Gibraltar this week became the first jurisdiction in the world to offer a regulatory framework for distributed ledger technology [DLT], paving the way for the Rock’s drive into a fledgling but booming new area of business.
Distributed ledge technology, also known as blockchain, is the technology that underpins cryptocurrencies such as Bitcoin but has many potential other uses, particularly in financial services.
By becoming a pioneer in the regulation of DLT, Gibraltar hopes to attract reputable operators to the Rock in a sector defined by fast-paced innovation.
Yesterday the Gibraltar Financial Services Commission [GFSC], which will oversee DLT operators in Gibraltar, confirmed it was already handling several applications from businesses seeking to be licenced here.
Nicky Gomez, Head of Risk and Innovation at the GFSC, would not be drawn on the exact number of applicants at this early stage but said there was a mix of business models hoping to be licenced.
“Each case has a different selling point,” he said. “There’s no two that are the same.”
“The team expect to be very busy in the coming months, and are looking forward to working on some interesting and innovative ideas with applicants.”
The DLT regulatory framework came into effect on January 1 and means that Gibraltar-based firms using blockchain to store or transmit value belonging to others must now apply for a licence from the GFSC.
The regulator said it was offering “an outcomes-focused, principles-based” regulatory framework for distributed ledger technology that is “objective, targeted and flexible”.
The GFSC’s primary objective is to protect consumers and the reputation of Gibraltar when considering any licence application and in its supervision and enforcement functions.
Its new DLT regulatory framework hinges on nine principles designed specifically for blockchain applications that companies must adhere to, namely: honesty and integrity; focus on the interests and needs of customers; maintain adequate resources; forward-looking risk management practices; protection of client assets and money; effective corporate governance; maintain high security access protocols; detect and disclose financial crime risks; and be resilient
The application process for DLT businesses is in three phases and starts with a pre-application engagement to assess the scope of the business and establish a relationship.
The second phase is an initial application assessment during which the GFSC will assess, within a two week timeframe, the inherent risk and complexity of the proposed business and provide feedback ahead of the final stage.
Once the applicant submits a full application, the GFSC will aim to review and provide a decision within two and a half months.