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Last Wednesday Gibraltar hosted the Gibraltar Digital Currency Summit, the first ever of its kind in the jurisdiction. It also marked the release by HM Government of Gibraltar of a public consultation with “Proposals for a Distributed Ledger Technology (“DLT”) Regulatory Framework”, that set out plans for the establishment and regulation of cryptocurrency business.

The intention of the Summit was to bring key stakeholders and industry representatives together in an open forum to discuss Gibraltar’s role in the cryptocurrency space and approximately 100 delegates, with 14 speakers and experts in the field, were in attendance. The Hon. Neil Costa, Gibraltar’s Minister for Health and Justice, who opened the Summit the absence of the Minister of Commerce, the Hon. Albert Isola, appropriately described the DLT framework as “an example of Government, Regulator and private sector coming together to innovate in the provision of the appropriate regulatory framework” underscoring the ‘can do’ mentality which anyone who knows Gibraltar will be accustomed to. Minister Costa outlined the Government’s commitment to carving out niche areas and being able to offer a fantastic home to firms wishing to establish in Gibraltar, and concluded by thanking the Gibraltar Financial Services Commission (“GFSC”), Sian Jones, and the Cryptocurrency Working Group, comprising Joey Garcia (a Partner and head of the financial services team at ISOLAS), David Parody and Paul Astengo. Despite Minister Isola being unable to open the Summit as originally envisaged, it would be appropriate to set out his message on the Summit which was published by the Gibraltar Magazine prior to the Summit: “This Summit marks an important milestone in Gibraltar’s commitment to becoming a leading centre for the development and provision of products and services in the ever growing Financial Technology space”.

The Summit agenda covered a number of issues relating to the core innovation of cryptocurrencies — the public ledger — and dealt with its positive potential as well as the challenges that it presents to the traditional regulatory model. The main topics were international payments using blockchain technology, the establishment of a regulatory framework, tokens and initial coin offerings (ICOs) and understanding of smart contracts. It was evident that the speakers had been chosen not only as a result of their knowledge, but also their experience and the Summit brought together many significant players in the crypotocurrency and blockchain technology sectors from overseas. To name a few, these included Jon Matonis (Founding Director of Bitcoin Foundation), Felix Moreno (CFO of Xapo) and Martin Koeppelmann (CEO of Gnosis). Various breakout panel discussions took place during the course of the day and a variety of topics were covered. Against challenges raised during one of the panel discussions, on the effective regulation of DLT and the issues this could bring, Adam Vaziri (CEO of Diacle) made a bold and memorable statement when he described Gibraltar’s approach to this technology as “waking up to a dream come true”.

The pivotal moment of the Summit was undoubtedly when the proposed DLT regulatory framework was unveiled. The document has been created working closely in partnership with several key parties including the GFSC and the Cryptocurrency Working Group. In the document, the GFSC proposes a regulatory framework for firms engaging by way of business, in activities not otherwise subject to regulation and that use DLT for the transmission or storage of value belonging to others. The salient points of the document are as follows.
• There are nine principles which will be applied to DLT firms to ensure that the regulatory outcomes of the GFSC are achieved:
- A DLT firm must conduct its business with honesty and integrity.
- A DLT firm must pay due regard to the interests and needs of each and all its customers and must communicate with its customers in a way which is fair, clear and not misleading.
- A DLT firm must maintain adequate financial and non-financial resources.
- A DLT firm must manage and control its business effectively, and conduct its business with due skill, care and diligence; including having proper regard to risks to its business and customers.
- A DLT firm must have effective arrangements in place for the protection of client assets and money when it is responsible for them.
- A DLT firm must have effective corporate governance arrangements (mind and management must be in Gibraltar and four eyes (two minds) must be applied both to the formulation and implementation of the policy of the DLT firm).
- A DLT firm must ensure that all systems and security access protocols are maintained to appropriate high standards.
- A DLT firm must have systems in place to prevent, detect and disclose financial crime risks such as anti-money laundering and countering terrorist financing (AML/CFT).
- A DLT firm must be resilient and must develop contingency plans for the orderly and solvent wind down of its business.
• The proposed role of the GFSC will be to authorise and supervise DLT firms and not the underlying technology. The GFSC will of course however expect firms to have appropriate processes and procedures to deal with any risk factors concerning the technology and how these can be mitigated.
• Consideration will be given to granting discretionary powers to the Chief Executive of the GFSC to impose appropriate conditions and restrictions, from time to time, to ensure the DLT framework principles are properly applied to firms operating with an evolving nascent technology.
• The consultation period runs up to and including 6th June 2017. With a target date for implementation of the regulatory regime of 1 January 2018, this is the date on which the enabling legislation is expected to come into force.
• It is proposed that the Chief Executive of the GFSC and its Board are assisted by a specialist advisory panel appointed by the Minister for Financial Services, comprising technology and regulation experts in the field of DLT and virtual currencies.

• It is envisaged that DLT firms wishing to be regulated will need to broadly follow the same universal style application process that firms regulated under other activities for which the GFSC is responsible for must currently follow.

The Summit officially concluded with a clinic hosted by the GFSC to address questions on the public consultation document, which was scheduled for the day following the Summit.

The proposed DLT regulatory framework is yet another example of Gibraltar’s ability to quickly react to new market opportunities and its adaptability to changes in technology. It is truly remarkable that only a couple of years ago, Sian Jones of COINsult, who was instrumental in advising the GFSC on the creation of the framework, spoke in Gibraltar at an e-gaming conference of the rising bitcoin industry and the relevance of decentralised currencies, In a short period of time since then, we saw early thought leadership publications arising from the work of the Cryptocurrency Working Group, which has now evolved into Government-backed proposals for the establishment of an actual DLT regulatory framework. This is an important milestone for Gibraltar. In a recent article (https://www.linkedin.com/pulse/gibraltar-make-your-start-up-solid-rock-jonathan-garcia), I set out various reasons why start-ups should see Gibraltar as a good destination to do business in and that Gibraltar’s success will not be accidental. It is no coincidence that Lottoland, which is headquartered in Gibraltar and was only founded in 2013, was recently named as one of Europe’s fastest growing companies in the FT1000. Ultimately, every success story has its own supporting cast and it is good to think that Gibraltar, through being able to provide some of the cogs which drive the wheel, played a small part in this. All that remains to be seen is how all fiscal, regulatory and legislative changes will be “joined up” in order to deliver the DLT framework and both local and international players in this space will no doubt await these with anticipation.

Gibraltar is open, it is accessible, it is ready to do business and it has big aspirations to create serious inroads in this space and grow out of the success the technology community could derive from the benefits Gibraltar can provide.

 

16-05-2017 | by Jonathan Garcia | Published: