The role of the State as a global broker of trust in the 21st century

The Hon. E. David Burt, JP, MP, Premier of Bermuda for Diplomatic World

Bermuda has played a role in global trade and disruptive innovation since our founding in 1609. We were uniquely positioned as a center of trade in the New World due to our location in the middle of the Atlantic trade winds. Square-rigged tall ships could sail more easily with the wind than in a specific direction, making Bermuda a port of convenience for trade between settlements. Bermuda became a disruptor and leader in Atlantic trade as the dynamic winds of our harbors and challenges of navigating our reefs led to the invention of the Bermuda Rig, the triangular shaped sail configuration that has become typical of modern sailing vessels ever since. Bermudian Sloops drastically changed the sailing landscape, with directional sailing regardless of the wind direction becoming far more feasible and efficient than it had previously been for large ships. Bermudians became well known facilitators of trade in the New World as we sailed directly between ports leveraging our game changing innovation.

In the more recent decades Bermuda has become the world’s leading offshore domicile for captive insurance. Our location, reputation, and the combination of a progressive government and regulator willing to work closely with industry made Bermuda an ideal place to incubate this new industry. In 1978 we passed the Insurance Act which set the stage for the development of our leading foothold in the offshore insurance industry. We also established the Insurance Advisory Committee which brought together a variety of key players including insurance companies, law firms, regulators, and legislators to help drive the growth of the industry. We took a risk management approach while leveraging our small size, flexibility, and close partnership with industry to respond quickly to industry needs. Our willingness to set a flexible but high standard of regulation allowed the industry to grow while having the support of a regulator and government who understood the challenges of managing the risks of a new industry.

Bermuda is keen to maintain its place as a leader in driving disruptive innovation in global trade. In the autumn of 2017, we established a Blockchain Task Force dedicated to pursuing opportunities in developing the Fintech industry. By the summer of 2018 we launched a suite of regulations focusing on managing risks associated with issuing and conducting business involving digital assets.

We also transitioned our task force into an industry working group consisting of key stakeholders similar to that of the insurance committee. Our aim is to repeat the model that made us a leading player in insurance to provide the Fintech industry with the high standard environment it needs to grow. We are committed to working closely with the Fintech industry to craft best practice guidelines and a risk management-based regulatory framework built around third-party reliance.

As we look to the future of global trade, there are many challenges that inhibit growth. As much as we have witnessed tremendous global progress with the introduction of advanced networks, computing technologies, and the internet, we haven’t managed to fix core problems around trust. Trust is the foundation of the future of trade and is fundamental to every human interaction. Yet, the progress of the digital world has outpaced our ability to adequately broker trust as a society.

Much of trust today in the physical world is reliant on validation provided by established authorities. Governments act as brokers of trust in the form of licenses for physical business premises, authorization and regulation of activities, and the verification of individuals. Physical businesses possess attestations of licenses and inspections from government posted on a wall, just as an individual may be assigned a passport. These attestations act as an anchor of trust that certifies a business as meeting a certain standard or the identity of an individual. As a result, we feel more comfortable using services or products provided by that business or interacting with that individual. When it comes digitally relying on information supplied by third parties, we need the confidence that government oversight, and the accountability it can provide, that our reliance is well placed.

On the internet we simply do not have confidence that people or businesses are who they say they are, and that we can rely on the information they provide. We must be ever wary of fake news, phishing schemes, and bad actors as almost anyone can have a voice, and yet few are truly validated as authentic. Furthermore, businesses and network controllers collect and hoard data, building profiles about users that can reveal more about us than we know of ourselves. With every interaction you are required to hand over incredible amounts of personal information, whether simply in case they need it for regulatory reasons or due to poor data management practices.

There needs to be a clear framework around how identities are issued and managed. Such a framework should govern how attestations are made against identities, the ways in which data is securely stored, and the protocols for who can access data, when, and why. Regardless of who you ultimately choose to manage your digital identity and related profiles, you should have confidence in their practices. This sort of a framework needs to be guided by both regulators as well as the industry itself. There needs to be accountability at every level of the ecosystem for it to work.

Why does a car rental company need your name, address, date of birth, and a raft of other details in order to rent a car? Certainly, if you get into an accident, these details may be essential to sorting out any insurance claims. But they are only needed in the event of an accident or claim, not before. Having the company store your data in case it is needed becomes not just a risk to you, but also to them. These troves of information also make for attractive targets for those eager to exploit our data for nefarious purposes. While solutions such as GDPR have attempted to tackle the challenges surrounding data protection, they have also caused much confusion and increased regulatory burden. They have not done enough to reduce the need to collect data in the first place. An adequately developed solution would provide clear assurances that third parties can access only data which is necessary and only when necessary, removing much of the need for businesses to collect or store data from the beginning.

The challenge is that few of these profiles are transferrable, and almost none are owned or controlled by the individual. You may rent a car twenty times, and yet it is the rental agency that owns the history showing that you were not reckless and did not cause any damage. You should not have to hand over personal details unless there is need, and you should have control over the details stored, the people who access it, and the purposes for which they may do so. Your evidence of good character should be something you control,

Reliance on third parties for know-your-customer (KYC) and anti-money laundering (AML) processes is challenging. There are no clear standards, guidelines, or best practices that provide significant confidence that one party can rely on another for these processes. As a result, the market is slow to adopt reliance even though adequate technology which makes it feasible exists. Of the many other cases that would benefit from improved digital reliance, the simplest that we are aiming to soon pilot is the reliance on basic documents. There are a wealth of paper documents that could readily benefit from digitization in a basic form, both within government as well as in the private sector. Both sectors should be freely able to make attestations of a document’s validity against identities, whether they be for individuals, companies, property, or devices. We need a new layer of trust to be built upon the internet; one in which individuals own and control their own data and in which regulatory burdens can be reduced to lower the cost of banking and other financial services and drive improved productivity around the globe. Where the power of your data can be leveraged to your advantage rather than to those who hoard it. We need to unlock a new paradigm where corporations can adequately rely on third parties so that they only request data in the event it is needed. This would drastically reduce the scope of data collected and reduce the risks of holding personally identifiable information.

This sort of solution will not exist until we can fundamentally solve the fragmented identity problem. We need to develop global interoperable standards around the management of identities and the profiles created around them. While there are many companies attempting to build global interoperable digital identity solutions, there is not yet a clear path to creating a standard. For digital reliance between parties to be possible the industry needs confidence to differentiate between good and bad actors.

In Bermuda, we recognize that the issue of managing digital identity requires more than just a technological solution. It also requires an open regulatory solution that embraces and supports the efforts of the many companies attempting to solve the problem. Bermuda aims to play a key role in working with the industry to establish a standard and guidelines for digital identity management, have them blessed by our regulator, and work with other jurisdictions to encourage adoption of that standard. Doing so would provide the industry with the confidence it needs to grow, reduce the burdens of compliance regulations, and enable KYC and AML processes to be transferrable. We are aiming to launch a proof of concept that will demonstrate exactly how this framework will work and are looking to engage with companies building technological solutions around managing digital identities and profiles. A key aspect of this effort is that we can drive interoperability between the various stakeholders to drive forward a global standard of best practices while enabling choice of providers.

We are also keen to collaborate with other progressive governments who are willing to work with us on developing this regulatory approach and promoting greater adoption of digital reliance. We are keen to see this sort of an approach embraced so that we can establish the foundation upon which the digitization of trade can flourish. We are looking to build on our successful model of new sector development to support the digitization of industries, and are now looking to play a key role in solving the challenges of reliance on third party data in the digital age. We would like to call on others who share this vision to join us in turning it into a reality.