BLOG: Becoming a DLT regulated business in Gibraltar
Hon. Albert Isola, M.P. — Minister for Commerce of Gibraltar
When Gibraltar’s Government began working with Gibraltar’s regulators and industry leaders to build a fit for purpose DLT regulatory framework, the guiding vision was a supportive environment for blockchain projects to flourish. This journey has not been defined by tunnel vision however, but rather a wide view of industry needs, strict regulatory requirements, and collaboration at the highest level of Government and industry to figure out a workable formula for prolonged success.
In January 2018 Gibraltar became the first jurisdiction to introduce a purpose built Distributed Ledger Technology (DLT) regulatory framework. Since this major milestone, the Gibraltar Financial Services Commission (GFSC) has received over 30 applications from companies seeking a DLT licence, with a number of successful applicants subsequently receiving their licences.
So what does the template for success for ambitious blockchain projects look like? What standards should they strive towards to be recognised as a licenced DLT provider?
The application process is rigorous, as indeed, it should be. Given our vision for the highest standards in regulatory adherence, projects must demonstrate a clear focus on the nine core principles that our framework is built around. The scope of work involved in the application process depends on the status of the project, and its stage of development. Perhaps the company is a fully fledged service provider relocating to Gibraltar, or perhaps the project is in its infancy and is seeking a supportive, nurturing environment to grow within. For a foreign investor or company to set up operations in Gibraltar, they can register a place of business, register a branch of their company, or incorporate a private (or public) limited company.
For companies seeking to obtain a DLT licence, early engagement with the GFSC’s Risk and Innovation team is recommended. This phase of the application process is critical to ascertain if the company’s proposed activity fits within the confines of Gibraltar’s DLT framework. Once it is clear that the firm’s operations will involve the use of DLT to transmit or store value belonging to others, the next step will involve an initial application assessment, in which the GFSC’s Risk and Innovation team will examine the complexity of the applicant’s proposed activity and business model, before categorizing the application based on the associated risk.
Prospective licenced DLT providers must clearly illustrate their internal risk management strategies, outlining the checks in place that ensure the protection of clients’ assets. Being recognised by the GFSC as a licenced DLT provider also requires robust corporate governance structures and well-defined protocols.
One of the key parts of the application process involves a formal presentation from the application team, delivered in front of a panel including members of the GFSC’s Risk and Innovation team and key GFSC figures. This is an opportunity to impress upon the GFSC representatives the company’s commitment to upholding the nine core principles, and showcasing how exactly the firm will be storing and transmitting user data across DLT.
In Gibraltar, we want to pave an effective road to market for companies pursuing blockchain innovation. For a company that can demonstrate acute adherence to the nine principles, this road to becoming a licenced DLT provider can be quite streamlined, with thorough checkpoints along the way, each positioned to ensure the applicant is best positioned to achieve their long-term goals.