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‘Milestone moment’ as DLT framework is updated

The Gibraltar Financial Services Commission has unveiled important updates to Gibraltar’s Distributed Ledger Technology Providers (DLT) regulatory framework Guidance Notes, which will assist firms and protect consumers.

Distributed Ledger Technology is a digital system for recording the transaction of assets and is well known as the technology used for cryptocurrencies.

Gibraltar first introduced its DLT framework in January 2018, since then encouraging fintech businesses to set up on the Rock.

Now the updated framework aims to move with this fast-paced technology.

“[This] marks another milestone moment for Gibraltar’s thriving DLT/VASP ecosystem, as we refine the regulatory framework that guides companies through the licensing process and beyond,” the Minister for Digital and Financial Services, Albert Isola said.

“Our jurisdiction’s agility has been a hallmark of our success to date, with a progressive open dialogue between regulators and industry figures helping to craft a framework that satisfies natural regulatory prudence while allowing for a sensible amount of regulatory latitude to help projects innovate properly.”

The consultation process began last November and included the Gibraltar Financial Services Commission (GFSC), Gibraltar Association for New Technologies (GANT), and DLT Provider licensees who have been fully consulted on the amendments to the framework.

The updated Guidance Notes provide further information to firms and expands the existing expectations of DLT providers.

The revised guidance notes replace the initial Guidance Notes published in December 2017.

Over the past couple years the GFSC said it has gained experience from interacting and supervising closely with permissioned firms, and gained insight into other regulatory approaches through the GFIN membership.

The GFSC added it is encouraging to see the local industry and ecosystem that is developing and maturing.

“My team and HM Government of Gibraltar have worked hard over the last few months hand in hand with industry, encouraging feedback where appropriate and we believe we have achieved a clear and helpful update benefitting both DLT providers and consumers,” said Head of DLT and Markets, William Gracia.

“I’d like to thank the Gibraltar Association of New Technologies (GANT) for their support, as well as those DLT Providers and applicants who provided valuable feedback. I believe this is another step forward for Gibraltar’s innovative financial services sector.”

Mr Isola added the release of the updated Guidance Notes is “another important step forward in the development of the DLT Providers Regulatory framework that has proved so successful to date.”

“As was always envisioned, in a fast moving industry the idea behind the Guidance notes accompanying the legislation was to be able to facilitate and capture this and maintain a framework that was directly relevant and up to date,” said a statement from the Government.

“As well as offering further clarity on key areas, the amended guidance notes also update the risk framework to distinguish between virtual assets and virtual asset denominated instruments that are arguably higher risk, and require additional factors or on-boarding tests to be considered.”

“Continuation of work on the detailed process of fully adapting the framework to include the latest Financial Action Task Force (FATF) recommendations relating to virtual asset service providers (VASP) activities is also marked by the release of the updated guidance notes.”

DLT permission holders are subject to the same high supervisory standards as banks and other financial services firms.

Currently there are 13 licenced firms operating under the DLT framework and there are a number of active applications in process.

Licensed firms include international groups such as eToro, Huobi, Xapo, LMAX, Bitso and Gnosis.

“Prospective licensees must demonstrate a clear appreciation of the nine core principles underpinning the regulatory framework, covering areas such as corporate governance, capital adequacy, risk management, customer care, and in due course, market manipulation,” Mr Isola said.

“Other essential prerequisites include thorough internal risk management strategies, robust corporate governance structures, and well-defined protocols, with secure checks in place to ensure the protection of clients’ assets is prioritised.”

“With a finely tuned DLT regulatory framework informed by industry and market insights, Gibraltar is even more equipped to steadily broaden our DLT community and continue Gibraltar’s strong arc of economic growth post-pandemic and Brexit. We look forward to welcoming more quality projects into our blockchain ecosystem in the months and years ahead.”