The rock of Gibraltar blockchain regulation

Though small in size, island-like Gibraltar, jutting off the Iberian peninsula, is one of many jurisdictions capitalizing on the momentum of the blockchain. By creating a special regulatory framework to harness the players, protect the customers and nurture the innovative spirit, Gibraltar has taken a leading role in establishing a fertile backdrop for blockchain.

Way back in early 2018, the minuscule British colony sometimes referred to as the Rock took on blockchain with a vengeance, creating the world’s first blockchain regulatory entity called the Digital Ledger Technology (DLT) Regulatory Framework. It was designed to offer protection – to the customers of blockchain and cryptocurrency companies, such as crypto exchanges, as well – while, at the same time, it worked within the industry to address and bolster innovation. To some extent, the Legislature of Gibraltar, which oversaw the move, hoped to bring to the tiny outpost companies engaged in the industry as a way of facilitating innovation.

It appears to have worked. In the last two years,  the British Overseas Territory of Gibraltar has seen many leading cryptocurrency companies set up shop there, from exchanges to crypto hedge funds including giants eToroX, Huobi, and Xapo. Beyond that, the Gibraltar Financial Services Commission (GFSC), the entity responsible for overseeing the DLT, has been issuing licenses to some of the most exclusive blockchain businesses in the industry.  

Receiving its license in 2018, eToroX, the advanced cryptocurrency exchange of innovator eToro, was one in a short list of elite blockchain-related companies to have been awarded the DLT in its first year granting licenses. Incidentally, 2018 was also the year eToroX was created; thus a good year for both license granter and grantee.

The DLT license is a framework to help guide these innovative companies as they chart new waters, underpinning the notion that businesses, especially those that deal with assets of customers, ought to be bound by principles in addition to other specific legal terms and directives by regulators.

The nine principles

The GFSC created nine principles to set the tone for the companies and to ensure the positive results of the commission be reached. It is important to note, though, that while they are called “Regulatory Principles” they have a built-in layer of flexibility, which the GFSC knew was important when working with “novel business activities, products, and business models.” Nevertheless, the DLT license is serious business and applicants are required to pass several levels of scrutiny including a careful check into their background, business dealings and processes.

All candidates applying for a DLT license by the GFSC are evaluated to see if they live according to the principles, and once obtained, they are expected to maintain these aims:

  1. Conduct business with honesty and integrity.
  2. Regard the interests and needs of its customers. 
  3. Maintain adequate financial and other resources.
  4. Maintain good control of its business with skill and care.
  5. Adequately protect customer assets.
  6. Practice appropriate and effective corporate governance.
  7. Maintain proper security systems and protocols to a high standard.
  8. Adhere to efforts to “prevent, detect and disclose financial crime.”
  9. Have in place contingency plans for closing down their business.

As a DLT licensee, eToroX offers its users the comfort and security of knowing the exchange is bound by its commitment to the principles, as well as other regulations. Customers can feel secure knowing the exchange has met the stringent requirements of the GFSC and continues to operate in a highly professional manner.  

Staying at the forefront of innovation

Gibraltar’s commitment to innovation is apparent and is helping the tiny outpost stay ahead of the curve as technological development occurs, especially in the vibrant DLT sector. One way is the jurisdiction’s focus on growing the blockchain community.

Two examples are the Start-up Grind and New Technologies in Education (NTiE). Working closely with the GFSC, these groups and others in the industry ensure there is a constant level of feedback within the community vis a vis regulation and challenges in the sector. For example, one issue that has made the news recently and is a concern to those in the blockchain network: websites deceptively brandishing faux Gibraltar DLT Licenses

This give-and-take relationship the GFSC has with the community members has been instrumental in leading to the development of an additional principle. This so-called “10th regulatory principle looks at the risk of market manipulation within the sector.  The government of Gibraltar has taken upon itself the obligation to enforce regulations to keep the industry free of bad actors. As Gibraltar’s minister for digital and financial services said in an interview recently, “In the absence of international standards, we’ve got to make them. We will come up with our own methodology as to how we can best tackle, identify, police, identify and stamp out market manipulation.”

Mentioned, too, in the interview was Gibraltar’s commitment to a new guideline by international money-laundering and terrorist-financing regulator, Financial Action Task Force (FATF). Called the “travel rule”, this statute looks to prevent financial crime by monitoring cross-border financial activities, a component involved in money laundering and terrorist funding. The rule would require financial exchanges to share data related to the identities of customers who trade money over a specific limit.

There are more than 200 jurisdictions that adhere to the recommendations of the FATF, but the travel rule was said to cause distress among some in the sector. Not, however, to the government of Gibraltar, where the GFSC immediately began to apply the regulations, creating technology that would ensure the licensed companies would be able to collect information on clients and be able to share the information as is done across more traditional segments in international banking.  

Just as Gibraltar has taken a leading role in blockchain licensing, so too has eToroX been quick to apply for and gain admittance to a small community of licensed entities.  Committed to following the guidelines and requirements incumbent on maintaining DLT regulation, eToroX is proud to be part of an exclusive group of blockchain companies dedicated to these as well.

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