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FinTech
The 2018 cryptocurrency crash has not halted growth
A spectacular crash in cryptocurrency prices at the end of last year, had a subsequent roller coaster effect and a decline in digital business crowd funding (ICOs), but the digital financial services sector is still going strong, Ray Spencer reports
Gibraltar launched the world’s first blockchain / Distributed Ledger Technology (DLT) regulation in January 2018, and is now gradually increasing its licensing activity. The jurisdiction is poised again to trail blaze with the launch of token sector regulation, albeit a year later than anticipated.
In 2018 Q1, 30 DLT license applications reportedly were received. By mid-April this year only seven firms had been approved and almost all were cryptocurrency exchange-related, including some of the world’s largest such enterprises!
Nicky Gomez, Gibraltar Financial Services Commission (GFSC) head of risk & innovation, said some were aimed at start-up businesses and others at established operations that had “decided to run its [sic] virtual asset business in a regulated environment”.
He explained that businesses using DLT to store or transmit value belonging to others and operating from Gibraltar before January last year, were given three months to submit an application if they wished to continue trading under transitional arrangements. A robust assessment to ensure applicants comply with the nine regulatory principles is required before a DLT Provider licence can be issued.
“In a principles based regulatory regime, an open dialogue and collaboration between the regulator, applicants and their advisors is necessary in order to ensure applicants have adequate controls to meet the nine regulatory principles and outcomes that will deliver protection to customers, Gibraltar’s reputation and reduce the potential for financial crime”, Gomez asserted.
Regulation new to techies GFSC technical specialist, Nathan Catania, pointed out: “In particular, some applicants are from tech-based businesses and are not used to dealing with regulatory requirements in their operations, which makes the need for transparency, dialogue and clear communication of our expectations even greater.”
There were a further nine applications with in principle decisions pending a full DLT license “and there are [still] more in train”, Gomez noted. However, he revealed: “To date, a few firms, have for different reasons, decided to withdraw their application at different stages of the authorisation process”.
LMAX Digital, an electronic exchange formed in May 2018 dealing in foreign exchange (FX) and crypto currencies for institutional clients, revealed in March that it was awaiting DLT license approval. Parent company, LMAX Exchange Group, has traded over US$12trillion at multiple FX trading venues worldwide. Others, such as TokenMarket and CEX.io, have also received in-principle decisions from GFSC.
The earliest applications took over six months to gain approval, double the time originally expected. According to Paul Astengo, the government-supported Gibraltar Finance senior executive with responsibility for innovation and technology initiatives: “A lot depends on the quality of the applications the
complexity of the proposed activity and how well-presented the cases are; they’re being processed more quickly and generally it now takes closer to three months. It has been a learning curve for us all, including applicants, practitioners and the GFSC.”
DLT beyond finance
Recent DLT-license applications are challenging areas of blockchain activity other than being crypto-related. Astengo confirmed: “There are applications in course that are concerned with other areas of industry, not just financial services, run by advisory firms to aid, for example, detailed business planning that previously might have involved hiring a human management consult to consider.”
A year ago, Gnosis was attracted to set up headquarters in Gibraltar after its US$12.5m token sale, and established the Olympia prediction platform to “aggregate information about the expected outcome of a future event” from climate change, gauging the price of a piece of art before auction, or forecasting epidemics”.
Minister for commerce, Albert Isola, enthused: “There is a real vibrancy emanating from Gibraltar’s growing blockchain ecosystem.” He added: “We have set a high bar for prospective DLT providers. We are committed to upholding the highest standards in our expanding blockchain ecosystem, and remain deeply
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12 Gibraltar International
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