Principles Based Regulation – Raising the Glass Ceiling on the Blockchain Industry
By Nick Cowan, CEO, Gibraltar Blockchain Exchange (GBX)
Despite the downturn in the cryptocurrency market, the global blockchain landscape continues to build momentum, illustrated by the surging jobs market, the stream of high profile education offerings, and a range of government departments across the world pursuing applications of the technology. For too long, however, clear regulation has been the missing piece of the puzzle — placing a glass ceiling over the industry as a whole, stifling the progress of potentially landmark projects, and dissuading others from pursuing decentralised innovation.
As the wider blockchain ecosystem continues to evolve at a fast pace, the importance of regulation has never been more pronounced. The full promise of the blockchain industry will be delivered with a principles-based regulatory framework in place, providing much-needed guidance for companies entering the market. This would help them effectively plan and develop the projects that give expression to the spirit of decentralisation at the heart of this movement.
So what are the arguments for principles-based regulation?
For all of the successes within the blockchain eco-system, there have been failures. Failures that perhaps could have been avoided if the right regulatory framework was in place to guide companies through challenging times, or prevent premature projects from entering the market. Between the start and midpoint of 2018, over 1,000 crypto projects ceased operations, a remarkable figure that highlights the volatility of the space, but perhaps more importantly, underlines the need for strong leadership around regulation.
A principles-based approach to regulation has helped the blockchain landscape develop in Gibraltar. The country is showcasing the benefits of creating a sensible and sustainable cryptocurrency and blockchain regulatory environment. In January of this year, Gibraltar became the first jurisdiction to introduce a purpose built DLT regulatory framework and subsequently, the Gibraltar Financial Services Commission (GFSC) granted Distributed Ledger Technology (DLT) licences to a number of companies that use DLT.
The progressive nature of this regulatory approach has enabled a wide variety of projects to flourish. The GSX Group has experienced first hand the advantages of a supportive and flexible regulatory framework, after becoming the world’s first stock exchange that also owns and operates a regulated cryptocurrency exchange. There are around 170 stock exchanges worldwide.
Policymakers in the jurisdiction have highlighted the importance of legislation that is robust, but also sensibly flexible, nurturing the innovative efforts of the countries flagship platforms and budding projects. The cohesion between government and industry, melded together by a shared vision for mainstream decentralisation, has helped position Gibraltar as one of the world’s most advanced blockchain and crypto friendly jurisdictions. The efforts of the government are being rewarded in the form of an influx of blockchain projects attracted to the jurisdiction’s supportive environment.
The introduction of the regulatory framework in January has opened the country’s doors to companies utilising blockchain and DLT, giving them the opportunity to apply for a license from the GFSC. This wave of momentum comes at a time when world leaders appear to be stepping up efforts to build foundations for a comprehensive regulatory framework. The notion of developing international standards to regulate cryptocurrencies, as outlined at the G20 meeting in Buenos Aires, is another step in the right direction for the blockchain and crypto space. Similarly, while speaking at a recent fintech conference in Singapore, Head of the International Monetary Fund Christine Lagarde encouraged governments across the globe to consider developing their own cryptocurrencies – a strong vote of confidence for the prospect of cryptocurrencies ascending into mainstream society.
Whatever shape regulation takes, it is imperative that its implementation is not rushed. Clear regulation will help reassure a new swathe of participants who have been hesitant to enter the market and instil a sense of confidence among investors around the credibility and security of the space. Gibraltar as a jurisdiction can showcase a framework that revolves around the needs of industry, raising the glass ceiling and helping the blockchain space develop with boundless energy.