According to industry experts, Gibraltar will be the first jurisdiction to grant licenses to companies that store or process payments using Blockchain technology. Anyone wishing to use it to transfer assets from 1 January must apply to the Gibraltar Financial Services Commission (GFSC) for authorisation. The regulator is concerned about protecting consumers and Gibraltar’s reputation, said Nicky Gomez, Head of Risk and Innovation at the regulator. Trade Secretary Albert Isola saw the announcement as evidence of the UK outpost’s capacity for innovation and action.

Big benefits for banks

Blockchain is a decentralized booking system that can be operated via peer-to-peer networks. The cryptographic proof-of-work system makes counterfeiting almost impossible. The technology, also known as Distributed Ledger Technology (DLT), is the foundation of Bitcoin, the digital currency that still has a touch of wickedness. It is hard to imagine that a highly regulated industry such as banks and stock exchanges would want to get involved. But the hoped-for benefits are enormous. Potentially, costs can be significantly reduced, operational risks reduced and unprecedented levels of speed and integration achieved. In a transaction system based on this, there would be significantly fewer intermediaries. Many financial service providers are already working on internal blockchain projects. However, it is unlikely that a bank or exchange will use a technology developed by a competitor. This opens up opportunities for independent providers. And there is reason to develop common standards.

According to a presentation by the regulator, anyone wishing to obtain a licence as a DLT provider in Gibraltar must expect application costs of between £10,000 and £30,000 – depending on the complexity of the business. The annual costs are the same. Companies must comply with current anti-money laundering and anti-terror financing regulations and be able to present an emergency plan for the orderly conduct of their business. Other basic requirements include efficient corporate governance with a single board, separation of corporate and client funds, and sufficient financial and non-financial resources. Financial service providers already licensed in Gibraltar who wish to use Blockchain also require a license as a DLT provider.

The GFSC licenses make DLT a recognized technology for payment processing in part of the EU. Established in 1989, DLT is the only financial regulator in the UK overseas territory. It is required to apply UK regulatory standards where EU law applies. The peninsula on the northern side of the Strait of Gibraltar, which separates Africa and Europe, is part of the EU through UK membership and has implemented all directives relevant to the financial services industry. Gibraltar is considered one of the best regulated offshore financial centres. The financial sector accounts for a quarter of GDP.

Rock token coming soon

Initial coin offerings are not subject to the new regulation. Companies offer investors so-called tokens of a crypto currency to raise capital. In this way, the strict publication requirements for share or bond issues can be circumvented. In addition, completely different customer groups can be tapped for corporate financing in this way. In order to also cover this segment of the emerging digital financial system, the Gibraltar Stock Exchange (GSE) launched the Gibraltar Blockchain Exchange at the Hong Kong Fintech Summit in October, on which tokens and crypto currencies from all over the world are to be traded in the future. The exchange operator announces on its website that it will apply for a license as a DLT provider. The transaction currency will be the rock token, the exchange operator’s own digital currency. The GSE wants to use the blockchain technology as soon as possible for its own trading and settlement systems.

Bitcoin, the mother of all crypto currencies, has long since become socially acceptable. Since this month, investors at the Chicago Board Options Exchange can conclude futures contracts on Bitcoin. This week, the Chicago Mercantile Exchange launched a Bitcoin future.

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