Gibraltar: Laws Related to Token Sales, Blockchain, and Digital Proof

Token sales in Gibraltar must…

Blockchain/Distributed Ledger Technology Providers [1]

  • On 12 October 2017, the Government of Gibraltar released the draft regulations Financial Services (Distributed Ledger Technology Providers) Regulations 2017 which will come into effect on 1 January 2018 and initial applications are already permitted by the Gibraltar Financial Services Commission
    • These regulations make providing a distributed ledger technology services a controlled activity and provide grounds for issuing a “DLT Provider’s license” means a license granted under section 8 of the Principal Act to carry on the controlled activity of providing distributed ledger technology services
    • These regulations apply to the activities of firms, operating in or from Gibraltar, that use DLT to store or transmit value belonging to others, such as virtual currency exchanges [2]
    • These regulations focus on nine core regulatory principles which each licensee must adhere to:
      • A DLT Provider must conduct its business with honesty and integrity
      • A DLT Provider must pay due regard to the interests and needs of each and all its customers and must communicate with them in a way that is fair, clear and not misleading
      • A DLT Provider must maintain adequate financial and non-financial resources
      • A DLT Provider 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 Provider must have effective arrangements in place for the protection of customer assets and money when it is responsible for them
      • A DLT Provider must have effective corporate governance arrangements.
      • A DLT Provider must ensure that all of its systems and security access protocols are maintained to appropriate high standards
      • A DLT Provider must have systems in place to prevent, detect and disclose financial crime risks such as money laundering and terrorist financing
      • A DLT Provider must be resilient and have contingency arrangements for the orderly and solvent wind down of its business
    • Notes on these regulations:
      • Once these regulations are put into effect, Gibraltar would be among the few jurisdictions worldwide to offer a fully regulated framework for firms working with blockchain[3]
      • Gibraltar plans to provide more guidelines in early 2018 to attract ICOs [4]
    • Repercussions for operating without a license fines according to the Financial Services Penalty Fees Regulations 1993 level 5. Further reprecussions have not yet been specified.

Token Sales [2]

In March 2018 Gibraltar’s Finance Centre Council issued a Token Regulation Policy Document, setting out the proposed regulatory response for token regulation. The proposed new legislation is set to regulate the following activities conducted from Gibraltar:

  1. the promotion, sale and distribution of tokens;
  2. operating secondary market platforms trading in tokens; and
  3. providing investment and ancillary services relating to tokens.

It is proposed that GFSC will regulate:

  1. authorised sponsors of public token offerings;
  2. secondary token market operators; and
  3. token investment and ancillary service providers.

It will not regulate:

  1. technology;
  2. tokens, smart contracts or their functioning;
  3. individual public token offerings; or
  4. persons involved in the promotion, sale and distribution of tokens.

The March 2018 Token Regulation Policy Document also proposed regulating the conduct of secondary market platforms, operated in or from Gibraltar, that are used for trading tokens and, to the extent not covered by other regulations, their derivatives. The aim is to ensure such markets are fair, transparent and efficient. The proposed regulations are intended to:

  1. ensure organised trading takes place only on regulated platforms;
  2. establish transparency and oversight of secondary token markets;
  3. enhance investor protection;
  4. impose conduct of business rules; and
  5. encourage competition.

The proposed regulations will set out requirements for:

  1. disclosure to the public of data on trading activity;
  2. disclosure of transaction data to GFSC; and
  3. specific supervisory actions concerning tokens and positions on token derivatives.

The scope of this limb of the proposed regulations will cover secondary market trading of all tokenised digital assets including virtual currencies. This limb of the regulations will be modelled, so far as is appropriate, proportionate and relevant, on market platform provisions under MiFID 2 and MiFIR. Guidance may be issued by GFSC, from time to time, as appropriate.

Implementing these token regulation proposals will require primary legislation. Given the high degree of alignment with the Financial Services (Investment and Fiduciary Services) Act (1989 Act), implementation can be achieved by means of a limited Bill amending the 1989 Act, supplemented by new Regulations covering each of the three limbs.

A draft Bill is expected to be ready by the end of March 2018. Draft Regulations for the promotion, sale and distribution of tokens should be ready in May 2018. The last of the three Regulations should be completed by the end of October 2018.

A limited Regulation amending POCA, and designation of GFSC as the relevant supervisory authority are expected in March 2018.

  • A September 22, 2017 statement from the Gibraltar Financial Services Commission (GFSC) on September 2017 highlights the lack of current regulation of token sales in Gibraltar
  • This statement also noted the new DLT regulatory framework introduced above and mentioned that Gibraltar is “considering a complementary regulatory framework covering the promotion and sale of tokens, aligned with the DLT framework”
  • As part of the same statement the GFSC issued a warning to people considering investing in tokens: “understand that tokens and ICOs are unregulated”
  • Given the GFSC statements above, some Gibraltarian experts are of the view that it is entirely reasonable to expect that the current ‘DLT Principles’ may be extended and applied to token promotion and sales activities

Digital Proof

  • No specific laws related to Digital Proof were found

[2] GFSC Statement

[5] LegalBlock Podcast: Gibraltar Global Regulation Frameworks Series

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