The Government of Gibraltar (HMGoG) and the Gibraltar Financial Services Commission (GFSC) are developing legislation relating to tokenised digital assets (tokens), essentially those created and traded using distributed ledger technology (DLT). Following the GFSC’s Statement on Initial Coin Offerings in September 2017, Gibraltar’s Minister for Commerce, Hon. Albert Isola MP, announced that the Government’s position on initial token offerings would be formulated by this month. In December, HMGoG sought the views of local stakeholders through a discussion paper on token regulation circulated to Gibraltar’s Finance Centre Council, an umbrella organisation comprising local professional associations.
After taking into account stakeholder feedback, work has now begun on drafting legislation to regulate the promotion, sale and distribution of tokens by persons connected with Gibraltar; secondary market activities relating to tokens, carried out in or from Gibraltar; and the provision, by way of business, in or from Gibraltar of investment advice relating to tokens. A bill is expected to be considered by Parliament in the second quarter of 2018.
While Gibraltar’s DLT regulations, which came into effect on 1st January 2018, bring a licensing regime to intermediaries using DLT to store or transmit customer assets, they do not extend to the use of tokens as a means of raising finance, typically for early-stage start-ups.
Isola commented: “This Government successfully delivered DLT Regulations that came into effect in early January 2018. I am very pleased and encouraged by the volume and quality of applications received by the GFSC. I announced last year that we would introduce complimentary yet distinct legislation covering token sales and have asked the GFSC to complete this work-stream at the earliest opportunity. We remain fully committed to ensuring that we protect consumers and the reputation of our jurisdiction. In addition, we are also conscious of providing safeguards to those firms that have chosen Gibraltar as their home. I am grateful to all those that have provided their observations on the discussion paper issued in December 2017. The DLT Working Group, which includes members of the Innovation Team at the GFSC, have considered all the issues raised and are now proceeding to prepare initial drafts.”
The proposed token regulations will establish disclosure rules, requiring adequate, accurate and balanced disclosure of information to anyone considering purchasing tokens, and measures to detect and prevent financial crime such as money laundering and terrorist financing. The regulation of investment funds involving digital assets such as cryptocurrencies and similar DLT-based tokens is also being reviewed.
Senior Advisor on DLT at the GFSC, Siân Jones stated: “Token regulation is the natural progression following the regulation of DLT Providers, being vital to the protection of consumers. One of the key aspects of the token regulations is that we will be introducing the concept of regulating authorised sponsors who will be responsible for assuring compliance with disclosure and financial crime rules.”
HM Government of Gibraltar and the Gibraltar Financial Services Commission have previously published Guidance Notes to assist Distributed Ledger Technology providers when applying for a licence. As from the 1st of January, 2018, any firm carrying out by way of business, in or from within Gibraltar, the use of DLT for storing or transmitting value belonging to others, needs to be authorised by the GFSC as a DLT provider.
Isola remarked: “I am pleased to have issued these comprehensive and well considered guidance notes today. This is another important step as we approach the launch of our DLT regulatory framework in January 2018 and will assist new applicants and their advisers understand and inform the licensing process they will follow. I would gratefully acknowledge the work undertaken by the Gibraltar private sector who have once again given so readily of their time and skill working alongside the team at the Gibraltar Financial Services Commission and the DLT Working Group. Delivery of this project is meeting every challenging milestone and is demonstrating the ability that we have to innovate and deliver”.
The Guidance Notes cover the nine core principles set out in our consultation paper of May 2017, namely: Honesty and Integrity, Customer Care, Resources, Risk Management, Protection of Client Assets, Corporate Governance, Cyber Security, Financial Crime and Resilience.
Head of Risk and Innovation at the GFSC, Nicky Gomez said: “The GFSC’s key objectives concerning firms in any sector of financial services are to protect consumers and the reputation of Gibraltar. The Guidance Notes are there to support the regulatory principles with which DLT Providers will need to comply with come January 1st 2018”.