Carey Olsen Bermuda partner Steven Rees Davies examines Bermuda's role as a digital innovation hub and how it has developed a thriving digital technology sector.
An original version of this article was first published by the Bermuda Business Review 2024-2025, July 2024
If you consider Bermuda's history and its strength and experience in surviving and thriving for over 400 years it is no surprise that Bermuda is again at the forefront of innovation, only this time it is in relation to the promotion and support of digital technology development and implementation.
We have all witnessed the accelerating global demand for improved and increased digital infrastructure capacity, resilience, speed and reliability. Some academics believe that the human race is at a pivotal point in our history as advanced technology, including artificial intelligence (AI), is revolutionising the way we conduct business and our lives generally. However, to adapt to these modern day challenges successfully we need collaboration and trust between the legislature, regulators and industry, as well as the ultimate beneficiaries: individual consumers.
With innovation comes risk, and Bermuda's position as the world's risk capital makes it uniquely well placed to establish an environment that recognises this and has the sophistication and expertise to help foster a growth mentality. Bermuda has used its risk mitigation experience to introduce some of the most advanced laws and regulations designed to encourage innovation in the digital and physical technology sectors.
Through collaboration and efficient cooperation between Government, the regulators (including the Bermuda Monetary Authority (BMA) as the financial regulator and the Regulatory Authority (RA) as the utilities regulator) and industry stakeholders (including industry groups and interested organisations like Bermuda's Business Development Agency (BDA), Bermuda has created an economic and regulatory ecosystem that promotes investment in projects that benefit from effective implementation and regulatory oversight that is proportionate to applicable risks. The end result being sustainable and equitable economic growth, diversity and prosperity for Bermuda.
With a stable economic and political environment, world recognised regulatory expertise, a highly skilled workforce and innovative culture, Bermuda has become home to a growing digital technology sector. The introduction of the Digital Asset Business Act (DABA) in 2018 and subsequent Digital Asset Issuance Act (DAIA) in 2020 to govern the conduct of digital asset businesses and token issuances in and from Bermuda has afforded those looking for legal certainty and regulatory clarity within the digital asset sector a jurisdiction they can call home in the knowledge that their businesses can thrive without fear of disproportionate regulatory and legal oversight.
Under the DABA, Bermuda provides for three different classes of licence. A Class T licence allows a person to "test" their proposed products, services or platform with the lowest level of required financial and human capital and regulatory requirements. A Class M licence is a "sandbox" that allows a tested project to scale from being a start-up to a mature professional services company. A Class F licence is a full licence and is available to those businesses that have already tested and scaled their projects and are now looking to operate at the highest levels of professional corporate conduct and risk management.
Bermuda's regulatory "sandbox" approach has been such a success that the concept has been broadened and introduced to all regulated sectors from insurance to banking, and from energy to telecommunications. These "sandbox" regimes encourage innovation within regulatory boundaries which provides the right environment for the evolution of digital technologies and infrastructure systems through practical application and testing.
The Bermuda Government is committed to continuing its strategic support for greater collaboration for the development of advanced technologies across all sectors. Another example of the success of this commitment was the introduction of the Submarine Communications Cables Act 2020, which assisted in Google's announcement last year that it had chosen to include Bermuda as part of its new trans-Atlantic subsea cable network that will connect Bermuda with the United States and the European Union, known as "Nuvem" (which is Portuguese for "Cloud"). This subsea cabling project will form part of Google's ambitions to develop a global mesh network that has been recognised as the new standard for fibre-optic cable infrastructure and forms the foundation of our entire digital world.
The decision was made easier due to Bermuda's legislation which provided protection for both the ocean environment and the subsea cables themselves, as well as providing critical certainty about where and how Google could implement the cable landing project. This project will provide improved resilience and speed for digital connectivity and communications across the Atlantic as well as the ability to meet the ever-increasing demand for capacity. This additional infrastructure will also provide Bermuda with reputational capital as evidence of its commitment to develop a technologically attractive environment for both entrepreneurs at the cutting edge of digital and financial innovation and global giants like Google who are building the next generation of infrastructure to support them.
Bermuda's Government, regulators and industry working groups have not stopped, with more localised projects constantly being developed. Examples include a focus on considering and implementing innovative new laws designed to recognise new legal concepts like decentralised autonomous organisations, or applying established concepts to new challenges like the implementation of digital ID. Other projects include the development of legal structures to meet regulatory criteria around digital asset custody and tokenisation principles. Bermuda has already illustrated how its approach to innovation and technology can drive improvements in efficiency, promote problem solving and increase participatory value and experience through greater system resiliency and risk management, which, with smarter oversight and automated checks and balances, can result in a reduction in human error.
Bermuda has become the host to several conferences and summits focussed on everything from digital assets, blockchain and tokenisation to infrastructure and energy, the blue economy and climate risk. The recent International Tech Summit (ITS2024) was hosted in Bermuda in April for its fifth year. A number of new digital infrastructure projects and partnerships were announced off the back of ITS2024 as thought leaders, innovators and regulators collaborated on ways to help promote the development of new and innovative digital solutions that could reduce friction, increase trust and deliver on improved user experience.
NEAR Foundation (NEAR) announced several collaborative projects that will seek to leverage Bermuda's unique legal and regulatory environment to accelerate integration of digital assets into global markets and advance Distributed Ledger Technology (DLT) applications across all sectors. Many of the international attendees were surprised to learn that distributed ledger technology (DLT) and artificial intelligence (AI) were two examples of digital technologies that were already being tested, recognised and deployed in Bermuda by both technology and traditional financial service companies. Other projects included the development of innovative web3 products linked to insurance pools that would focus on addressing the challenges of pricing and appropriate insurance products for the digital asset sector, as well as the integration of stablecoins, with the stability and efficiency of regulated service providers, into digital asset payment and custody solutions that could transform the way in which Bermuda businesses can manage their finances.
NEAR also announced its collaboration with other local technology companies like HITCH, Bermuda's very own digital taxi App, which is looking to develop and demonstrate how the use of stablecoins can streamline transactions, reduce costs for drivers and passengers and showcase the practical benefits of DLT in daily consumer transactions. HITCH also indicated that it is looking at ways to enable payments for government services like vehicle licensing and payroll tax through its App, demonstrating the broad potential for the use of digital assets to simplify and secure routine financial activities.
Whilst these collaborative partnerships inspire much excitement for the digital landscape ahead, they will still face new challenges as they grapple with the granular details typical of build and implementation projects. With the benefit of the infrastructure and environment afforded by Bermuda's innovative legal and regulatory regime, those who choose Bermuda as their home for innovation will no doubt see faster and more resilient solutions to these challenges.
The people of Bermuda and those she attracts are innovative and resilient in equal measure, which is just one of the reasons why Bermuda has become a recognised technology hub in a world of digital growth and global uncertainty.
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