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DLT Regulations come into force
By March 2018 “Tens of licence applications” for Distributed Ledger Technology (DLT) will have been processed by the GFSC after the technology was regulated in January
She added: “Over the last few months we have had a steady stream of established businesses [showing interest] from all four corners of the world – Asia, North and South America and other parts of Europe; some to look around to see what our approach is, and subsequently some have set up Gibraltar companies in anticipation of submitting a license application.”
Regulatory certainty
Firms in Gibraltar using DLT (also known as blockchain) to store or transmit value belonging to others, must apply for a GFSC licence, and the outcome is to gain regulatory certainty. Some applications involve use of virtual currencies such as Bitcoin; an eMoney firm has already been authorised to offer Bitcoin debit cards.
Jones declared: “Unfortunately, the EU approach to financial advice only applies to specified forms of financial instruments, not virtual currencies.”
Initial Coin Offerings (ICOs) – a type of start-up crowd funding also known as ‘token sales’ – are next for world-pioneering Gibraltar regulation later this year. “Like virtual currencies, the work with the government is around token sales and distribution, rather than the tokens them- selves,” she added.	“We again are leading the way in addressing this aspect by preparing legislation to bring that kind of investment advice into the regulated space.	I don’t know of any other jurisdictions that are anything like as advanced in regulating this space. We are getting on and doing something about it in Gibraltar,” Jones said, by promoting market confidence, reducing systemic risk and cutting financial crime.
The moves come as Gibraltar prepares for a MONEYVAL assessment of compliance with principal anti-money laundering and terrorist financing international standards. The 47-member State, pan-European organisation, will early next year examine the extent to which there is adequate legislation in place and implementation by organisations such as the police, customs, intelligence services, regulators and sample private sector businesses, lawyers and accountants.
The GFSC supervision of more than 500 licensees of all types is central to the activity as chairman Dr Jonathan Spencer, explains: “A positive outcome from the MONEVAL
evaluation, [a report is expected in autumn 2019], will represent a distinctive calling card and an incredibly useful tool for Gibraltar’s Brexit-related negotiations with the UK.”
In the GFSC 2016-17 annual report, published in December, Dr Spencer emphasised: “It will also help to cement our position in the international arena, post-Brexit and beyond. The importance of getting this right for both the organisation, as well as the jurisdiction, must not be underestimated.
“An important element here... is to make sure we are a credible jurisdiction,” he noted. MONEVAL presented “a unique opportunity to demonstrate how the jurisdiction fares against the relevant international standards”. It will show how financial crime is in “an even more central position on our supervisory agenda and test how well we meet the expectations of our peers internationally”.
A data collection exercise across the financial services sector in March 2017 provided the basis for a specialist GFSC financial crime team supervisory plan that includes liaising with firms on high-risk issues. The impact is also being felt in the license applications process with an enhanced due diligence methodology “to prevent criminals from holding or controlling a beneficial ownership or a management function within a regulated entity”.
Legislative Reform Programme
Samantha Barrass, GFSC chief executive, declared: “We are looking ahead to an increased activity in the area of combatting financial crime... and more effective use of external skilled persons and inspectors” to provide the resources needed in the medium term.”
But when asked in January, a GFSC spokesperson was unwilling to quantify the extent of financial crime activity, citing “confidentiality provisions”, but confirmed that “a substantive area of work has been conducted by the financial crime team work- ing on specific thematic reviews and sectors. There is no particular sector of concern. We have on-going enforcement cases and with increased powers we are able to address more issues and in turn have a higher case load of work.”
In the next year, GFSC expects to
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Dr Jonathan Spencer presents the GFSC annual report with chief executive, Samantha Barrass
Supporting FinTech (Financial Technology) - and broader technology - innovation is a cornerstone of Gibraltar’s bid to attract start-up ventures, or others in blockchain to relocate to The Rock as a ‘centre of excellence’.
As Gibraltar Financial Services Commission (GFSC) specialist advisor, Sian Jones, explained: “The rigidity of financial services regulation becomes a barrier to some FinTech business, because rulebooks are written around what is already known and mature, and not an open book of new stuff that isn’t yet understood. With the DLT framework, we are addressing something that to a large extent is new and unknown”
The level of initial DLT applications was “in line with expectations”, revealed Nicky Gomez, GFSC head of risk & innovation. “No two applications are the same – each has its unique approach.” The GFSC encouraged would-be licensees to first approach local intermediary advisors – accountants, lawyers, etc – to get a better understanding of requirements and the proposed activities.
“We had discussions with some applicants as part of the pre-engagement process and came to the conclusion the activities did not fall within the DLT framework”, he said.	Jones added: “Although they may have considered the technical aspects, they may not have thought through adequately the implications of being a financial services business.”
6	Gibraltar International

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