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Gibraltar at the forefront once again
By Javi Triay & Chris Davis, Associates, Triay & Triay Financial Services Team
Gibraltar’s finance sector is dynamic, continually evolving to accommodate the emergence of
new industries, technology and the entrepreneurs, whilst always catering for the needs and protection of consumers.
Not since the emergence of the online gaming sector has a new area of business been met with such excitement in Gibraltar. This time, Distributed Ledger Technology (DLT) and Initial Coin Offerings (ICOs), are today’s buzzwords.
DLT is essentially a public ledger consisting of replicated, shared, and synchronized digital data spread across multiple sites, countries, or institutions. It is decentralised, meaning that it functions completely peer to peer and therefore does not rely on a centralised institution to police it (such as a government or national bank).
It’s disruptive and despite attempts from various authorities around the world over time, it’s not going away.
The underlying technology has seen increased use across a variety of sectors in a number of countries (including but not limited to crypto currencies, land property registries, tax systems, etc.)
Landmark bill
On the 1st January 2018, the much
anticipated Financial Services (Distributed Ledger Technology Providers) Regulations 2017 (the Regulations) came into force following the publishing of the landmark bill in October 2017. The Regulations, are accompanied by guidance notes (the Guidance Notes) published by the Gibraltar Financial Services Commission (GFSC) in December 2017 and will seek to create a regulatory framework which will allow new businesses to grow and develop the use of DLT whilst also providing a “safe space” for the potential consumers of these businesses.
Whilst it may seem counterproductive to create a regulatory framework for an industry that prides itself on being decentralised, the regulation of DLT is essential to its success. The Regulations attempt to carefully balance the ultimate goal, one that will protect consumers and Gibraltar’s reputation as a finance centre and one that will create an environment allowing DLT related business to flourish due to its enhanced reputation as a regulated entity. DLT’s many potential uses means that it is near impossible to establish a “one size fits all” regulatory framework.
9 regulatory principles
The Regulations will regulate the providers of the services (DLT Providers) as opposed to the underlying technology itself, which is decentralised. The Regulations will regulate those “carrying on by way of business, in or from Gibraltar, the use of Distributed Ledger Technology for storing or transmitting value belonging to others”. In other words the quasi banks (Wallet providers) and quasi bureau de changes (Exchanges).
The Regulations require DLT Providers to satisfy 9 regulatory principles within the Regulations. Principles such as; honesty and integrity, the maintenance of financial and non-financial resources and the management of business with due skill and care are but some of the principles that DLT Providers will need to satisfy in order to be granted a licence. Therefore DLT Providers will be held to account to a high regulatory standard. In order to assist prospective applicants, the Guidance Notes will give DLT Providers examples of the standards and best practice which would be expected of them by the GFSC.
The regulatory framework and licensing procedure is not dissimilar to the
licensing process traditional financial services entities would expect. It should be noted that one particular item which is not covered by the Regulations is that of Initial Coin/token Offerings (ICO), a practice which has become almost synonymous within the business sector.
An ICO is a method which DLT start-ups use to raise funds required to initi- ate its particular venture. In a nutshell, the company creates and then sells their own tokens/coins to members of the public in consideration for legal tender or other crypto-coins.
Whilst similarities can be drawn with the traditional IPOs such comparisons can be slightly misleading. ICO’s and IPO’s are actually quite different. For example, whereas investors to an IPO receive ownership rights in the company by acquiring shares of the company, those who invest in ICO’s receive cryptocurrency or other tokens issued on a DLT. Moreover, unlike IPO’s, ICO’s are generally unregulated, meaning that start-ups effectively bypass the “red-tape” that would ordinarily be required of traditional fundraising methods.
Where start-ups would like to raise money through an ICO, it will typically create a policy paper, known as a “whitepaper”, which typically outlines the company’s objective, the process the company will undertake to meet the objectives, how much the company is seeking to raise, the utility associated with the coin/token and any rights attached to it.
The ever increasing use of ICO’s prompted the Government of Gibraltar to begin examining the way in which this particular form of funding should be regulated. Although the way in which these particular rules will come into play is still unclear, it is expected that much of the focus will revolve around disclosures made within the whitepapers themselves.
With the passing of the Regulations and the publishing of the Guidance Notes Gibraltar has officially opened its doors and welcomes new DLT businesses to the Rock.
‘Not since the emergence of the online gaming sector has a new area of business
been met with such excitement in Gibraltar
Gibraltar International

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