The Gibraltar government has moved to establish itself as the home for regulation of cryptocurrencies such as bitcoin that rely on distributed ledger technology such as blockchain, after jurisdictions that include China and Korea banned trading in them.
The government has published draft legislation that sets out a proposed regulatory framework relating to companies that provide services traded in these currencies using what is termed distributed ledger technology.
The Bill seeks to build upon regulation already created and aims, “within the next year” according to a local law firm, to provide a gateway for Ethereum Initial Coin Offerings (ICO) which are banned in locations such as China and South Korea, and offering them a “trustworthy destination”, said the firm.
Once the proposed Bill is approved by Parliament and passes into law, it means that Gibraltar will be the first jurisdiction in the world to have a regulatory framework governing these new technology-driven financial products, stealing a march on competing jurisdictions.
Gibraltar minister for commerce Albert Isola, pictured above left, paid tribute to the DLT Working Group and key members of Gibraltar’s Financial Services Commission (GFSC), stating that this embracing of fintech regulation will “provide long-term economic opportunity” for the jurisdiction.
He added:“The DLT framework positions Gibraltar as a jurisdiction which facilitates innovation whilst ensuring it continues to meet its regulatory and strategic objectives.”
‘Collaboration between government, industry and regulator’
Samantha Barrass, chief executive of the Gibraltar Financial Services Commission, said: “Today’s publication places Gibraltar at the forefront of the regulation of Distributed Ledger Technology businesses and is a wonderful example of what can be achieved through greater collaboration among industry, government and the regulator.”
“I truly believe that this regulatory framework demonstrates that regulators can keep up to date with technology without stifling innovation, protect consumers and create a well-regulated safe environment in which financial technology can flourish.”
Gibraltar law firm Ellul & Co summarised the requirements of nine regulatory principles which, under the new framework, DLT firms in Gibraltar must now adhere to. They are, the firm said, that companies must:
• Conduct their business with honesty and integrity.
• Pay due regard to the interests and needs of each and all its customers and communicate with them in a way that is fair, clear and not misleading.
• Maintain adequate financial and non-financial resources.
• Manage and control their business effectively, and conduct its business with due skill, care and diligence; including having proper regard to risks to its business and customers.
• Have effective arrangements in place for the protection of customer assets and money when they are responsible for them.
• Have effective corporate governance arrangements.
• Ensure that all of their systems and security access protocols are maintained to appropriate high standards.
• Have systems in place to prevent, detect and disclose financial crime risks such as money laundering and terrorist financing.
• Be resilient and have contingency arrangements for the orderly and solvent wind down of its business.
The law firm added: “Other jurisdictions are working towards similar aims but the Gibraltar government and Ellul & Co are proud to have got there first.”
Cryptocurrency Advisor Trent Challis, commented: “DLT Investors can now have confidence in the fact that if they select a Gibraltar-licensed DLT firm and are actively supervised and have regulatory principles attached. It sends the message that Gibraltar understands DLT business, embraces innovation and is willing and able to license good quality firms.”
He concluded: “Our DLT firms will have credibility and the confidence of their customers; central features of any successful business. Such firms will find a comfortable home in Gibraltar.”