Being a financial hub, Gibraltar’s regulatory approach to blockchain technology has mainly focused on its applications in financial services. Domestic policy makers see the need for regulating the space in order to foster innovation while protecting consumers and investors alike. The speed with which Gibraltar has established a framework showcases its intention to become a crypto haven and capture large shares of the blockchain market.
All DLT-related Businesses
The Financial Services (Distributed Ledger Technology Providers) Regulations 2017 has created a regulatory framework which, since 1 January 2018, compels any firm carrying out by way of business – in or from Gibraltar – the use of distributed ledger technology (DLT) for storing or transmitting value belonging to others (DLT activities), to be authorised by the Gibraltar Financial Services Commission (GFSC) as a DLT Provider. Rather than establishing rigid rules, the framework is based on nine principles, ensuring a flexible and adaptive regulatory regime which should remain adequate through novel business activities, products, and models in the future.
Initial Coin Offerings
Aiming to complement this framework, in March 2018 the Government proposed the Token Regulation, which would cover token sales, secondary token market platforms and investment services relating to tokens. The current lack of legal certainty around Initial Coin Offerings means that they can often be high risk for investors, leading to fraud and potentially significant financial losses. The government stated that “It is desirable to establish a regulatory regime that mitigates such risks and provides appropriate and adequate safeguards by: requiring full and accurate disclosure of information; imposing rules for the orderly and proper conduct of secondary market platforms; and requiring competent professional investment services.” The new token sale regime therefore intends to bring into scope all token sales that fall outside the existing regulatory oversight. It would enforce adequate and accurate disclosure of information and adherence with AML/CFT provisions. Importantly, the regulation does not seek to regulate promoters and issuers of tokens, nor to regulate the underlying technology or the tokens themselves. Instead, the primary focus of the regulation will be on:
• authorised sponsors of public token offerings;
• secondary token market operators (i.e. crypto-exchanges); and
• token investment and ancillary service providers.
Innovate and Create Team Initiative
As part of its daily operations, the GFSC promotes ongoing dialogue and support with all stakeholders. As a result, it has set up the Innovate and Create Team, a sandbox to help encourage innovation by supporting businesses looking to develop and introduce innovative ideas for financial products or services into the market. The Innovate and Create Team provides support to businesses in a number of ways including:
• Helping new or non-regulated businesses understand more about our regulatory framework;
• Providing input to businesses in the early stages of developing new or existing business models;
• Assisting with applications for licensing or additional permissions;
• Providing guidance to the industry on the new and emerging sectors;
• Horizon scanning to anticipate trends so that the GFSC can react accordingly.