Everybody with a keen interest in crypto-currencies will by now know that are going to be implemented in Gibraltar.
On January the first, 2018, the Financial Services (Distributed Ledger Technology Providers) Regulations 2017 (the "DLT Regulations") will come into force, marking a significantly progressive milestone for the jurisdiction. This is also a turning point for the crypto industry as a whole, which is largely unregulated and even banned in certain jurisdictions.
Although it was never the intention to bring token sales within the scope of the DLT Regulations, given the huge increase in popularity in this form of raising funds, the Gibraltar Financial Services Commission (the “FSC“) has announced plans to bring token sale activity within the regulatory scope.
Gibraltar’s regulatory approach
The FSC has the responsibility to issue licences under the DLT Regulations (the “DLT Licence“) and ensure subsequent compliance with the said regulations. The FSC encourages DLT businesses wishing to operate in Gibraltar to communicate and work with them so that they can understand the underlying business and make the DLT Licence application as smooth as possible. When determining a DLT Licence application, the FSC will adopt a discretionary approach that remains flexible by focusing on as listed in the DLT Regulations.
Why should DLT businesses embrace regulation?
Embracing regulation from a central body in this industry is arguably at odds with the decentralized nature of DLT. If an overly prescriptive and rigid approach had been introduced in Gibraltar it may have stifled the innovation and development of DLT businesses.
However, a regulatory framework that is sufficiently flexible to allow the continued development of the industry and the underlying technology, while also providing adequate protection for customers and maintaining, if not improving, the reputation and appeal of Gibraltar as a financial services jurisdiction, will be beneficial for all stakeholders. The FSC’s approach and the DLT Regulations should therefore dispel concerns that Gibraltar’s regulatory standpoint may be overly restrictive and consequently detrimental to the development of the crypto industry.
In principal, Gibraltar’s well constructed regulatory framework should provide the following benefits:
- Only reputable DLT providers will obtain a DLT Licence;
- Consumers transacting with a DLT Licence holder will have the comfort of knowing that the business they are dealing with is operating in a regulated environment where the FSC is protecting the interests of the consumer;
- Consumers transacting with a DLT Licence holder will be informed and protected;
- The crypto industry will become more secure and transparent, which are some of the underlying qualities of blockchain technology
- The reputation of the crypto industry and the quality of service provided by DLT businesses will improve;
- The aforementioned benefits are already attracting big players in the crypto industry to Gibraltar but also large multi-national companies from traditional industries who are expanding their offering by utilising blockchain technology; and
- The involvement of large multi-national companies with vast amounts of capital may lead to further innovation.
We are optimistic that the combination of the DLT Regulations and the open approach adopted by the FSC will encourage the crypto industry to thrive and allow Gibraltar to become the “gold standard” jurisdiction for crypto businesses, in the same way it has been for the online gaming sector.
What is next?
As referred to above, the Government of Gibraltar and the FSC recently confirmed at the (Gibraltar International FinTech Conference held in Gibraltar on October 18th, 2017, that they are in the process of developing regulations and guidance to cover ICOs (the “ICO Regulations and Guidance“) undertaken in Gibraltar. The FSC’s aim is to have the ICO Regulations and Guidance in place for February the first, 2018, to complement the DLT Regulations. Although we do not yet have a great deal of information on what obligations the ICO Regulations and Guidance will impose on token issuing companies, we are confident that the FSC will adopt a similar flexible and appropriate approach as it has done with the DLT Regulations.
Hassans’ FinTech Team
The is able to provide expert legal and regulatory advice in the blockchain and crypto space and we remain poised to play our part in this globally transformative technology. Our team is comprised of practitioners with backgrounds in financial services, corporate and commercial law, tax and funds. We are therefore well positioned and suited to advise and guide crypto businesses through the regulatory hurdles in order to setup companies that will be licenced by a reputable regulator in a well-respected jurisdiction.