Bermuda is taking a “huge reputational risk” for what is likely to be little reward by encouraging crypto companies to come to the island, according to a tech expert.

Martin Walker, banking and finance director at the non-profit Centre for Evidence-Based Management, told The Royal Gazette: “It seems like easy money, but think of the risks you are taking.”

His words echoed those of Francine McKenna, faculty lecturer at the Wharton School at the University of Pennsylvania, who said of Bermuda: “I think they should be very careful who they support and promote.”

Both spoke to The Royal Gazette after appearing on a panel at the Offshore Alert conference in London this week, alongside fellow crypto sceptic Stephen Diehl, director of the Centre for Emerging Technology.

During the discussion, titled “Normalising Fraud: the Crazy World of Crypto”, all three speakers gave stark warnings about the high level of fraud taking place in the crypto industry.

Mr Walker told the Gazette afterwards that struggling “offshore centres” trying to develop a crypto industry to boost their economies were playing with fire as digital currencies were designed to avoid regulation and accountability.

“It’s a similar situation that the conventional banks are in,” Mr Walker said. “They think ‘there’s lots of money here. We want a piece’.”

But he cautioned: “You are taking a huge reputational risk to possibly make very, very little.”

The Government has long sought to establish Bermuda as a digital-asset hub, with the island becoming one of the first jurisdictions in the world to implement a regulatory regime.

David Burt, the Premier, has promised that fintech would bring jobs for Bermudians, while economy minister Jason Hayward was quoted in The Wall Street Journal recently as saying the recent devaluation in the price of cryptocurrencies did “not threaten the island’s ability to become a crypto hub” and was "likely to advance our goal and positively impact our long-term growth and role in this sector“.

So far, the Bermuda Monetary Authority has issued eight full digital-asset business licences, four licences for companies wanting to test their proof of concept and four modified licences for those seeking to expand operations for a limited period.

Mr Walker said Malta tried to turn itself into “crypto island” but did not get very far because it “still has the rule of law”.

He said Bermuda should consider how encouraging crypto companies, with their often complex and opaque legal structures, might impact the first pillar of the island’s economy — international business.

“You don’t want to get on the ‘grey list’, again,” he said, referring to Bermuda’s former inclusion on a European Union standards list.

The Financial Action Task Force maintains and publishes lists of countries that fall short of its anti-money laundering and counter-financing of terrorism recommendations.

The lists are used by the European Union Council.

Countries uncooperative with FATF recommendations are included on a “blacklist” and countries that fall short of the standards, or are still working towards them, are put on a “grey list”.

The island was removed from the “grey list” last month.

“If you let it [crypto] get a long way, then it probably means that you have lost your grip in terms of the good things that make people come in the first place … you can just ruin the whole of that,” Mr Walker said.

“The crypto industry do not give a damn about that kind of stuff. They can just up and move.”

During the panel discussion, he said the norms of proper financial trading had gone out of the window for cryptocurrencies, with no attempt to determine the suitability of customers for the products being sold to them.

“The crypto industry in general is trying to sell high-risk, increasingly complex products to everyone they can get their hands onto,” he alleged.

He added that there was an absence of disclosure about who was organising the cryptocurrencies.

“The trading of these products are not anything like any kind of regulated exchange,” he said.

Ms McKenna said one of her concerns was that regulators in the United States and elsewhere were “trying to pacify or placate innovation”.

She said: “What we’re doing is we’re allowing companies that basically have business models that are illegitimate to gain the sheen of respectability and then the regulators have to go chasing them.”

Mr Diehl stressed that crypto was “not innovation” and was “purpose-built for regulatory evasion”.

He added: “It’s an environment in which fraud can thrive.”

The Offshore Alert conference on Monday and Tuesday was attended by more than 200 intelligence, investigations and recovery professionals from the world of high-value international finance.

It included a guidance session on investigating and recovering crypto and one on the stablecoin Tether.

The Gazette sought comment for this article from Mr Burt and from Next, the Bermuda digital-assets industry forum, but did not hear back.