## 1ttoea2023003

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### Preface — Mission and Scope
- Mission dates: April 26–28, 2023.
- Requested by: Central Bank of Trinidad and Tobago (CBTT) and Trinidad and Tobago Securities and Exchange Commission (TTSEC).
- IMF teams: Monetary and Capital Markets (MCM) Department mission, supported by Legal Department (LEG).
- Objectives:
  - assist the CBTT improve its licensing and supervisory regime for e-money; and
  - assist TTSEC by carrying out a desk-based review of the efficacy of its existing legislation in relation to fintech and providing high-level technical assistance (TA) on the prudential and conduct regulation of crypto assets.
- Activities: desk-based capacity development and in-person meetings with CBTT, TTSEC, and private sector representatives.

### Executive summary — Key findings
- Fintech impact in Trinidad and Tobago:
  - Currently concentrated in the payments sector and "relatively concentrated" overall.
  - Primarily affects e-money and payment service providers (PSP); crowdfunding, robo-advice, and crypto assets are affecting markets more slowly.
- Three TA areas:
  - Licensing and supervision of e-money issuers (EMI).
  - Institutional arrangements for fintech regulation: Innovation Hub (IH) and regulatory sandbox (RS).
  - Legislative review of securities legislation for coverage of new fintech models, particularly crypto assets.
- High-level observations:
  - E-money licensing process is protracted; recommendation to consider an entity-based regulatory and supervisory approach for EMIs.
  - Institutional arrangements (JFSC, TC, JIH, RS) exist but face resource and design constraints.
  - Securities Act 2012 does not cover many crypto asset activities and lacks enabling provisions to treat tokens as securities.
- Key numbered recommendations (extracted from Table 1):
  - Consider adopting an entity based regulatory approach for EMIs — ST 57 — CBTT
  - Elaborate the regulatory and supervisory expectations facilitating the orderly winddown of weak or failing EMIs — MT 58 — CBTT
  - Streamline the licensing process and consider further sharpening the payments and EMI regulatory perimeter — ST 60 — CBTT
  - Review and consider aligning to (while taking into account local circumstances) best international practices to transaction and wallet limits, interest compensation on e-wallet balances, and interoperability — ST 59 — CBTT
  - Technical Committee to be repurposed as a Joint Innovation Hub following stakeholder consultation and processes streamlined — ST 68 — CBTT, TTSEC
  - Transparent and ongoing evaluations of the operation of the Joint Innovation Hub with clear communications with stakeholders — MT 70 — CBTT, TTSEC
  - Authorities to improve international cooperation through playing pro-active roles in regional bodies and improving collaboration with peer regulators through closer working, including using Fintech Cooperation Agreements — ST 81 — CBTT, TTSEC
  - Impact assessment on the introduction of a legal and regulatory regime for crypto assets — ST 83 — TTSEC
  - Targeted legal amendments and/or regulation of crypto asset activities — MT 89 — Ministry of Finance, TTSEC
- Timeline definitions: ST = short term, 6–12 months; MT = medium term, 12–24 months.

### I. Licensing and supervision of e-money (CBTT) — Legal and operational framework
- Legal definitions and instruments:
  - Financial Institutions Act (2008) definition: e-money is "a monetary value representing a claim on the issuer that is stored on an electronic device, issued on the receipt of funds not less in value than the monetary value issued"; e-money funds shall not be treated as deposits; accepted as a means of payment by persons other than the issuers.
  - CBTT regulatory framework for EMIs 2020 (legal notice No. 284) requires a CBTT license and compliance with capital adequacy, safeguarding of customer funds, consumer protection, and AML/CFT requirements.
- Safeguarding and operational requirements:
  - EMIs must keep customer funds operationally and legally in a segregated (custodian) account with a financial institution licensed by the CBTT.
  - EMIs must maintain accurate records, conduct regular reconciliations of the e-float with the segregated account balance, and ensure e-float safeguards (security measures, disaster recovery).
  - Consumer transparency: clear information on terms, fees, charges, limitations; effective dispute resolution, including complaints procedure and access to alternative dispute resolution services.
  - AML/CFT: customer due diligence and suspicious transaction reporting to FIUTT; wallets are subject to transaction and balance limits.
  - Governance, agent regulation, and business limitations: EMIs are not allowed to provide credit, deal in foreign exchange, issue joint accounts, pay interest, and may issue e-money only in Trinidad and Tobago dollars.
- Identified enhancements and rationale:
  - Adopt an entity-based regulatory approach (current approach is activity-based and allows technology service providers and mobile network operators to undertake e-money services on their own balance sheet); entity-based facilitates segregation of activities and prudential supervision.
  - Elaborate expectations for orderly winddown of weak or failing EMIs to ensure payment system continuity and client access to funds; consider requiring EMIs to deposit client funds in the Central Bank (practice in several jurisdictions cited).
  - Sharpen the regulatory perimeter and clarify exemptions (e.g., "closed loop" PSPs) and consider approval requirements for exemptions to maintain market visibility.
  - Streamline licensing toward non-provisional licensing combined with close monitoring; current provisional registration regime (six-month provisional registration under the E-Money Order) can be unclear and lead to additional conditions applied post-issuance.
  - Review transaction and balance limits (Schedule 2 of legal notice No. 284) as they appear more stringent than bank account limits and may impact uptake.
  - Reconsider prohibition on paying interest to e-wallet holders in due course, balancing risks of disintermediation and market development.
  - Consider establishing interoperability standards and protocols for e-money and PSPs; regional precedent: Dominican Republic requiring interoperability.

### II. Institutional arrangements for fintech regulation — IH, JIH, TC, JFSC, and RS
- Institutional components:
  - TTIFC: government-created fintech incubator.
  - Joint Fintech Steering Committee (JFSC): director-level committee with decision authority on applications, approvals, waivers, sandbox KPIs, graduation, suspensions, and cancellations of tests.
  - Technical Committee (TC): staff-level committee to assess IH and RS documentation, monitor entities, report testing outcomes, and submit recommendations on entry/graduation/extensions.
  - Joint Innovation Hub (JIH)/Innovation Hub (IH): launched October 2020 as single point of contact run by CBTT, TTSEC, and FIUTT.
- IH application methods and workflow:
  - Three application methods:
    - "Form A" for information requests or meetings.
    - "Form B" for applicants meeting eligibility and ready to go live.
    - "EMI Form" for e-money services ready to go live.
  - All EMI applications currently must go through the IH, creating bottlenecks.
  - Workflow: shared inbox; all three authorities have 48 hours to review and determine lead authority; desired response time of one week for lead authority; final response filtered through CBTT.
- IH staffing and activity:
  - No dedicated IH team:
    - CBTT: IH run within PFMID, staffed by one full time staff member, supported by others with additional duties.
    - TTSEC: Fintech Team composed of staff from various departments who carry IH work as part of broader remit.
  - IH engagement statistics (through March 2023):
    - IH engaged with 61 firms since launch to March 2023.
    - 29 submissions were EMIs or PSPs.
    - 18 submissions were crypto asset focused firms.
    - Fifty engagements were general queries.
    - Eleven engagements were applications for authorizations.
  - Current role: functions as a fintech touchpoint (office hours/regulatory surgeries) focused on meetings, signposting rules, and feeding intelligence back into authorities.
  - Limitations: resource constraints, limited outcomes, confidentiality obligations restricting firms from publicizing regulatory engagement as endorsement.
- Recommendations on the IH/JIH/TC and governance:
  - Conduct a feasibility study to improve the JIH; repurpose the TC to operate as the JIH (TC as spokes, smaller dedicated hub staffing).
  - Replace three-form application system with one application form where firms explain eligibility and requested support.
  - Provide a dedicated case officer for each applicant for continuity and accountability.
  - Limit initial support to signposting, assistance in document review for licensing, and generalized guidance (with caution regarding legal liability).
  - Timelines: aim for feedback within 14 working days; most initial support to last less than 30 days; weekly JIH/TC meetings recommended for monitoring.
  - Publish evaluation/lessons learned reports at least annually including key statistics while avoiding disclosure of commercially sensitive information.
  - Given limited resources and relatively small fintech impact, consider alternatives to a standalone IH (coordinated office hours/regulatory surgeries and demonstration days).
- Regulatory Sandbox (RS) design and sequencing:
  - RS proposed in May 2021; to be launched in two phases:
    - Phase 1: focused on EMIs as a provisional registration regime under the E-Money Order (up to six months provisional registration with potential waivers); lacks key sandbox testing components and resembles a waiver program.
    - Phase 2: later, broader fintech innovations (crypto, crowdfunding, robo-advice); tests restricted initially to 6 months with no extension beyond 12 months.
  - Application/reporting/exit rules:
    - Application forms located on CBTT website; applications can be submitted via CBTT, TTSEC, FIUTT websites.
    - Testing firms must submit regular reports and a final report within 30 days of completion covering volumes, complaints, cyber incidents, fraud, operational issues, KPI outcomes, and deployment strategy.
    - Authorities to review final report within 30 days; publish list of successful tests within 50 days of test completion.
    - Exit at completion or cancellation; pre-agreed exit strategy required for suspension/cancellation.
    - Firms likely subject to a fee if e-money firms requesting licensing.
  - Automation plans:
    - Drafted RFP to automate and digitize applications and applicant tracking; Proof-of-Concept completed with two vendors; RFP not published pending consideration of alternative solutions.
  - Sequencing and priority recommendation:
    - Development of RS is not a regulatory priority given current fintech impact concentration in payments and nascent status of other sectors.
    - Preconditions for RS: substantial domestic fintech impact growth, outcomes of impact/feasibility study, sufficient resources and capacity, product/service materially different domestically from peer jurisdictions.
    - Consider keeping IH and RS applications separate or create a lightweight triaging point rather than requiring JIH acceptance as an RS prerequisite.

### III. Legislative review of crypto assets (TTSEC) — market status, legal gaps, and recommended strategy
- Market status and perceptions:
  - Activities in crypto assets do not seem significant at this stage; limited information on usage.
  - Private sector interest exists but legal and regulatory uncertainty, technological infrastructure, and scarcity of specialized workers inhibit development.
  - Banks generally do not allow credit cards for acquisition of crypto assets; unclear whether retail interest is speculative or used to acquire US dollars.
  - TTSEC has not received investor complaints related to crypto assets and has not taken enforcement action; no known litigation.
  - Authorities issued joint public warning on January 25, 2019, that providers of crypto assets are neither regulated nor supervised and that no legislative protections exist for consumers.
- Legal-regulatory analysis:
  - Securities Act 2012:
    - Defines "security" broadly in s.4(1) to include documents evidencing ownership or interest in capital, debt, property, profits, earnings or royalties.
    - Incorporates "investment contract" concept codifying the four limbs of the U.S. Howey test: investment of money (including other liquid assets), common enterprise, expectation of gain, and gain based on effort of others.
    - Application of investment-contract/Howey analysis to crypto business models is controversial and may not resolve all regulatory questions.
    - Distinction: an investment contract tied to a crypto venture does not automatically make crypto assets themselves securities.
  - Classification consequences:
    - Certain tokens may be securities if they afford holders rights akin to bonds, shares, or derivatives.
    - Broad extensions of securities definitions risk placing market participants technically in violation and producing unpredictable sanctioning outcomes.
    - Classifying unbacked crypto assets as commodities has limits: unbacked crypto assets may lack commodity features and spot markets could remain unregulated.
- Recommended legislative strategy:
  - Base strategy on an impact assessment measuring costs and benefits, defining the problem, considering policy options (including doing nothing), and analyzing effects on retail investors and SMEs; communicate results publicly and solicit stakeholder feedback.
  - Preferred approach: targeted legal amendments complemented by comprehensive regulations (modular, phased, less resource intensive).
  - Best-practice legal definition: define "crypto assets" as a "digital representation of value" while excluding CBDC, utility tokens, and tokens that have features of securities (those would fall under securities law) to give TTSEC competence over crypto-related activities and new business models.
  - Second-best approach: issue regulations within the current Securities Act framework where authority exists (Bye-laws s.148; Commission guidelines s.146), but careful legal analysis needed as unbacked crypto assets are unlikely to be captured effectively.
  - Exemptions/safe harbors:
    - Exemptions possible on a case-by-case basis under s.151(1A); general exemptions appear inconsistent with legal framework.
    - Jurisdictional practices (e.g., SEC no-action letters, proposed safe harbor by Commissioner Peirce, CSA staff notices) provide models but also illustrate limits; reliance solely on exemptions is risky and may require subsequent regulatory action.
- Core regulatory objectives and mandatory matters to cover in law/regulations (indicative list):
  - Licensing/registration/authorization of crypto asset service providers with requirements on prudential aspects, conduct of business, and investor protection.
  - Licensing and special requirements for crypto asset custodians; priority on segregation and safeguarding of customer assets.
  - Full application of AML/CFT rules to Virtual Asset Service Providers (VASPs), including crypto kiosks complying with KYC and suspicious transaction reporting per FATF recommendations.
  - Authorization and bespoke regime for platforms, modelled after regulated markets but adapted for technology differences; adopt IOSCO Guidance for crypto asset trading platforms to ensure market integrity and prevent market abuse and conflicts of interest.
  - Align regulations with international standards proposed by IOSCO and the FSB.
- Next steps and sequencing:
  - Conduct impact assessment (ST 83 — TTSEC).
  - If proceeding, pursue targeted legal amendments and regulations (MT 89 — Ministry of Finance, TTSEC).
  - Prioritize implementation actions according to risks to financial stability, markets, and consumers; IMF stands ready to provide further assistance.

### IV. Comparative jurisdiction examples and lessons
- Bahamas — Digital Asset Issuance Act:
  - Covers public and private placements (s.5); no digital assets can be issued without authorization (s.11).
  - Investor protections: risk warnings (s.20) and cooling-off rights exercisable within three business days.
  - Regime modeled after securities issuance with bespoke definitions and documentation requirements.
  - Regime tested by FTX bankruptcy; supervisory capacity and international cooperation highlighted as challenges.
- Cayman Islands — Virtual Asset (Service Providers) Law 2020:
  - "Virtual asset" defined as digital representation of value transferable/tradable, excluding fiat digital representations (s.2).
  - Excludes "virtual service tokens" (utility-token concept).
  - "Virtual asset service" enumerated and requires licensing; law applies to services "in or from within the Islands" (s.4).
  - Virtual asset trading platforms defined and subject to comprehensive requirements (s.11); decentralized platforms without an obvious controller deem owner of operational entity as owner (s.2).
  - Law contemplates sandbox licenses (s.4).
  - VASPs subject to AML/CFT, auditing, fit and proper tests, personal data protection; custodians required to segregate assets and implement cyber security.
- Other regional notes:
  - Barbados: stock exchange exploring DLT and tokenized securities issuance/negotiation.
  - Jamaica: broad definition of "security" allows Minister of Finance to designate other instruments as securities (s.2 of the Securities Act).

### V. Monitoring, international cooperation, and sequencing of priorities
- Resource allocation and supervisory focus should reflect fintech size and risks: payments sector priority; crowdfunding, robo-advice, crypto nascent.
- Authorities should:
  - Deliver first-order objectives and engage industry, trade bodies, and TTIFC to understand regulatory concerns.
  - Carry out feasibility study for JIH and pause development of broader RS until justified by impact/feasibility outcomes.
  - Repurpose TC as JIH and provide training/upskilling (IMF, World Bank, regional programs).
  - Improve international cooperation via regional bodies, peer regulator collaboration, and Fintech Cooperation Agreements.
- Reporting and transparency:
  - Publish evaluations/lessons learned at least annually with key statistics while protecting commercially sensitive information.
- Prioritization guidance:
  - Focus on risks to financial stability, markets, and consumers when sequencing legal/regulatory reforms and capacity-building.

*IMF | TRINIDAD AND TOBAGO — Technical Assistance on Fintech Regulation and Legislation (mission visit April 26–28, 2023; excerpt).*

### Preface  ___________________________________________________________________ 5

### Preface

### Mission and Scope
- At the request of the Central Bank of Trinidad and Tobago (CBTT) and Trinidad and Tobago Securities and Exchange Commission (TTSEC), a Monetary and Capital Markets (MCM) Department mission, supported by the Legal Department (LEG), conducted desk-based capacity development and visited Port of Spain in-person during April 26–28, 2023, to:
  - assist the CBTT improve its licensing and supervisory regime for e-money; and
  - assist TTSEC by carrying out a desk-based review of the efficacy of its existing legislation in relation to fintech and providing high-level technical assistance (TA) on the prudential and conduct regulation of crypto assets.
- The mission held meetings with representatives from CBTT, TTSEC, and the private sector.

### Executive Summary — Key Findings
- The impact of fintech in Trinidad and Tobago is currently concentrated in the payments sector and is "relatively concentrated" overall, primarily affecting e-money and payment service providers (PSP), and more slowly affecting crowdfunding, robo-advice, and crypto assets.
- Three areas received TA:
  - Licensing and supervision of e-money issuers (EMI).
  - Institutional arrangements for fintech regulation, specifically the Innovation Hub (IH) and regulatory sandbox (RS).
  - Legislative review of securities legislation for coverage of new fintech models, particularly crypto assets.
- E-money framework and licensing process:
  - Recommendation to consider an entity based regulatory and supervisory approach for EMIs (aligning with prevailing international practice).
  - Need to elaborate supervisory requirements and expectations for orderly winddown of weak or failing EMIs.
  - Authorities requested inputs on closed-loop payment systems, transaction and wallet limits, and interoperability to tailor requirements and speed up a currently protracted licensing process.
- Institutional arrangements:
  - Authorities created a director-level Joint Fintech Steering Committee (JFSC) and a staff-level Technical Committee (TC); developed a Joint Innovation Hub (JIH) and a version of an RS, and are working to develop a broader RS.
  - Resource constraints: few dedicated fintech staff; neither RS nor JIH operate as intended due to design and outcome challenges.
  - Recommendation: carry out a feasibility study to improve the JIH; pause development of a broader RS as it is not a priority at this time.
  - Recommendation: repurpose the TC to operate as the JIH.
- Legal regime for crypto assets:
  - The existing Securities Act 2012 does not cover new fintech developments such as crypto asset activities and lacks enabling provisions to allow for tokens as securities.
  - Other regional jurisdictions (e.g., the Bahamas, Bermuda, Cayman Islands) have adopted comprehensive crypto asset legislation.
  - Recommendation: conduct an impact assessment for legal and regulatory reforms; if proceeding, pursue targeted legal changes supported by comprehensive regulation. Alternatives (detailed legal regime or exemptions) have drawbacks.

### Key Recommendations (from Table 1)
- Consider adopting an entity based regulatory approach for EMIs — ST 57 — CBTT
- Elaborate the regulatory and supervisory expectations facilitating the orderly winddown of weak or failing EMIs — MT 58 — CBTT
- Streamline the licensing process and consider further sharpening the payments and EMI regulatory perimeter — ST 60 — CBTT
- Review and consider aligning to (while taking into account local circumstances) best international practices to transaction and wallet limits, interest compensation on e-wallet balances, and interoperability — ST 59 — CBTT
- Technical Committee to be repurposed as a Joint Innovation Hub following stakeholder consultation and processes streamlined — ST 68 — CBTT, TTSEC
- Transparent and ongoing evaluations of the operation of the Joint Innovation Hub with clear communications with stakeholders — MT 70 — CBTT, TTSEC
- Authorities to improve international cooperation through playing pro-active roles in regional bodies and improving collaboration with peer regulators through closer working, including using Fintech Cooperation Agreements — ST 81 — CBTT, TTSEC
- Impact assessment on the introduction of a legal and regulatory regime for crypto assets — ST 83 — TTSEC
- Targeted legal amendments and/or regulation of crypto asset activities — MT 89 — Ministry of Finance, TTSEC

(Note: ST= short term, 6–12 months; MT= medium term, 12–24 months.)

### I. Introduction and Background — Selected Points
- CBTT and TTSEC requested MCM and LEG assistance following a joint TA request submitted after the Spring Meetings 2022; staff conducted virtual webinars and an in-person visit April 26–28, 2023.
- The report focuses on licensing and supervision of e-money by CBTT, operation of the IH and RS at CBTT and TTSEC, and TTSEC's review of securities legislation.
- Several authorities play roles in fintech: CBTT, TTSEC, Financial Intelligence Unit of Trinidad and Tobago (FIUTT), Trinidad and Tobago International Financial Centre (TTIFC), and the Fintech Association of Trinidad and Tobago.

### II. Areas of Focus — A. Licensing and Supervision of E-Money (CBTT)
- Legal and regulatory framework:
  - Financial Institutions Act (2008) definition: e-money is "a monetary value representing a claim on the issuer that is stored on an electronic device, issued on the receipt of funds not less in value than the monetary value issued"; e-money funds shall not be treated as deposits; accepted as a means of payment by persons other than the issuers.
  - CBTT regulatory framework for EMIs 2020 (legal notice No. 284) requires a CBTT license and compliance with capital adequacy, safeguarding of customer funds, consumer protection, and AML/CFT requirements.
- Safeguarding and operational requirements:
  - EMIs must keep customer funds operationally and legally in a segregated (custodian) account with a financial institution licensed by the CBTT.
  - EMIs must maintain accurate records, conduct regular reconciliations of the e-float with the segregated account balance, and ensure e-float safeguards (security measures, disaster recovery).
  - Consumer transparency: clear information on terms, fees, charges, limitations; effective dispute resolution, including complaints procedure and access to alternative dispute resolution services.
  - AML/CFT: customer due diligence and suspicious transaction reporting to FIUTT; wallets are subject to transaction and balance limits.
  - Governance, agent regulation, and business limitations: EMIs are not allowed to provide credit, deal in foreign exchange, issue joint accounts, pay interest, and may issue e-money only in Trinidad and Tobago dollars.

### II. Areas of Focus — B. Institutional Arrangements for Fintech Regulation (CBTT & TTSEC)
- Institutional setup and mandates:
  - TTIFC created as a fintech incubator by the government to foster fintech growth.
  - CBTT, TTSEC, and FIUTT created a Joint Fintech Steering Committee (JFSC) and a staff-level Technical Committee (TC) to guide regulatory response.
  - JFSC composition: representatives from three organizations; chairperson, deputy chairperson, IT specialist, and other competent persons. The SC (Steering Committee) makes final decisions on applications, approvals, waivers, sandbox KPIs, graduation, suspensions, and cancellations of tests.
  - TC role: assess documentation in IH and RS, monitor entities, report testing outcomes, submit recommendations on entry, graduation, and extensions.
- Joint Innovation Hub (JIH):
  - Launched October 2020; run and administered by CBTT, TTSEC, and FIUTT as a single point of contact for firms to engage with all three regulators.
  - Services: support regulated entities and entities seeking authorization; help authorities understand impacts of new technologies; help firms understand regulatory obligations; determine whether existing frameworks can accommodate new delivery mechanisms or require further testing.
  - Eligibility assessment: applicants must meet publicly available criteria, demonstrate an innovative product or service, provide a detailed business plan, demonstrate potential to improve efficiency and benefit consumers or the economy, and show no negative impact on financial stability.

*IMF | TRINIDAD AND TOBAGO — Technical Assistance on Fintech Regulation and Legislation, Preface and Executive Summary (mission visit April 26–28, 2023). *

### 19. Firms have three main methods of applying to the IH. Entities can request information

### 19. Firms have three main methods of applying to the IH. Entities can request information

### IH application methods and eligibility
- Entities can request information related to authorization, general fintech driven products or services, or request meetings with the regulatory authority by completing “Form A”.
- Entities that meet the eligibility criteria can seek authorization directly through the IH by completing “Form B”. In this scenario a firm must be in a position to go live with their product and have submitted all the relevant documents required to meet existing regulatory frameworks.
- Firms requiring authorization for e-money services can use the “EMI Form” if they have an e-money service ready to go live and have submitted all the relevant documents required to meet existing regulatory frameworks.
- Currently, applications for EMIs must go through the IH, creating potential bottlenecks for the licensing processes and for the IH to deliver other core services.

### IH workflow, response times, and staffing
- After receiving an application, an acknowledgement email is sent to the firm by the relevant team; Payments and Financial Market Infrastructure Department (PFMID) at the CBTT, Fintech Team at TTSEC.
- All three authorities receive the submission through a shared inbox and have 48 hours to review and determine which authority will respond based on their mandate.
- Where there is possible overlap, one authority is designated as the lead, with a desired response time of one week, although more complex cases are determined on a case-by-case basis.
- The final response is filtered through the CBTT.
- There is no dedicated IH team at either CBTT or TTSEC:
  - The CBTT runs its IH within the PFMID and is staffed by one full time staff member, supported by others from around the department who work on the IH in addition to their other full-time roles.
  - At TTSEC, the Fintech Team is composed of staff members from various departments who carry out IH related work as part of their broader remit.

### IH engagement statistics (through March 2023)
- The IH has had engagement with 61 firms since launching to March 2023.
- Most participants are either EMIs or PSPs with 29 submissions.
- Crypto asset focused firms constitute 18 submissions.
- The remainder involve broader fintech driven firms.
- Fifty engagements are general queries.
- Eleven engagements have been applications for authorizations.

### Current role and limitations of the IH (fintech touchpoint characterization)
- Currently, the IH operates more like a fintech touchpoint (office hours or regulatory surgeries) rather than a full Innovation Hub with broad outcomes.
- Activities are primarily: setting up meetings with relevant teams, signposting to relevant rules and regulations, and feeding intelligence back into the organization.
- Resource constraints and limited outcomes can lead to a disconnect between firm expectations and what authorities can provide.
- Confidentiality obligations: any engagement with the IH or the RS must be kept confidential unless explicit permission is provided by the regulatory authority; mentioning support as a way of attracting investors or claiming regulatory endorsement is restricted.

### Regulatory Sandbox (RS) design, phases, and operational rules
- The three authorities proposed a joint RS in Trinidad and Tobago in May 2021.
- The RS is to be launched in two phases:
  - Phase 1: focused on EMIs; structured as a provisional registration regime (provisional registration under the E-Money Order) rather than a testing platform.
    - The E-Money Order allows EMIs to be provisionally registered for a period of up to six months and benefit from waivers to one or more of the registration requirements.
    - Waivers or variations include the level of capital, specific risk management requirements, regulatory oversight and reporting, board and management experience, and relative size.
    - The first phase lacks key sandbox components such as testing frameworks and more closely resembles a waiver program.
  - Phase 2: to be launched at a later date and open to broader fintech innovations (crypto, crowdfunding, robo-advice, and other innovative products and services).
    - Applications are to be assessed against publicly available eligibility criteria, including: submitting relevant documentation, having an approved testing plan, demonstrated innovation, availability of resources, and fitness and propriety of senior management.
    - Firms are expected to first apply and be accepted to support from the IH before applying to the RS.
    - Testing firms must fall within regulatory frameworks.
    - Sandbox tests are restricted in duration, initially to 6 months, with no extension beyond 12 months.

### Sandbox application, reporting, exit and regulator obligations
- Application forms are located on the website of the CBTT, with linking pages on the websites of TTSEC and FIUTT. Firms can apply using the websites of all three agencies, although the application forms are located on the website of CBTT.
- Firms applying to the sandbox are likely to be subject to a fee if they are e-money firms requesting licensing.
- Testing firms must submit regular reports throughout the testing period, with a final report within 30 days of completion of the sandbox test.
  - Regular reporting must cover volume and values of transactions, customer complaints, cyber security incidents, fraud or any other operational issues that arise.
  - The final report must contain outcomes of the test against key performance indicators, and details on the deployment strategy.
- Regulatory authority obligations:
  - The regulatory authority is mandated to review the final report within 30 days to determine whether there were any regulatory concerns or issues, whether the test met the goals of the testing framework, and if the product or service falls within existing regulatory frameworks.
  - Authorities will publish a list of successful tests within 50 days of completing the test.
- Sandbox exit:
  - Firms will exit the sandbox at completion of testing or where approval has been cancelled.
  - After completion, firms will complete their final report and apply for a full license or registration.
  - In the event of suspension or cancellation, a pre-agreed exit strategy must be implemented to pause or stop the test, communicate with customers, and provide any redress if necessary.

### Automation of applications (RFP and digital portal)
- Authorities drafted a Request for Proposal (RFP) to automate and fully digitize the application process for support and testing.
- Intended portal capabilities: 24/7 direct web portal, applicant tracking through stages of review and decision making, upload supporting documents and large attachments, simultaneous review by three authorities, manage access levels, improve security, and generate reports.
- A Proof-of-Concept exercise was completed with two prospective vendors and a draft RFP was completed, but the RFP was not published as alternative solutions are being considered.

### Feedback, perception, and risks
- Feedback from industry participants highlights a disconnect between expectations and reality: the RS functions as a provisional registration regime rather than a testing platform, and this is not made clear to participants.
- The IH’s focus on licensing EMIs is considered unsuitable for the current structure and needs.
- Authorities have taken steps to manage the risk of the IH and RS “picking winners” by maintaining confidentiality and limiting use of regulatory engagement as endorsement.

### Legislative review of crypto assets (TTSEC): framework and gaps
- Trinidad and Tobago’s securities legal regime is modern and comprehensive; the Securities Act was enacted in 2012 and successively amended, with provisions for markets and intermediaries.
- Investment activities in fintech are evolving faster than legislative design; expanding crypto-related business activity raises complex questions on the applicability of securities laws.
- New business models revolve around crypto assets, particularly unbacked crypto assets such as Bitcoin or Ether, described as “digital representations of value”.
- Crypto asset business models identified include: crypto exchanges, crypto brokers, crypto kiosks (Bitcoin ATMs), and decentralized crowdfunding/tokenization platforms.
- Observations on crypto market structure and activity:
  - Some crypto exchanges (for instance, Coinbase, Binance, and Kraken) appear operational in or accessible from Trinidad and Tobago.
  - Crypto kiosks/ATMs enable purchase and sale of Bitcoins for cash or card and connect via the Internet to crypto exchanges; interest exists among private firms to install crypto ATMs in Trinidad and Tobago.
  - Crowdfunding platforms could issue tokens (shares or utility tokens) in exchange for crypto assets or fiat money and enable secondary trading of tokens.
- Comparative and regional context:
  - Global approaches to crypto vary: outright bans, partial regulation, or active promotion via regulation. Table 2 in the source provides an overview of crypto regulation around the world with a legend: √: regulation in place; P: projected regulation; X: legal prohibition; ?: Unknown status.
  - The Caribbean is a dynamic region for crypto activities with multiple regulatory models; bespoke regimes exist in the Bahamas, Bermuda, and the Cayman Islands based on concepts of “digital assets” or “virtual assets” and assign regulatory competences to existing authorities.
- Legal gap in Trinidad and Tobago:
  - The legislative regime of Trinidad and Tobago does not cover crypto asset activities; there is no special legislation, special regulation, or amendments targeting crypto asset businesses.
  - The authorities issued a joint statement on January 25, 2019, warning the public that providers of crypto assets are neither regulated nor supervised by the authorities and that there are no legislative provisions providing protection to consumers for losses arising from the use of virtual currencies.
- Market activity and enforcement:
  - There is interest in developing crypto-related business activities (crypto kiosks, crypto brokers, tokenization platforms), but there is no data about actual transactions in the market.
  - The TTSEC has not received any investor complaint related to crypto assets and has not taken any enforcement action for unauthorized activities.
  - The TTSEC is not aware of any ongoing litigation regarding crypto asset services in Trinidad and Tobago.

*Source: IMF | TRINIDAD AND TOBAGO Technical Assistance on Fintech Regulation and Legislation (excerpt).*

### 48. Activities in crypto assets do not seem significant at this stage. There is limited

### Activities in crypto assets do not seem significant at this stage.

### 48–55: Crypto asset market status and legal-regulatory analysis
- Activities in crypto assets do not seem significant at this stage. There is limited information about the usage of crypto assets.
- Private sector actors are interested in new business models connected to crypto assets and innovative technologies, but cited legal and regulatory uncertainty as one of the main factors inhibiting these business models.
- Other limiting factors include the technological infrastructure and the scarcity of specialized workers.
- It is unclear whether interest in crypto assets in part of the population is motivated by mere speculative purposes or because of their use as indirect technique to acquire US dollars.
- Banks do not generally allow clients to use credit cards for the acquisition of crypto assets.
- Key regulatory question (para. 49): how to provide safe regulation and adequate user protection for crypto asset activities.
- Legal certainty is a pre-requisite for developing a legal and regulatory framework for innovative fintech activities, including crypto assets.
- First regulatory step: assess whether new activities are included in the existing legal framework; requires examination of the legal underpinnings of the securities regime in Trinidad and Tobago.
- Crypto assets can perform multiple functions and not all crypto assets can be regulated through securities laws, even if those laws are revised to have an expanded scope.

### Securities Act 2012 and the "investment contract" concept (paras. 50–53)
- The Securities Act 2012 is based on the concept of security; section 4(1) defines a security to include “any document, instrument or writing evidencing ownership of, or any interest in, the capital, debt, property, profits, earnings or royalties of any person”.
- The Trinidad and Tobago concept of security is extremely broad and encompasses instruments typically negotiated in financial markets (bonds, shares, derivatives).
- The Act incorporates the concept of investment contract (s.4(1)), codifying elements of the U.S. “Howey test”.
- The Act defines “investment contract” as any contract, transaction, plan, scheme, instrument or writing, whereby a person invests money or other property in a common enterprise with the expectation of profit or gain based on the expertise, management or effort of others, and such money or other property is subject to the risks of the common enterprise.
- The definition incorporates the four limbs of the “Howey test”: investment of money (including other liquid assets), common enterprise, expectation of gain, and gain based on the effort of others.
- Application of the Howey test to crypto-related business models is controversial and may not be a solution to all problems raised by crypto activities.
- Distinction emphasized between investment contracts and the crypto assets themselves: an investment contract tied to a venture involving crypto assets does not necessarily make the crypto assets securities (example analogy to Howey facts: investment contracts related to sale of land/agricultural services were securities; the orange groves themselves were not securities).

### Classification consequences and regulatory risks (paras. 52–55)
- Certain crypto assets may fall under the definition of securities depending on the rights they afford holders (e.g., a digital token that affords holders the right to receive principal payments and interest would be classified as a bond).
- Crypto assets can be classified as shares, regulated derivatives, or other regulated instruments if their substantive rights match those instruments.
- Investment-contract analysis may catch token sales connected to platform development or promoter/developer efforts (elements: investment of money, common enterprise, expectation of profit, effort of others); developers supporting price by controlling supply may satisfy the test.
- If classified as securities, the full securities law/regulatory regime applies; issuance of tokens that can be classified as securities without enabling rules would represent an unauthorized action, potentially leading to criminal and civil liability of issuers and legal actions by investors.
- Broad interpretations extending the concept of security to cover many crypto assets could lead to unpredictable extension of the sanctioning regime and place market participants in technical violation of the law.
- Defining crypto assets as commodities (approach used in some North American jurisdictions) aims to ensure derivatives over crypto assets fall under regulation, but unbacked crypto assets do not exhibit commodity features and classifying them as commodities may leave spot markets unregulated and out of reach of financial regulators.

### III. FINDINGS AND RECOMMENDATIONS — A. E-money (paras. 56–63)
- Overall assessment: requirements for e-money aim to protect customers’ funds and ensure integrity and stability, but there is room for enhancements.
- Authorities have made significant progress on developing the framework and reviewing/working towards approval of EMI licenses; focus remains on financial stability and safety and soundness of new providers.
- Areas for enhancement:
  - Adopt an entity-based regulatory approach (current approach is activity-based and allows technology service providers and mobile network operators to undertake e-money services on their own balance sheet).
  - Develop clearer expectations for orderly winddown of weak or failing EMIs.
  - Sharpen the regulatory perimeter and balance risk and market development considerations.
  - Work toward a framework for interoperability.
- Rationale for entity-based approach: separate legal entity facilitates segregation of activities and financial flows and allows prudential supervision of the EMI on a standalone basis. (See footnote 5.)
- Winddown and client-fund safeguarding:
  - Safeguarding requirements reduce client risk, but losses remain possible due to bank failure or fraud (e.g., issuing more e-money than kept in pool of liquid assets).
  - Authorities should elaborate expectations regarding orderly winddown arrangements to ensure payment system continuity and client access to funds.
  - Consider requiring EMIs to deposit client funds in the Central Bank to limit financial stability risks of large EMIs (practice in several jurisdictions, e.g., China and the Dominican Republic).
- Regulatory perimeter and licensing:
  - Regulatory perimeter could be defined more sharply; consider experiences from other jurisdictions and focused TA.
  - Clarify extent of licensing exemptions (example: definition of “closed loop” PSPs); consider requiring approval for exemptions so authority maintains view of market activities.
  - Licensing processes are protracted and currently result first in a six-month provisional license, possibly with additional conditions not clear upfront; streamline toward non-provisional licensing combined with close monitoring of newly licensed EMIs.
- Transaction and balance limits:
  - Current regulatory transaction and balance limits (defined in Schedule 2 of legal notice No. 284) appear more stringent than those for bank accounts and may impact uptake of e-money.
  - While useful to limit AML/CFT risk and client losses, consider balancing limits with desired market use cases and distinguishing retail from business/government limits.
- Interest on e-money balances:
  - Current prohibition for EMIs to pay interest to clients could be reconsidered in due course; this prohibition is common initially to avoid disintermediation but some jurisdictions have adopted different approaches with experience. (See footnote 10.)
- Interoperability:
  - No interoperability requirements or agreed industry standard currently; establishing common standards and protocols could enable different e-money systems to communicate and transact with each other.
  - The CBTT could consider establishing common standards and protocols for e-money transactions and PSPs more generally.
  - Regional note: the Dominican Republic is requiring interoperability and following up with PSPs on this issue. (See footnote 11.)

### III. FINDINGS AND RECOMMENDATIONS — B. Operation of the Regulatory Sandbox and Innovation Hub (paras. 64–68)
- Authorities should take a balanced approach to monitoring and responding to fintech developments:
  - Fintech impact in Trinidad and Tobago is largely concentrated in the payments sector.
  - Crowdfunding, robo-advice, and crypto assets sectors exist but remain relatively small.
  - Resource allocation and supervisory focus should reflect the size and risks of fintech-driven products and services.
  - Authorities should focus on delivering first order objectives while engaging with industry, trade bodies, and TTIFC to understand firms’ regulatory concerns.
  - A clear fintech vision or strategy is necessary; greater clarity should be provided at the authority level for mandate delivery.
- Joint Innovation Hub (JIH) and Innovation Hub (IH) observations:
  - The IH has supported 61 firms since launch and can sensibly monitor new developments and provide high-level support while ensuring a joined-up approach among authorities.
  - Market feedback suggests the IH could generate reputational risks and poor outcomes unless structural changes are made.
  - An IH only makes sense if it involves key regulatory authorities; a JIH can improve domestic collaboration, minimize duplication, and avoid policy/oversight gaps.
  - Authorities should carry out a feasibility study with key stakeholder input to identify needs and design considerations; consider improving the existing IH rather than creating new ones.
  - The TC is well placed to operate as a JIH; repurpose the TC to act as the hub with a smaller staffing footprint supplemented by the current TC as spokes.
  - Members would require training and upskilling, including TA and regional training courses from the IMF and World Bank and other available programs.

*IMF | TRINIDAD AND TOBAGO          Technical Assistance on Fintech Regulation and Legislation*

### 69. These members should meet weekly to monitor developments. These meetings should

### 1ttoea2023003 - 69. These members should meet weekly to monitor developments. These meetings should

### Governance and operation of the Joint Innovation Hub (JIH) / Innovation Hub (IH)
- Weekly meetings of designated members to monitor developments, discuss applications, exchange information on trends and conduct horizon scanning exercises based on market observation, outreach, and engagement.
- Engagement mechanisms suggested: themed events, demonstration days, engagement with fintech incubators such as TTIFC.
- Ability to quickly call on additional resources from relevant organizations; initially draw on existing larger TC members.
- Final decisions on applications to be made by the JFSC (Judicial Financial Services Commission).

### Eligibility, application process, and case management
- Transparent eligibility criteria are required; existing criteria "are largely not adhered to, and firms are not assessed against the criteria."
- Eligibility criteria should:
  - Help authorities achieve mandates to protect markets, consumers, and financial stability.
  - Include requirements to show genuine innovation, benefits for markets or consumers, a clear need for support, and an explanation of how it falls within scope of regulatory authorities.
- Application form:
  - Replace three-form system with one application form where firms explain how they meet eligibility criteria and the support requested.
- Case management:
  - Provide a dedicated case officer for each applicant from initial response to final support to improve communication, accountability, and continuity.

### Scope and limits of support; timelines and transparency
- Initial support to manage expectations should be limited to:
  - Signposting to relevant rules and regulations.
  - Assisting in document review for firms seeking licensing.
  - Providing generalized guidance with no legal underpinning—only if applicants meet eligibility criteria.
- Caution: more tailored guidance increases legal liability exposure for authorities.
- Timelines:
  - Weekly meetings should allow quick review and feedback on availability of support—ideally within 14 working days.
  - Most initial support (document review, general regulatory guidance, regulatory signposting) should last less than 30 days.
  - If an extension is necessary, provide a clear reason and an indication of the length of delay.
- Initially the JFSC should be limited to decision making; in future it could adopt strategic mandates (e.g., setting "thematic" focuses).

### Monitoring, evaluation, and publication
- Authorities should publish evaluation or lessons learned reports often, and at least annually.
- Reports should include key statistics on JIH use and the nature of support provided.
- Reports must avoid disclosing commercially sensitive information but should share nature of support to avoid distorting competition and to maximize broad impact.

### Alternatives to a standalone Innovation Hub
- Given limited dedicated resources and relatively small fintech impact in Trinidad and Tobago, better value may come from using existing supervisory structures.
- Recommendation: operate office hours / regulatory surgeries coordinated between the three regulatory authorities under JFSC guidance, complemented by demonstration days for firms to present business models to departments and supervisors.

### Regulatory Sandbox (RS) considerations and sequencing
- The development of a RS should not be a regulatory priority.
  - Sandboxes are most useful where fintech impact grows rapidly and presents novel challenges.
  - E-money services are well established; other technologies/business models remain nascent.
  - JIH light-touch engagement can inform authorities; sandboxes unlikely to deliver substantially new information available from peer regulators or global bodies.
- Preconditions for launching an RS:
  - Only consider RS if fintech innovation impact on domestic markets grows substantially and following outcomes of an impact assessment or feasibility study.
  - Confirm sufficient resources and capacity for ongoing RS operation; many authorities underestimate cost and resource implications.
  - Consider RS only when a product/service would affect Trinidad and Tobago substantially differently than peer jurisdictions.
- Application processes if RS is launched:
  - Application to the JIH should not be a prerequisite for RS testing.
  - Suggested approaches: keep IH and RS applications separate; or create a triaging point to determine best fit (noting resource constraints).

### International cooperation and supervisory monitoring
- Continue building international cooperation with peer regulators and global bodies.
- Current engagements:
  - CBTT is part of the Center for Latin American Monetary Studies Fintech Forum and Group CARICOM FinTech Work Group.
  - TTSEC participates in the Caribbean Group of Securities Regulators Fintech Team.
- Further options:
  - Join regional outreaches of standard setting bodies where feasible and cost efficient.
  - Work more closely with peer regulators through Fintech Cooperation Agreements, contingent on reciprocal effort.

### Legislative review — crypto asset activities: impact assessment and strategy
- Strategy to regulate crypto asset activities should be based on an impact assessment measuring costs and benefits.
- Impact assessment elements:
  - Define the problem (crypto assets activities being conducted in absence of regulation), including risks.
  - Consider policy options (including doing nothing).
  - Analyze costs and benefits of distinct options, including effects on retail investors and Small and Medium Enterprises (SME).
  - Use quantitative approaches where possible; qualitative factors also acceptable.
  - Communicate results publicly and allow stakeholder feedback.
- International precedents and guidance referenced (examples for benchmarking): MiCA regulation in the European Union; United Kingdom Parliamentary report and public consultation.

### Legislative design options for crypto activities
- Options for strategy design:
  - a) comprehensive legal reform;
  - b) targeted legal amendments followed by regulations;
  - c) regulations issued without legal changes;
  - d) use of exemptions.
- Recommended approach: adopt targeted legal amendments complemented by regulations (modular, phased, less resource intensive).
- Best-practice element: adopt a legal definition of crypto assets that:
  - Includes a "digital representation of value".
  - Excludes Central Bank Digital Currencies ( CBDC), utility tokens, and tokens that have features of securities (those would fall under securities law).
  - This would provide TTSEC competence to regulate crypto-related activities and new business models.

### Regulatory avenues within current Securities Act
- Second-best approach: issue regulations within current legal framework, subject to careful legal analysis of authority to issue Bye-laws or guidelines.
- Legal authority notes:
  - Bye-laws issued by the Minister at recommendation of the Commission (s. 148); Bye-laws subject to negative resolution of Parliament.
  - Commission can issue guidelines, in consultation with the Minister (s. 146).
  - Section 148(2) allows Minister, on recommendation of Commission, to make Bye-laws “in respect of any other matter necessary for carrying out the purposes of this Act”.
  - Section 146 permits Commission to issue guidelines to give effect to the Act (s. 146.1.a) and "regulate the market conduct of market actors" (s. 146.1.d).
- Some crypto matters clearly fall within scope where tokens meet characteristics of securities or investment contracts (e.g., digital bonds/shares for crowdfunding platforms).
- Unbacked crypto assets unlikely to be classified as securities; anchoring regulation of such assets to the Securities Act would be difficult.

### Exemptions and safe harbors
- Use of exemptions or safe harbors is theoretically possible but faces serious obstacles in Trinidad and Tobago:
  - No practice of safe harbors in regulations locally—would require careful assessment.
  - Safe harbors may address token sale treatment by issuers but would not resolve broader issues such as sale of unbacked crypto assets or regulation of broker/dealers, custodians, and markets.

*IMF | TRINIDAD AND TOBAGO Technical Assistance on Fintech Regulation and Legislation*

### 96. Exemptions can target specific rules that are not applicable to crypto asset activities.

### 1ttoea2023003 - 96. Exemptions can target specific rules that are not applicable to crypto asset activities.

### Exemptions as a targeted regulatory tool
- A granular analysis of securities laws and regulations can show that many rules are not necessarily applicable to new business models.  
- Example: pre-trade and post-trade reporting requirements that typically apply to regulated markets do not necessarily apply to the operation of platforms where crypto assets are bought and sold.  
- Crypto asset brokers may not need to abide by the exact same set of rules that apply to securities intermediaries.  
- By engaging in a careful analysis of potential obstacles and differences, it should be possible to tailor the regime better to the specifics of these economic activities.  

### Jurisdictional practices and examples
- United States (SEC practice):  
  - The SEC is able to issue “no-action letters”, i.e., letters by SEC staff in response to a query by person who is not certain whether a particular product, service, or action would constitute a violation of the securities law.  
  - The letter just recommends that, in the light of the specific facts and circumstances, the SEC does not take enforcement action against the persons engaging in the particular practice.  
  - The SEC is not bound by previous no-action letters and can always distinguish the facts when another person uses a previous no-action letter in its defense.  
  - Commissioner Hester M. Peirce proposed introducing a safe harbor for token sales: the safe harbor exempts tokens from registration for a 3-year period, and it also includes an exemption from the definition of regulated market. The exemption is supported by disclosure requirements and reporting. However, this proposal has not been formally adopted by the SEC.  
- Trinidad and Tobago:  
  - In the law of Trinidad and Tobago, there is an express provision permitting the Commission to issue no-action letters.  
  - The Commission has previously issued an Order providing that, under certain conditions, it will not take enforcement action, for a limited period, against registrants who fail to comply with specific provisions in the Act.  
- Canada (complementary use of exemptions):  
  - The Canadian Securities Administrators (CSA) issued a staff notice in 2020 to provide guidance on the scope of securities legislation over crypto assets activities.  
  - The CSA approach: securities legislation would clearly cover tokenized securities, as well as derivatives contracts for which crypto assets would be the underlying asset; platforms facilitating trades in those assets would be subject to supervision.  
  - The issue of certain crypto assets, such as unbacked crypto assets that cannot be classified as securities, was minimized by arguing that in many cases there is no actual delivery of the crypto asset, so that it could be interpreted that brokers and platforms are in reality selling derivatives or investment contracts.  
  - The consequence: a broad range of activities of crypto asset firms are subject to securities regulation. The approach was based on a case-by-case analysis by securities regulators and the use of exemptions to provide accommodation for crypto asset businesses.  
  - After recent crypto bankruptcies in the United States, the approach evolved: in February 2023, securities regulators gave a deadline for unregistered platforms to commit to a “pre-registration undertaking,” which includes requirements for the segregation of customers’ assets and the prohibition of offering leverage to customers. This illustrates the limitations of an approach solely based on exemptions and the need for regulatory action.

### Constraints on exemptions in Trinidad and Tobago
- According to section 151(1A) of the Securities Act, it is possible to grant exemptions on a case-by-case basis.  
- General exemptions, however, seem inconsistent with the legal framework.  
- The law refers to exemptions in by-laws that cover specific areas (s. 148, subsections g, h, q, t, and qq).  
- Although section 149(4)(b) seems to assume, implicitly, the existence of a general power to grant exemptions or remove restrictions in by-laws, apparently there is no express general power of exempting legal requirements in regulations.

### Core regulatory objectives and mandatory matters for law or regulations
- Any combination of approaches should target the same functional result: appropriate regulation of crypto asset activities. The same questions need to be addressed: legal certainty for business operators, supporting economic growth and development, and adequate protection of investors, with the combined result of a framework that supports innovation and financial stability.  
- Matters that should be covered by law or regulations (indicative list):  
  - Crypto asset service providers should be licensed, registered, or authorized. There should be rules establishing the requirements applicable to crypto asset service providers including prudential aspects, conduct of business and investor protection.  
  - Crypto asset custodians should be licensed and made subject to special requirements. Entities that provide functions such as storage, transfer, exchange, and custody of reserves and assets should be subject to rules similar to those applied to financial service providers, with additional requirements to reflect their new business models (such as combined exchanges and wallets). Segregation and safeguarding of customers’ assets should be a priority.  
  - There is a need to ensure that AML/CFT rules apply to all entities providing crypto asset services, following FATF recommendations on Virtual Asset Providers (VASPs). In particular, crypto kiosks need to comply with know-your-client obligations and identification of suspect transactions, as well as all other crypto asset service providers.  
  - Platforms also need to be authorized, and their regime should be modelled after that of regulated markets, but also considering the significant differences in operation and technology. The International Organization of Securities Commissions (IOSCO) Guidance for the regulation of crypto asset trading platforms is extremely relevant in this regard. It is imperative to ensure market integrity by prohibiting market abuse and addressing conflicts of interest, as well as any abusive and deceptive practices in connection with the operation of crypto platforms.  
- These matters should be covered provided that an impact assessment concludes that the sector should be regulated, and also taking into consideration competing regulatory and supervisory priorities that may affect the timeline for implementation of the legal and regulatory plan. The regulations should be aligned with the standards proposed by international organizations such as IOSCO and the FSB.

### Next steps and authorities’ engagement
- Authorities have been receptive to this TA program but should also prioritize according to their needs.  
- There has been considerable and proactive engagement at all levels of seniority by the CBTT and TTSEC. Both authorities have indicated a desire to implement findings from this TA report, and the IMF stands ready to provide further assistance if required.  
- Authorities should consider this TA within the context of broader TA and ensure they prioritize the implementation of recommendations that address risks to financial stability, markets, and consumers.

*Source: IMF TA report excerpt (1ttoea2023003 - 96. Exemptions can target specific rules that are not applicable to crypto asset activities).*

### 114. The regulation of digital asset businesses is complemented with the legal regime for

### 1ttoea2023003 - 114. The regulation of digital asset businesses is complemented with the legal regime for

### Digital Asset Issuance (Bahamas)
- The Digital Asset Issuance Act covers public and private placements of digital assets (s.5).
- No digital assets can be issued without proper authorization (s. 11).
- The legal regime is modelled after the regime for the issuance of securities, with bespoke definitions and some specific rules.
- Supporting documents for authorization differ from securities and include:
  - a business plan setting out the nature and scale of the digital asset issuance which is to be carried on by the applicant;
  - a copy of the issuance document to be made available to digital asset acquirers;
  - particulars of the applicant’s arrangements for the management of the offering via the issuance (s. 12.2).

### Investor protection measures
- Special rules designed to strengthen investor protection include:
  - risk warnings to investors (s. 20);
  - cooling-off rights for acquirers of digital assets, exercisable within three business days.
- Issuance platforms must offer instructions and means to exercise the withdrawal rights.

### Regulatory testing and supervisory challenges
- The Bahamian regime has been tested by the bankruptcy of FTX.
- An assessment of the regime is considered premature due to ongoing judicial cases in the US and in the Bahamas and associated investigations.
- The legal regime needs to be supported by adequate supervision arrangements, which are challenging for complex group structures and cross-border activities.
- International cooperation is essential to achieve significant levels of regulatory compliance.

### Cayman Islands: legal framework and scope
- The Virtual Asset (Service Providers) Law of 2020 establishes a special legal regime for crypto assets.
- The Cayman Islands Monetary Authority is the universal financial regulator competent to regulate crypto asset business activities, as established in the law.

### Definitions and activities subject to licensing (Cayman Islands)
- “Virtual asset” means a digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes but does not include a digital representation of fiat currencies (s. 2).
- The law excludes “virtual service tokens,” defined as a digital representation of value which is not transferrable or exchangeable with a third party at any time and includes digital tokens whose sole function is to provide access to an application or service or to provide a service or function directly to its owner separately (concept similar to “utility tokens”).
- “Virtual asset service” means the issuance of virtual assets or the business of providing one or more of the following services or operations for or on behalf of a natural or legal person or legal arrangement:
  - (a) exchange between virtual assets and fiat currencies;
  - (b) exchange between one or more other forms of convertible virtual assets;
  - (c) transfer of virtual assets;
  - (d) virtual asset custody service; or
  - (e) participation in, and provision of, financial services related to a virtual asset issuance or the sale of a virtual asset (s. 2).
- The law includes specific rules for virtual asset issuance (s. 7) and virtual asset custody services (s. 10).

### Virtual asset trading platforms
- “Virtual asset trading platform” means a centralized or decentralized digital platform that:
  - (a) facilitates the exchange of virtual assets for fiat currency or other virtual assets on behalf of third parties for a fee, commission, spread or other benefit; and
  - (b) which —
    - (i) holds custody of or controls virtual assets on behalf of its clients to facilitate an exchange; or
    - (ii) purchases virtual assets from a seller when transactions or bids and offers are matched in order to sell them to a buyer, and includes its owner or operator.
- The law includes a comprehensive list of requirements for virtual asset platforms (s. 11).
- If a platform operates without an obvious controller (which may be the case with decentralized platforms), the owner of the entity under which the platform operates (i.e., the infrastructure) will be deemed the owner for legal purposes (s. 2).
- The concept does not include a platform that only provides a forum where sellers and buyers may post bids and offers and a forum where the parties trade in a separate platform or in a peer-to-peer manner.

### Licensing, scope, and exemptions (Cayman Islands)
- Provision of virtual asset services requires a license.
- The law applies to virtual asset businesses provided “in or from within the Islands” (s. 4) and these need to be registered or licensed in accordance with the law.
- Entities licensed under a different regime (banking or securities regime) may be granted a waiver by the Authority (s. 14 and s. 16).
- The law foresees the possibility of sandbox licenses (s. 4).

### Legal provisions and operational requirements for VASPs
- Virtual asset services are subject to: general AML/CFT requirements, auditing, fit and proper requirements for directors and significant shareholders, and rules on personal data protection.
- VASPs cannot encumber client assets unless they have their clients’ special consent (s. 10).
- Requirements for custodians include mechanisms for segregation, and cyber security systems (s. 11).
- Footnote: The definition of “virtual asset custody service” refers to the business of safekeeping or administration of virtual assets or the instruments that enable the holder to exercise control over virtual assets. The latter part of the definition captures the administration of private keys or passwords for crypto assets.

### Other jurisdictions: Barbados and Jamaica
- Barbados: the stock exchange is seeking to integrate DLT solutions in its operations, allowing for the issuance and negotiation of tokenized securities.
- Jamaica: the law includes a broad definition of the concept of “security,” and allows the Minister of Finance to issue orders designating other instruments as securities (s. 2 of the Securities Act).

*IMF | TRINIDAD AND TOBAGO Technical Assistance on Fintech Regulation and Legislation | 38–39*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1ttoea2023003.pdf_