The world’s first bespoke license for “fintech” firms using blockchain distributed ledger technology will be issued by the Gibraltar financial services authority this month. This is seen by many as a bid to attract start-ups to the British overseas territory as it prepares for Brexit.
This license formally recognises the use of blockchain records as an accepted mechanism for transmitting payments, paving the way for broader adoption of blockchain technology. Many cities in Europe, the United States and Asia are keen to welcome fintech businesses, but they have yet to take this regulatory step.
Nicky Gomez, the GFSC’s head of risk and innovation, said:
“This is the first instance of a purpose-built legislative framework for businesses that use blockchain or distributed ledger technology. Many firms have been craving for a jurisdiction to regulate them,”
Other regulators in the United States and Japan have introduced rules focusing on cryptocurrencies or for the exchanges that trade them. Financial technology or fintech start-ups are using blockchain to offer services like payments and recording transactions, potentially putting themselves in direct competition with banks.
Representatives from Gibraltar attended the World Blockchain Forum in Miami last week in an attempt to raise awareness of the Rock as a leading fintech hub. The party will was led by Paul Astengo, the Senior Executive at Gibraltar Finance and he was be joined from individuals working with distributed ledger technology (DLT) on the Rock.
The Minister for Commerce, Albert Isola, told the press:
“Gibraltar has rightly received significant international recognition for the trailblazing work undertaken in developing the world’s first DLT regulatory framework. The commencement of legalisation in early January 2018 was a very important milestone and effectively marked the start point of further targeted work promoting our jurisdiction.”
Attracting such firms is seen as one way of bolstering the self-governing territory’s thriving financial services industry after the UK, along with Gibraltar, leave the EU in 2019.
Thanks to a liberal tax regime the tiny British enclave on Spain’s southern tip, with a population of 30,000, is home to around 15,000 companies and is a major provider of insurance and gambling services.
Sian Jones, a senior advisor on DLT to the regulator and Gibraltar government said in December:
“We have been talking with law firms and advisors helping companies to get established here,”
There will be two main advantages to firms being authorised under the new rules: it will make it easier to obtain a bank account to run the business, and it helps a business gain legitimacy with customers. The guidance supplements nine “principles” contained in Gibraltar’s new blockchain law that will require a firm to hold capital, the amount decided on a case-by-case basis.
Firms will have to treat customers fairly, and must have adequate IT systems and controls to comply with anti-money laundering and terrorist financing rules.
Financial jurisdictions like Gibraltar have had to fend off accusations of being ‘light-touch’ regulators in a bid to attract business, but the GFSC said the blockchain law included rigorous requirements.
However, Jones countered:
“It’s in no way light-touch or soft touch regulation,”