Gibraltar’s leading position in the field of blockchain and FinTech took another huge leap forward following the enactment of new Distributed Ledger Technology (DLT) regulations on January 1st, 2018. The resulting media focus meant that the jurisdiction has been steadily swamped by DLT license applications.
Although the Gibraltar government has been very careful to adopt a so-called “light touch” approach to allow for maximum innovation, as always, the safeguarding of consumers, as well as Gibraltar’s high standing within the global finance community, is of the utmost importance. These two criteria, above all others, must be taken into consideration in order for a DLT operator to be granted a coveted DLT license in Gibraltar.
The DLT Regulations of 2018 are based upon nine key principals which further expand upon the jurisdiction’s specific requirements for DLT operators.
First Principal: Honesty and Integrity
The regulations state that Gibraltar-licensed DLT providers must never “pose a risk to the public or to the reputation of Gibraltar” and instead need to act with “honesty, integrity and professionalism” at all times.
Second Principal: Customer Care
Gibraltar-licensed DLT providers must always put their customers’ interests first. This means promptly responding to customer queries and handing complaints in a timely and transparent fashion. All customer-facing communications must also be as clear and unambiguous as possible.
Third Principal: Resources
Gibraltar-licensed DLT providers must ensure they have adequate resources available, both financial and non-financial resources, including adequate capital, insurance and specific internal procedures. Rather a specific set of requirements, however, the Financial Services Commission will set these criteria on a case-by-case basis.
Forth Principal: Risk Management
The forth principal reiterates that a Gibraltar-licensed DLT provider must always consider “risks to its customers and the reputation of Gibraltar, in addition to risks to its own business”, advocating an all-encompassing and proactive risk management strategy covering all internal procedures, systems and operations.
Fifth Principal: Protection of Client Assets
The protection of client assets is paramount and therefore requires a broad, holistic approach encompassing everything from secure storage of assets and data, adequate privacy controls and data protection compliance, as well as appropriate record keeping and strong general and digital security measures.
Sixth Principal: Corporate Governance
Principal six is concerned with how the DLT operation is managed and run. A Gibraltar-licensed DLT operator must “have effective corporate governance arrangements”; this includes the operation’s business strategy, its operating procedures and oversight and overall corporate culture.
Seventh Principal: Cyber Security
As one might expect from an industry-leading jurisdiction, Gibraltar takes cyber crime and cyber security extremely seriously. Therefore Gibraltar-licenced DLT operators “must ensure that all systems and security access protocols are maintained to appropriate high standards.”
Eighth Principal: Financial Crime
Gibraltar-licensed DLT operators must be fully compliant with the Proceeds of Crime Act 2015 (POCA) and conduct rigorous due diligence and KYC (Know Your Customer) checks.
Ninth Principal: Resilience
Preparedness is the key word here; Gibraltar-licensed DLT operators must be ready to deal with any trouble that may arise, swiftly and effectively, in order to minimise disruption and financial losses by clients. Specific contingencies and procedures also need to be in place in the event that the operation runs into difficulty and needs to shut down.
Learn more about Gibraltar’s DLT Regulations
For more details on Gibraltar’s DLT Regulations you can read the full FSC document here. If you have any questions regarding the regulations, especially any questions related to the management of a DLT operation, or, indeed if you just want to learn more about Gibraltar’s crypto/blockchain industry, contact Line Group today.