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Financial Technology
regulatory and risk control. Swindale for a new innovative industry. “We have seen
Virtual currencies and the blockchain Roundtable participants: Coinsult - Siân Jones GFSC - Nicky Gomez & Tim Connal Gibraltar Start-up - Philip Vazquez GSX - Nick Cowan
KPMG - Micky Swindale Ramparts - Peter Howitt Revoltura - Ransu Salovaara Wavecrest - Brent Almeida
intervened to warn: “There is a danger that all of that [effort to encourage entrepreneurs] will go to waste if there isn’t a bank to support it.”
Problem with banks
With that in mind, Howitt declared: “We have just described a global banking infrastructure that is starting to break – the politicians have no control over it since the [2008 financial] crisis – that largely, is why so many of us are passionate about Bitcoin. It all feeds into most of us thinking that this situation is an amazing opportunity.”
Siân Jones observed: “The problem of banking is not in any way unique to virtual currency businesses; it is part of a much bigger problem of wholesale de-risking, which has been going on across the banking sector. One factor is that so many of the banks are owned by other much larger banks, so those de-risking policies filter down through to the smaller banks, many of which are reliant on their correspondent banking relationships to function.”
what has happened with online gaming here, where there are very similar dynamics to those of the virtual currency world”, Almeida observed.
“Now [with virtual currencies and other blockchain applications] we are talking about a much larger potential market. All the ingredients are there for Gibraltar to be as well-positioned as any other jurisdiction to take advantage of this growth, it really comes down to some better marketing of the jurisdiction and execution across the board on government support of innovation and start-ups. There are clearly a lot of inter- dependencies still to be managed, but we are certainly moving in the right direction”, he submitted.
Ground breaking
One significant development occurred when Ransu Salovaara, chief executive of Revoltura, moved to the jurisdiction to launch last summer his ground-breaking BitcoinETI product, a traded security backed by a portfolio of bitcoins, listed on GSX (Gibraltar’s Stock Exchange), the first in Europe to do so.
“Many institutional investors are demanding a stock-listed product so that they can get exposure to bitcoin. We fixed this by having BitcoinETI listed in Gibraltar and trading out of Frankfurt Stock Exchange,” Salovaara said, adding: “We plan to do more. We get approached by crypto currency and digital asset companies very interested to see that the whole crypto currency space will get better here if there are regulated products supporting them.”
Nick Cowan, GSX managing director, devised the product with listing member, Argentarius that had a prospectus with regulatory approval to passport across the EU and in a structure suitable for UCITS funds.
“The challenge was to engage with the regulator at an early stage, to articulate clearly the opportunity as well as the risks associated with a securitisation structure, and to recognise that everyone was going to be taken out of their comfort zone,” Cowan recalled.
“Structuring Europe’s first asset backed security listed on a regulated market was something that no-one had seen before in virtual currency and offered a whole new learning exercise on how this would work regarding liquidity, execution and, particularly, the risks surrounding security,” Cowan admitted. “There was an intensive
risk matrix process – including the potential reputational risk to Gibraltar if we got it wrong.”
The GFSC signed off on the project within six months. “That was a huge accomplishment from a regulatory basis, because with other products the Commission can approach other regulators as a point of reference for advice if required, but with the advent of the Bitcoin ETI, the GFSC had to take the lead showing an appetite for innovation,” Cowan declared.
Howitt saw the development as an opportunity to market Gibraltar as a centre of excellence in this technology, “making it clear that we are a place in the world where you want to come to gain support as a start-up and receive help through the process. There is a really good chance that whilst everyone is focusing on blockchain and exciting things around it, bitcoin is going to keep building as the internet money alongside Fiat currency.”
He was pragmatic: “It’s a win-win situation. If there is growth in virtual currency there’s a regulatory regime to support that, and if there is growth in blockchain, we have the regime to support that too, so whichever part is the one to grow we can benefit as a jurisdiction. In 12-24 months we may see that virtual currencies and blockchain are separated in their application and the key for Gibraltar is in having a flexible regulatory regime that can support either or both of those applications.”
As Sian Jones perceived: “We are working hard in Gibraltar to address the challenges of a rapidly evolving, brand new technology. We know it’s a bad idea to try to regulate a technology, rather focus on the business activities that might use that technology. We are looking into something that is outcomes focused, principles-based, that addresses the very broadest spectrum of the use of distributed ledger technology”.
Ray Spencer
Gomez
concurred. The GFSC had identified the issue of access to banking facilities: even when local banks showed interest, their [larger] correspondent banks might not be comfort- able with the risks around Fintech companies. He stated: “It shows the dynamics here. No one is going to resolve it simply by having a good regulatory environment; we
Ramparts’ Peter Howitt “passionate about bitcoin”
need to see how that interacts with banking policies and Board risk appetite.
“What we can do is provide a strong responsive regulatory framework that supports the right controls being in place whilst not stifling development. Ultimately, we would approach any new business with the same regulatory objective of ensuring consumers’ and Gibraltar’s reputations are protected. How this is done needs to be proportionate to the circumstances” the Commission’s risk manager concluded.
Yet Brent Almeida saw “a huge opportunity still ahead of us as a jurisdiction”, sighting the general benefits of Gibraltar – “why we are all here as individuals and businesses – favourable corporate tax regimes, no capital gain, no VAT – which also eliminate some of the operational complica- tions with regulating virtual currencies.”
The jurisdiction, he judged, had experience in building support infrastructure
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