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FinTech
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A Tokens Bill was eventually published in February and after industry consultation it is now expected to take effect in May 2019. Tokens offerings will need to be made through licensed ‘authorised sponsors’, who will be required to ensure compliance to the regulator’s principles and adherence to authorised codes of practice for each issue.
Research from Atlantic NeoTechnologies (ANT), a specialist service company for digital currencies, tokens and ICO projects, suggests ICO funds raised through Gibraltar rose from around US$40m in Q3 2017 to US$340m by end- 2018.
While crypto exchanges such as GBX [which itself attracted over US$27m in a seven day February 2018 token offering] accounted for a quarter of Gibraltar’s ICO activity, other areas showed “even more signs of acceleration and diversification” across 15 sectors, including commerce, healthcare, infrastructure and energy, according to Alain Chevee, chief executive of ANT, with offices in Geneva, Luxembourg and Gibraltar.
Chevee’s report on information website, fintech.gi, noted: “We see that Gibraltar is clearly a major player in terms of pro-ICO regulation, expertise and the number of ICOs in proportion to its size as a jurisdiction. The development of an ICO industry is undoubtedly an investment for the future of Gibraltar’s economy as the funds raised by ICOs will continue feeding and seeding projects, no matter how the crypto-currency industry evolves meanwhile.”
ICOs investment in future But pointedly, Chevee stated: “The key relevant question now [is] whether Gibraltar will stay ahead of the curve in the future when bigger countries clarify their stance on ICO regulation and major banks and other actors enter into play!”
The test for Gibraltar’s DLT regime, and forthcoming tokens regulation - where it will be the first in the world - is the extent to which other jurisdictions accept those standards for Gibraltar licensed businesses operating in their countries. The UK does not regulate firms working with blockchain, or tokens offerings.
Ramparts in January told Lexology, an online news feed: “ Whether by regulation or cross-party industry agreement on a self- regulatory basis, it is expected that Gibraltar will take a lead in managing the risks and setting the standards that should be applied in this fast-
growing [tokens] sector. Most jurisdictions (including the United States) expect a detailed case-by-case assessment of whether any such crowdfunding may constitute the offer of securities (including whether they constitute a form of investment fund).”
GSX believes that the future for capital markets rests with the tokenisation of securities, known as ‘smart securities’. “The efficiencies, cost reductions and instantaneous transferability can have seismic transformational effects as to how securities are traded, cleared and settled,” Cowan asserted.
EIF stumbling block removed: James Lasry, GFIA Chairman
To develop its own digital exchange, GSX Group established a joint venture subsidiary, Hashstacs Inc, last year in Singapore, with a team of 40+ developers to prepare its STACS Network to begin trading digital securities later this year.
Huobi revealed that now licensed, it is looking at “exciting possibilities for simplified and efficient fiat-to-crypto and crypto-to-fiat functionality” and also expects to roll out in the first half of this year “a concerted move into the regulated financial product space”.
Howitt noted that while “ICO's have really died out... there is lots of focus on equity offerings with tokens (so called Security Token Offerings).” He advised: “Gibraltar can become a leader in the tokenised securities sector if we properly balance speed to market and reduced costs with necessary regulatory controls and supervision.”
Crypto funds are one area where tokenised assets are expected to make an impact and help revive Gibraltar’s traditional funds sector, which in recent years has not grown as expected.
In 2014, [the last year in which GFSC published statistics] there were some 180 funds strategies in operation, 88 being Experienced Investor Funds (EIFs), with roughly £2.5 billion of
assets being managed, according to Gibraltar Funds & Investments Association (GFIA). Today there were around 75 EIF fund strategies (including cells in PCCs), plus a number of private funds, association chairman, James Lasry, estimated
Crypto funds activity
“The sector has been contracting, but finally we have seen a steadying of that and we are launching some new funds, which is very good”, he remarked in early April.
Lasry, a partner in Hassans law firm, pointed out: “We are the only jurisdiction in continental Europe that allows the pre- authorisation launch of funds for experienced investors, even when they are sub-AIFM threshold. This is because our funds include two experienced investor fund directors, who are preapproved by the GFSC to ensure proper corporate governance.”
Amended legislation late last year allows non-residents to be authorised as EIF Directors, “because firms who have large funds businesses may already have their own cadre of very well-qualified directors and they don’t necessarily want to use new directors who are unknown to them in order to set up in Gibraltar”, Lasry explained. “We encountered some objections to this when we were in Hong Kong on a number of seminars there, so this stumbling block has been removed.” The first applicant to benefit is understood to be a prominent compliance consultant with senior US and UK experience.
“Our regime is so flexible – there are no limitations on asset class unlike most other jurisdictions – so we have been able to set up crypto funds and we are looking at funds that invest in medicinal cannabis companies, provided of course, that those companies are lawful in the places where they are active”, GFIA’s chairman revealed.
Lasry’s firm had received a number of such enquiries, including three from one London law practice, and other GFIA members similarly had been approached. “We are also looking at exchange traded funds, which we feel can fit in with our legislation,” he added.
A GFIA Code of Conduct for crypto funds was established last year as the first of its kind worldwide and has received international acclaim, because although the principles of corporate governance are universal, there are scenarios that are specific to crypto funds that require specialist knowledge to set up.
16 Gibraltar International
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