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FinTech
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committed to our principles-based approach to DLT regulation.”
Fly in ointment
The fly in the ointment has been the sudden crash in digital currency prices last year. In November, for example, crypto currency valuations fell by a third in one week and have been volatile since.
In response to late-March questions, Nick Cowan, chief executive of Gibraltar Stock Exchange (GSX) Group, observed: “Having been a trader in the 1987 as well as the 2008 crash, I have seen the financial industry go through many significant bear and bull markets, such that 18 months ago Bitcoin, [the largest crypto currency by far] was at the same price it is today.
“What happened in between was a combination of greed (versus fear) and simple hype”, he opined adding that most major exchanges saw a drop in crypto business volume and prices down by 90% since the peak.
Cryptocurrencies form a major part of GSX Group activity, but since receiving its DLT license in November, business had grown, “particularly with our insurance cover for theft from our wallets”. He cautioned: “When markets suffer the type of falls seen, many people who entered the market seeking gains (without understanding the underlying technology, perhaps) naturally withdraw or move on.”
Coinfloor trades Bitcoin for institutional and ‘sophisticated investors’, and in 2013 became the UK’s first crypto exchange, and in October 2018 it gained a Gibraltar DLT licence.
In January, the firm reportedly was “scaling back activities for now”, a move described by industry pundits as “sensible” and “responsible to protect the long-term future of the business”. Coinfloor expects to return to its previous level of activity by the year-end.
Set up in the US in 2007 “to reduce dependency on traditional financial institutions” eToro is now a market-leading internet trading platform and gained its Gibraltar DLT licence in December, along with Huobi Technology (Gibraltar), which is part of a leading Singaporian blockchain group boasting over US$1trillion turnover from users in 130+ countries. Huobi said: "It's no secret that we think that well- designed regulatory applications, from liquidity to safe storage with military grade security layers”.
“Among other benefits, our [Gibraltar] DLT license will allow us to open doors to more institutional investors who were previously
unable or unwilling to get involved in an unregulated sphere," Li stated.
First Digital Assets Group, operating as Eppur Group, gained its DLT license in March to “create building blocks for blockchain applications, from liquidity to safe storage with military grade security layers”.
Coinsilium Group, a blockchain investment and advisory firm, in March moved its core operations from London to reduce
“Crypto trading seen greed v fear and simple hype”, Nick Cowan, GSX Group Chief Executive
operating costs and put more resources into investment activity and advisory services. Executive chairman Malcolm Palle, relocated to Gibraltar to recruit staff before summer, and declared: “It’s not just regulation that is attractive – it is also because banking is better and the jurisdiction is ahead of the curve”.
Palle said Gibraltar’s private Turicum Bank “has a good understanding of how DLT and crypto companies work and is more open- minded to the sector, whereas many other banks have a blind spot with regard to blockchain”. Firms involved with cryptocurrencies have experienced widespread difficulty in obtaining bank accounts in main financial jurisdictions, sometimes instead choosing eastern European jurisdictions and Euro bank accounts.
“It’s about the banks being comfortable on where the money has come from to satisfy their know-your-customer (KYC) and anti-money laundering (AML) obligations. With money into businesses arising from cryptocurrency activity, the banks need comfort on the source of funds,” Palle observed.
While State-owned Gibraltar International Bank (GIB) is accepting of crypto businesses, its reciprocal British bank, [the Royal Bank of Scotland], is not and reportedly refused last year to process orders
from locally based crypto firms. GIB chief executive, Lawrence Podesta,
told Gibraltar International: “It is still very difficult to engage with institutions [that] are willing to entertain payment channels, in and out, for any monies related to FinTech business.” He disclosed: “A number of meetings with some institutions were arranged in April. I am optimistic and hopeful that we can revive this area of activity within the next few months.”
The Gibraltar Blockchain Exchange (GBX), which runs an initial coins-offering marketplace as a subsidiary of Gibraltar Stock Exchange (GSX), gained its DLT license last November reportedly after 180 days of preparation. GSX Group now employs 100 people - 70 at its Gibraltar headquarters, and the rest in London, Hong Kong and Singapore.
Blockchain transformational Bitcoin is not legal tender in Gibraltar. It will not regulate the currencies, but will license firms that have business in or from Gibraltar, for the use of DLT for storing or transmitting value belonging to others. The jurisdiction's consistent view is that the underlying blockchain technology is what is transformational.
Nick Cowan, GSX Group chief executive, declared: “Gibraltar has found the right blend of sensible and supportive regulation, which has helped position the jurisdiction as a lodestar for the global crypto currency space” and suggested: “Crucially, here in Gibraltar there has been a realization that the pursuit of innovation should never come at the expense of sustainability and long-term development.”
There is continuing interest from operators in becoming a licensed DLT provider, insisted Peter Howitt, director of Gibraltar’s Ramparts Law, “though the bear market for crypto has made it tougher for many operators to afford the licensing and set up costs given the drop in revenue and also asset value for those holding their own assets in crypto!”
There is no harmonised approach at EU level to the regulation of virtual currencies or the use of blockchain technologies in areas that overlap with more traditional financial services.
Gibraltar’s planned Tokens regulation, including initial coin offerings (ICOs) - used across the world to crowdfund multi-millions of pounds for new and established businesses - was expected in mid-2018, but the slump in crypto market activity of all types contributed to make the launch less urgent.
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14 Gibraltar International
www.gibraltarinternational.com