Gibraltar has set itself at the forefront of the regulation of businesses that use Distributed Ledger Technology (DLT). On 12th October 2017, Gibraltar introduced a comprehensive set of new laws to regulate DLT businesses, making it the first country in Europe to take this bold step it also launched the Gibraltar Blockchain Exchange (GBX) a subsidiary of the Gibraltar Stock Exchange.
The new laws came into force on 1st January 2018 and are being introduced as amendments to regulations under the Financial Services (Investment and Fiduciary Services) Act 1989 (the 1989 Act).
The new laws have been widely welcomed within Gibraltar and are seen as sending a symbolic message that Gibraltar understands DLT business, embraces innovation and is willing and able to license good quality firms.
Independent advisor Trent Challis recently said that, “Ethereum projects and Ethereum ICOs have to fear no more grey areas or to worry, Gibraltar is set to be the first regulated Ethereum/DLT business-friendly jurisdiction.”
The introduction of these laws is monumental for the British overseas territory, as other jurisdictions are working towards similar aims but have been outrun by Gibraltar. This means Gibraltar has an advantage over other jurisdictions to benefit as many DLT firms which have been unable to become regulated elsewhere and which will now find a home there.
Ellul & Co law firm are particularly proud of their achievements in making this new legislation possible.
What is DLT?
DLT is a system for recording transactions carried out electronically, whereby details of transactions are recorded in a distribution ledger that makes up a large electronic database which can be shared across multiple sites and jurisdictions.
DLT derived from blockchain, which was a similar technology that supported digital cash systems like Bitcoin. However, DLT is a more advanced system as it can be used by various industries from Government bodies and law enforcement agencies to the private sector for many purposes rather than solely for digital cash payments.
Rationale for DLT regulation
The Government of Gibraltar recognises the opportunities that DLT presents to both the public and private sectors and decided to create a regulatory framework underpinned by three fundamental objectives.
These objectives are set out as follows in the Government’s May 2017 consultation document, “Proposals for a DLT regulatory framework”:
Consumers of products and services provided by DLT firms operating in or from Gibraltar can have faith in the integrity of the owners and managers of those firms ensuring an appropriate degree of protection for consumers.
Protecting the Reputation of Gibraltar
Gibraltar Financial Services Commission (GFSC) facilitates and provides a progressive, well-regulated and safe environment for firms using DLT to grow whilst preserving (and without endangering) the good reputation of the jurisdiction.
Gibraltar prospers from the use and growth of new financial technology, expands its standing as a progressive and safe global financial centre, and attracts and retains world-class businesses and talent.
Outcomes-focused and principles-based regulation
The Government has adopted a risk-based and proportionate approach to the regulation of DLT businesses which is reflected in the new provisions. The new regime is also predicated on an outcomes- and principles-based regulation which recognises that new technologies cannot be governed by strict, rigid and prescriptive laws.
Rather than impose a list of dos and don’ts, the new laws set out nine regulatory principles that businesses must achieve.
The question remains however will it beat Malta in becoming the crypto haven with Binance and other exchanges moving to Malta?
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