The British overseas territory Gibraltar is rolling out the red carpet for crypto companies, with the country currently in the final stages of voting on regulations that would allow companies to issue and trade digital tokens.
At the end of August 2018, the Gibraltar Financial Services Commission (GFSC) communicated “in-principle” decisions on the first batch of seven Distributed Ledger Technology (DLT) provider license applications.At the time of writing, it was confirmed that 38 companies have applied to the Gibraltar government for licenses to operate blockchain businesses and some of those will be institutional names.
The nation’s Finance Minister, Albert Isola, was unable to confirm any names of those involved, commenting that the GFSC is currently considering a significant number of other applications that are at different stages of evaluation.
Isola explains, since 1st January 2018, any firm carrying out business, in or from Gibraltar, with the use of DLT for storing or transmitting value belonging to others, needs to be authorised by the GFSC as a DLT Provider.
“We are a mainstream, onshore, well-regulated and compliant jurisdiction,” he says. “The DLT regulatory framework fully underpins this position. We state that consumer protection and safeguarding the reputation of the jurisdiction are at the very core of the framework. As a Government our position and that of the GFSC is as stated on their website.”
Crypto custody for institutional investors
One of the main hurdles holding back the institutional trading of cryptocurrencies is the lack of trusted custody solution and Isola is aware that this is an area requiring significant work.
“We agree completely that institutional money seeking entry into the cryptocurrency markets will require not only institutional custody solutions, but
also regulatory certainty,” he says.
He explains that crypto custody solutions are now evolving quickly, providing one example where the Gibraltar Blockchain Exchange have dedicated “significant thought and resources” into developing a “traditional ‘asset safekeeping’ model” by applying strict custody methods and stringent audited control processes for clients that operate on their cryptocurrency exchange and token sale platform.
“They state that they now provide a third-party custody solution that is institutional-grade, and that this will in turn will provide confidence for the institutional players that are on one hand keen to enter the market, but on the other require best practices, risk mitigation, and adherence to regulatory principles,” he adds.
Commenting on whether Brexit will have an impact on blockchain and crypto regulation in Gibraltar, Isola says to – the best of his understanding – he feels it will not, because the right to passport is not one that attaches to DLT.
“In addition, the DLT Regulatory Framework, in our belief the first of its kind anywhere, is not one that arises from any EU initiative,” he comments.
The EU has not created a framework yet and Isola is following with interest the work being undertaken in Brussels in this respect.
“Our regulatory framework is in place and came into effect on 1st January 2018. We continue to work on developing our legislation in this space including frameworks that will cover token sales and crypto funds that will follow in the months to come,” he adds.