doubt
it’. Blockchain might be another story.”
How does the industry benefit?
Blockchain is a very different animal and one
that will undoubtedly transform parts of the
industry. The concept of the distributed ledger
is one that could being real benefits to captives
managers, according to Matthew Queen, chief
compliance officer and general counsel at
Venture Captive Management.
Distributed ledgers use independent
computers—referred to as nodes—to share
and synchronise transactions in their respective
electronic ledgers. This is opposed to keeping data
centralised, as is the case with a traditional ledger.
Distributed ledgers not only allow
programmers to create unique digital assets
that can’t be counterfeited, they also allow for
the transfer of digital assets in a system without
the need for third parties to regulate it.
Queen notes that just as there are many
cryptocurrencies, there are also a number of
different ledgers, such as Tangle or Hashgraph;
each has its pros and cons but they share a single
fundamental value: digital asset protection.
And, while the use of any distributed ledger
does not need to be linked to a cryptocurrency,