New bank aims to be catalyst for fintech sector growth
BY JONATHAN KENT
Bermuda’s progress in realising its ambition to become a global hub for digital-asset business has been limited up to now by the lack of banking services – but that is set to change in 2022.
Jewel applied to the Bermuda Monetary Authority in October for a combined full-service bank and digital-asset licence. The company’s executives believe that, as an early mover at the heart of a fundamental shift in the global financial system, great opportunities lie ahead.
The digital-asset universe has undergone an extraordinary global expansion over the past decade, with its base now valued at around $2.5 trillion. But Chance Barnett, chairman of Jewel, believes that number will snowball.
“It’s estimated that 10 per cent of the world’s GDP will be issued on blockchain by 2027,” Mr Barnett said. “That would mean the market capitalisation ballooning to about $800 trillion, potentially.
“We’re seeing a giant sea change, a new set of rails, similar to how the internet was born – an open-source technology that took a little while to catch fire, but once it did and when the core infrastructure was laid, it really ballooned. We are watching the internet get reborn on new rails.”
Digital assets were now only “in the dial-up phase”, he added. “But it’s going to get easier and more widely adopted. Even banks are starting to use them and that will pass down to consumers in a really friendly way.”
It’s not only Bermudian-based digital-asset businesses that are underserved by banks, but the sector around the world. Jewel aims to appeal to global firms by addressing their core banking and settlement needs, as well as digital-asset custody, crypto-collateralised lending, and traditional fiat currency and stablecoin payments. As a full licence Bermuda bank, Jewel will also provide retail services within Bermuda.
Stablecoins are digital assets designed to maintain a stable value against a fiat currency, usually backed by reserves. An example is US Digital Coin (USDC), an ethereum-based stablecoin launched in September 2018. The Bermuda Government has already said it will accept US and Bermuda dollar-backed stablecoins such as USDC as payment for goods and services. The Government is also planning to launch a stimulus token programme to familiarise the community with digital currencies.
Mr Barnett said stablecoins are often used by traders in volatile cryptocurrencies, such as bitcoin, to settle trades quicker than would be possible with fiat currencies. This will be one of the stablecoin services offered by Jewel. Into the future, the prospective bank plans to offer “a new generation of stablecoins that are going to move this from a world where they’re used for trading to one in which they’re used for payment and settlement”, he added.
“My vision is that within five years, a significant amount of the traditional payment rails, wires and how you might send money domestically, may live on stablecoin rails, because they have great characteristics: in many ways they’re more efficient and they settle faster.”
Jewel uses distributed ledger technology (DLT), sometimes known as blockchain. The chief benefits it offers over conventional payment systems are speed, efficiency and certainty.
Nick Lepetsos, Jewel’s chief executive officer, said: “The big banks in the US and the world have been addicted to inefficient payment systems and the reason why is that they are very profitable for those big banks. Some of the card processors are part of that. Distributed ledger technologies will win out because they are so efficient.
“To offer a Bermudian perspective: it will allow you to transact with your local merchant and not have a bank in New York take 5 per cent.”
Mr Lepetsos said we should expect “a migration from the fiat currency world to the digital currency world”. He added: “We’d like to be a big player in that and help Bermuda to be a big player.”
Regulators internationally are showing ever greater interest in digital assets, as the sector becomes an increasingly significant part of the global financial landscape. Attitudes vary by country. More than four fifths of the world’s central banks are engaged in central bank digital currency initiatives. But one of them, the People’s Bank of China said this year it considers all crypto-related activity to be illegal.
In the US, the President’s Working Group, made up of financial regulators, recommended that stablecoins should only be issued by licensed institutions in order that the reserves behind them are regulated. Mr Lepetsos said the group’s conclusion was “favourable for what we’re doing”.
A unique combination of factors led to Jewel choosing Bermuda as a domicile, he added. “The first is the vision of the Government a few years ago to bring legislation to bear to attract digital-asset businesses. The second is a really robust regulatory environment and really making sure that if you come to Bermuda as a digital-asset company, you have to operate in a safe, sound and compliant manner. We’re really happy about that. The third thing Bermuda has is a strong talent pool that will enable us to grow our employee base in Bermuda and that’s terrific for us.”
Jewel is seeking office space on the island. The company has filled the C-suite posts needed to be ready for launch, and is discovering that talent exists on island to help fill the next level down. “We want to be a good steward of the licence that may be provided to us,” Mr Lepetsos said. “Also, we want to be impactful in the Bermuda economy. Those are maybe stages two and three of our evolution.”
Mr Barnett said Jewel has great opportunity thanks to the vision of David Burt, the Premier, the enactment of the Digital Asset Business Act two years ago and the speed with which the BMA has undertaken fintech regulation.
“The question two years ago was: will they come?” Mr Barnett said. “Where we sit now, an exciting number of people are coming to Bermuda. But it’s not just about getting companies to set up in Bermuda, it’s also about servicing those companies.
“In terms of the history of Bermuda, this is the next playbook. Bermuda has done this before with the re/insurance industry. It’s a great vision for the future and I think Jewel is poised to be a big part of that and that’s exciting.”