Gibraltar: Securities-Related Laws

Government-Issued Perspective

  • Definition of security from March 2018 Proposal for the Regulation of Token Sales by HM Government of Gibraltar
  • Most often, tokens do not qualify as securities under Gibraltar or EU legislation. In many cases, they represent the advance sale of products that entitle holders to access future networks or consume future services. They are akin to mobile phone companies pre-selling airtime in networks they plan to build using the proceeds of those airtime sales. As such, these tokens represent commercial products (albeit reliant on future availability and utility) and are not caught by existing securities regulation in Gibraltar.
  • Tokens are sometimes created with the characteristics of a virtual currency, serving principally as a medium of exchange within an ecosystem (or marketplace) of consumers and service providers. In some cases (e.g. where a centralised virtual currency is involved), the organiser of the DLT system may fall within scope of the DLT Regulations2 but the token sale, secondary market conduct and investment services relating to tokens remain unregulated. The driver for purchasing tokens in an ICO is typically the expectation of making a return by selling them at a profit once the project is successfully completed and its products or services become popular and in demand. This is similar to early acquisition and holding of commodities with a view to trading them later at a higher price.
  • Tokens are digital representations of something else, whether tangible or intangible. As such, they are distinct from any underlying object. Much like derivatives, trading tokens is not necessarily the same activity as trading its underlying asset (where one exists). So, for example, sale of a token representing a physical asset is not the same as selling that physical asset.

Regulation for Listing Securities

  • The Financial Services Listing of Securities Act issued in 2006 defines securities and the process that must be followed when listing them. When listing a security or a token that is a security in Gibraltar, these rules must be followed.

Regulation of Tokens as of March 2018

  • The public offering of tokens that constitute securities are already adequately caught by existing securities legislation and do not require further regulation.
  • The public offering of tokens that are not securities and that do not constitute outright gifts or donations are, typically, offers of commercial products and services (which, at the time of sale, may or may not yet exist). Such tokens are sometimes referred to as utility or access tokens and the like. In circumstances where a token constitutes a product or service that does not yet exist (or is not, at the time of sale, substantially functional), it represents, in effect, no more than a hope or ambition to deliver that product or service in the future. In such cases, purchasers risk that the product or service might never be delivered and often waive any right to the return of the price paid. Purchasers may well be prepared to take that risk but it is appropriate that they be presented, in advance, with all relevant information to enable them to make an informed decision

Previous Statements on the Regulation of Tokens

  • The September 22, 2017 statement from the Gibraltar Financial Services Commission on September 2017 indicated several uses for tokens: “In some cases, tokens represent securities, such as shares in a company, and their promotion and sale are regulated as such. More often, tokens serve some cryptocurrency or functional use that is unregulated, such as prepayment for access to a product or service that is to be developed using funds raised in the ICO” [1]
    • Therefore it is possible that tokens may be registered as securities but, as noted above, there is no legislation around token sale in Gibraltar as of now

Gibraltar Welcomed Europe’s First Regulated Bitcoin Product [3]

  • Bitcoin exchange-traded instrument (ETI) BitcoinETI was debuted on the on the Gibraltar Stock Exchange (GSX) and Germany’s Deutsche Börse in July 2016 [2], [3]
    • This asset-backed Exchange Traded Instrument was issued by issued by iStructure PCC PLC, a Gibraltar based company
    • The issue of BitcoinETI was the result of a close partnership between a number of stakeholders in Gibraltar including Argentarius ETI Management Limited (Listing Member of GSX and securitisation specialist), Gibraltar based FinTech specialists Revoltura Limited (an iStructure PCC PLC subsidiary), the Government of Gibraltar, and the Financial Services Commission (Gibraltar’s regulator).
    • This listing was treated like any other security “By listing the ETI on the Gibraltar Stock Exchange, which is an EU regulated market, we are able to bring a high-level of transparency and liquidity to investors. BitcoinETI is available through regulated brokerage firms across Europe and settlements are handled through Clearstream/Euroclear, just like any other securities” says Ransu Salovaara, CEO of Revoltura

Gibraltar Blockchain Exchange

  • In october 2017, Gibraltar Stock Exchange (GSX) launched the Gibraltar Blockchain Exchange (GBX) in an effort to be a world leading token sale platform and cryptocurrency exchange [4]. GBX is set to open in January 2018 pending regulatory approval [5].
    • As a wing of the Gibraltar Stock Exchange, the Blockchain Exchange plays by the rules laid down by the EU. It has finished sales of RKT tokens in early 2018 and and has made the service available to KYC-verified users. In addition, 300 early participants acted as beta testers, helping in the development of a simplified trading platform.[9]
    • The GSX is regulated by GFSC under License number FSC 1231B and operates as an EU-regulated market,recognised by ESMA (European Regulator) and HMRC (UK)[6]. Therefore the GBX would have to comply with all the regulations of these organizations
  • As GBX utilizes blockchain technology, it would fall under the Financial Services (Distributed Ledger Technology Providers) Regulations 2017 [4]. It would also represent the world’s first regulated ICO token exchange
    • The GBX intends to apply for a DLT Provider’s license from the GFSC
    • The GBX aims to provide an end-to-end ecosystem for listings, trades, wallets, corporate services, and KYC/AML services
    • To guarantee its clear governance and vision, the GBX Alliance, a planned association of legal advisers, tech firms, academia and investors, will constitute an international forum, supporting development of the crypto community within the GBX
    • On 30th October 2017, the GBX launched the private pre-sale of the Rock Token (RKT), the official utility token for the developing eco-system of the GBX & GSX, with a current token sale that can be viewed here[4]
    • The listing protocol for GSX is designed to set a high entry bar to ensure quality and transparency in all token listings on the GBX. Listing process can be found here

[7] Regulation for Listing Securities [8] Token Regulation by HM Government of Gibraltar [9] EU’s First Regulated Blockchain Platform Launched [10] LegalBlock Podcast: Gibraltar Global Regulation Frameworks Series

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