After criticism following FTX's collapse, the Bahamas proposes stricter crypto regulations

Five months after the collapse of crypto exchange giant FTX drew the world's attention to the Bahamas, the island nation is proposing tougher regulations to govern digital asset firms. 

The Securities Commission of the Bahamas, the country's financial regulator, opened a consultation on the proposed new rules, according to a statement released Tuesday. The rules — packaged in the Digital Assets and Registered Exchanges (DARE) Bill — include expanding the definition of digital assets businesses, disclosure requirements for crypto staking activities and tighter requirements for stablecoin issuers.  

Following FTX's collapse last year, Bahamian authorities came under repeated attack from John Ray III, the man appointed to run the exchange after the resignation and subsequent arrest of founder Sam Bankman-Fried. In legal filings, FTX's new management said it had evidence the Bahamian government directed unauthorized access to the exchange’s systems "for the purpose of obtaining digital assets" that should be controlled by FTX. The SCB later hit back at Ray's "material misstatements."

FTX, under Bankman-Fried, was reportedly rife with chaotic risk management and sketchy record keeping. For anyone thinking of following in his footsteps and running a crypto exchange from the Bahamas, the DARE Bill includes a specific clause that "operators of a digital asset exchange must ensure the systems and controls used in its activities are adequate and appropriate for the scale and nature of its business."

Bahamas bans algorithmic stablecoins

Another clause bans the issuance of algorithmic stablecoins following last May's implosion of TerraUSD.   

"The amendments strengthen the protection mechanisms such as new disclosure and reporting requirements, specific registration obligations, and enhanced ongoing supervision for operators in the digital asset space," the SCB said in its statement. "The proposed enhancements to the DARE legal framework allow room for digital asset businesses to innovate as the space continues to evolve and provides the flexibility for the Commission to prescribe additional rules applicable to digital asset exchanges and bespoke requirements for different categories of registrants."

The consultation runs until May 31, and the authorities hope the bill will become law by the end of the second quarter.