Gibraltar's financial regulator first in the world to draft a comprehensive regulatory framework (pdf) for distributed ledger technology (DLT). The British Overseas territory published the landmark regulation on October 12 and is expected to take effect from January 18, 2018. Gibraltar is reinforcing its brand as a financial center by fostering a friendly business environment for blockchain startups.
The new rules encompass DLT uses cases in the commercial space, specifically, storage and value transmission. The framework defines value broadly to include "assets, holdings and other forms of ownership, rights or interests." Investment services relating to cryptocurrency would, therefore, fall under this definition.
Within a year, the regulation is hoping to play host to initial coin offerings on the Ethereum. According to the Gibraltar Chronicle, Samantha Barrass, chief executive of the Gibraltar Financial Services Commission, said:
"this regulatory framework demonstrates that regulators can keep up to date with technology without stifling innovation, protect consumers and create a well-regulated safe environment in which financial technology can flourish."
Just last month, the Gibraltar financial regulator issued a statement on ICOs alongside a tidal wave of similar warnings by authorities across the world. The current draft complimentary framework incorporates token sales issued on public blockchains. Additionally, it requires DLT service providers to have a working license and abide by established regulatory principles.
Conduct their business with honesty and integrity.
Pay due regard to the interests and needs of each and all its customers and communicate with them in a way that is fair, clear and not misleading.
Maintain adequate financial and non-financial resources.
Manage and control their business effectively, and conduct its business with due skill, care, and diligence; including having proper regard to risks to its business and customers.
Have effective arrangements in place for the protection of customer assets and money when they are responsible for them.
Have effective corporate governance arrangements.
Ensure that all of their systems and security access protocols are maintained to appropriate high standards.
Have systems in place to prevent, detect and disclose financial crime risks such as money laundering and terrorist financing.
Be resilient and have contingency arrangements for the orderly and solvent wind down of its business.
Gibraltar's favorable common law legal system and strategic access to the European Union single market bolstered its growth as a financial services center. Together with the government, the regulator is responding to transformational technology to reinforce the territory's brand. Cryptocurrencies like Bitcoin and their underpinning technology are shifting the tide in mainstream investment circles.
Gibraltar minister for commerce Albert Isola said:
"The DLT framework positions Gibraltar as a jurisdiction which facilitates innovation whilst ensuring it continues to meet its regulatory and strategic objectives."
Before becoming law, the proposed Bill will need Parliamentary approval. Passage into law will rank Gibraltar as the only jurisdiction to have in place a governing framework for blockchain financial products.