A framework that builds for the future
How a bespoke framework is giving the Rock a competitive advantage
By Nick Cowan, CEO of the GSX Group
When it comes to regulating companies utilising Distributed Ledger Technology (DLT), the old fable of David and Goliath is more relevant than you might think. Large nations and economic blocs are currently lagging behind smaller countries when it comes to regulating DLT firms. Several small jurisdictions, including Gibraltar, have taken the initiative, and the benefits are already visible to all. By taking advantage of its small size, championing regulatory flexibility, and demonstrating an aptitude for implementing innovative and prudent frameworks, the Rock currently has a distinct competitive advantage over international counterparts.
Gibraltar has a rich history of embracing emerging technologies, rising to the forefront of the gaming industry through comprehensive licensing processes. The jurisdiction has found novel ways to apply regulation to these emerging industries, by putting principles at the heart of regulatory oversight.
The Gibraltar Betting and Gaming Association (GBGA) has a strict set of regulations overseeing companies keen to do business there and such frameworks have paid dividends for popular providers like Ladbrokes and Betfair. By taking a proactive approach to regulate emerging industries with bespoke frameworks, Gibraltar is setting itself up for success. This proactive approach also extends to the burgeoning blockchain space.
A principles-based framework to regulate DLT enabled companies was first introduced by the Gibraltar Parliament in October 2017, in response to growing recognition that blockchain was heading for mainstream adoption. The framework focuses on the transmitter, not the tech itself. In other words, it regulates any firm carrying out the use of DLT, or blockchain, for storing or transmitting value belonging to others. The regulation is built around nine core principles and, as part of the application, each company has to demonstrate to the regulator how it addresses, and complies with each principle.
The Rock’s closely-knit community
This is a novel approach, one which satisfies the prudential tendencies of regulators while allowing for a degree of flexibility for projects to breathe. Regulating in this manner has allowed Gibraltar to move quickly, striking a balance between prudent and flexible regulation enabled, in part, by close ties between industry and policymakers. The Rock’s closely-knit community is conducive to cooperation between government, business, and the regulator, helping to build greater understanding of business needs. This strong engagement has helped direct the formation of regulation that provides flexibility for guidelines to evolve, and speeds up the regions ability to accomplish goals, and respond quickly to a fast-moving industry like FinTech.
If a larger area attempted such a flexible regulation, it would likely require a lot more consultation and insight from stakeholders with a wide number of needs. This could take years.
In Gibraltar however, important government-led initiatives can move in tandem with technological advances, as seen with the formation of initiatives like the Gibraltar Association for New Technologies (GANT). The organisation encourages the building of relationships between the authorities and blockchain firms. The government has also created a working group called New Technologies in Education (NTiE). The project, a joint initiative between the Government, private sector, and the University of Gibraltar, aims to address the growing need for blockchain-related skills. The NTiE aims to curate educational courses that will give employees and specialists required industry know-how. This flexibility, to listen to enterprise and react speedily, is unique in a global context.
It would be naive to say that Gibraltar is the only small jurisdiction taking advantage. Several others in Europe have taken steps to become crypto-friendly territories, including Switzerland, Malta, and Estonia. Last year, Malta adopted a welcoming regulatory framework for crypto businesses, and Estonia has licensed hundreds of exchanges and wallet service providers since it introduced a licensing regime.
Looking forward, Gibraltar is working hard to be in front of what it sees as a material evolution within capital markets, smart securities. The jurisdiction has worked hard for two years building its proprietary blockchain technology to enable the issuance and secondary trading of smart securities, realising efficiencies beyond what was previously achievable. Lowering the cost of capital to issuers, reducing the cost of execution to investors, whilst reducing reconciliation costs and capital to intermediaries will be a paradigm shift that will redefine markets.
Blockchain powered finance
Inclusion and empowerment will become the mainstays of tomorrow’s markets and Gibraltar has embraced DLT into its core technology framework to enable the vision to become a reality. The progress, in part, is due to the supportive embrace of this emerging nascent technology, supporting a new era of blockchain powered finance.
Smaller jurisdictions are leading the way in terms of regulating firms using blockchain, and Gibraltar is a prime example of this fact. Being one of the first jurisdictions in the world to introduce a regulatory framework for DLT companies, coupled with its nimble economy and regulatory flexibility, it continues to enrich its history of implementing innovative and prudent frameworks around nascent industries, giving the Rock a real edge on the global stage.