Gibraltar: World’s Leading Distributed Ledger Technology Hub. Why?

As crypto expands  and companies start handling their customers  considerable digital assets, the implementation of strict regulations could help (if not prevent) considerably to reduce the risks of fraud and corruption. That will raise consumer confidence and markets as a whole. Cryptocurrencies have been internationally known for years, so many countries have already shared their stance regarding crypto’s and implemented some legislation. Gibraltar is one of those places that overwhelmingly support investments in cryptocurrencies. 

Cryptocurrencies are treated differently. Based on various country laws , these are regarded as securities, digital money, property, or digital assets. For example in the UK, Switzerland it is taxed as an asset, where as in Denmark it is subject to income tax. The legitimacy of  cryptocurrencies in Gibraltar’s has been a topic of controversies, yet Gibraltar began working on legislation back in 2014.

Gibraltar is one of several European jurisdiction that took the initiative to become crypto friendly territories. These include the Isle of Man, Switzerland, Malta, Estonia and Switzerland.The government of Gibraltar initiated a coherent strategy acknowledging Distributed ledger technology (DLT) as an important development for the financial sector and aiming to build a legal basis for their implementation to bring Crypto market into mainstream.

Gibraltar’s legislation is focused not only on cryptocurrencies themselves, but on the Distributed ledger technology and its providers. This will allow to capture various blockchain and other kinds of DLT projects under one legislation which makes the regulations more universal.

The GFSC (Gibraltar Financial Services Commission) provides the oversight of cryptocurrency and blockchain ventures in Gibraltar. On 12 October 2017, the Financial Services Act was implemented by the GFSC. According to GFSC the regulatory framework for Distributed ledger Technology (DLT) came into effect in January 2018, a month after it was approved by the Gibraltar Legislature. In January 2018, Gibraltar became the very first jurisdiction globally to introduce legislation around Distributed-Ledger-Technology (DLT), and has since asserted its position as a leading blockchain and cryptocurrency hub. 

The regulations are designed in a way to attract businesses from the cryptocurrency and blockchain industry while providing adequate security for the customers and preserving the credibility of Gibraltar itself. 

Minister for Commerce of Gibraltar Albert Isola told news.Bitcoin.com “Our financial regulator, the Gibraltar Financial Services Commission (GFSC), began awarding DLT licenses to a number of leading blockchain firms operating here in October”. Albert Isola, who is also a member of the British parliament, stressed that the regulatory framework introduced in Gibraltar is intended to remain flexible to the rapid evolution of the broader crypto-ecosystem and will enable regulators to respond quickly to the business sector expansion in the coming years. 

 

What is DLT

According to world bank, Distributed ledgers use independent computers (referred to as nodes) to record, share and synchronize transactions in their respective electronic ledgers (instead of keeping data centralized as in a traditional ledger). European Banking Federation defines: Distributed Ledger Technology refers to a novel and fast-evolving approach to recording and sharing data across multiple data stores (or ledgers). Blockchain is one type of distributed ledger. Blockchain organizes data into blocks, which are chained together in an append only mode.

According to GFSC in Gibraltar any crypto exchange or DLT provider needs to be authorised by the Gibraltar Financial Services Commission (GFSC). To put it simply it is Gibraltars main crypto law. This legislation both promotes new blockchain exchange ventures and reduces the chances of scamming investors. In order to comply with the law, any company that uses Distributed ledger technology must obtain a DLT license which gives permission to provide different services. GFSC laid 9 set of principles which are must for Crypto providers

1. A DLT Provider must conduct its business with honesty and integrity.

2. A DLT Provider must pay due regard to the interests and needs of each and all its customers and must communicate with its customers in a way which is fair, clear and not misleading. 

3. A DLT Provider must maintain adequate financial and non-financial resources.

4. A DLT Provider must manage and control its business effectively, and conduct its business with due skill, care and diligence; including having proper regard to risks to its business and customers.

5. A DLT Provider must have effective arrangements in place for the protection of client assets and money when it is responsible for them.

6. A DLT Provider must have effective corporate governance arrangements. 

7. A DLT Provider must ensure that all systems and security access protocols are maintained to appropriate high standards.

8. A DLT Provider must have systems in place to prevent, detect and disclose financial crime risks such as money laundering and terrorist financing.

9. A DLT Provider must be resilient and must develop contingency plans for the orderly and solvent wind down of its business.

 

Such standards are designed to protect the rights and interests of customers and their own reputation. DLT provider, for example should engage with its customers in a manner that is honest, transparent and not deceptive along with due consideration for the risks to their business and customers. Companies must also have effective arrangements in place for the protection of client assets and money, including “contingency, disaster recovery and crisis management plan”.

A cryptocurrency company is expected to show that it has sufficient financial and non-financial capital, which also includes business model longevity, books and records sustaining and maintenance and sound audit and accounting standards.

Be it an Initial coin offering or a crypto exchange, if the criteria set by the Gibraltar Financial Services Commission (GFSC) are met, one should not fear much. Crypto licenses are very beneficial for doing business in Gibraltar as they guarantee stable legal business operations and of blockchain-related companies.

 

Why should investors pick Gibraltar all the way

Being an overseas British territory, Gibraltar does indeed have a legal system very autonomous from the United Kingdom, which has allowed it to establish its own economic and public policies.

Cryptocurrency taxes differ across countries, and often rely on earnings. In Sweden tax range starts from 30% in Finland 30% for below  €30,000 gains and 34% for above. Throughout Canada the taxes range from 25% to 50%. Taxes for cryptocurrency activities throughout Japan range from 15% to 55%. Taxes in Gibraltar for cryptocurrency projects are among advantages of doing business in this country. Cryptos as such are not subject to taxation, so crypto-related projects only have to pay a 10% corporate income tax. Moreover, capital gains and dividends are not subject to taxation. In case there is some foreign-source income that came from the company’s activity that is not related to what DLT license covers, this income can be tax-deductive as well.

DLT license could be a good way for crypto companies to show their customers and competitors that considering the current uncertainty and complexity of the new industry, they are a serious player operating a strong and reliable company. It also means easier access to payment and banking services by getting a DLT licence.

Gibraltars DLT framework could be the best method for companies working with the basic requirements of blockchain technology, which are not too difficult to deter initiative and at the same time reasonable measures to minimize uncertainty by providing all stakeholders with a level playing fields.

Image: Joernhb

Brexit affect on Gibraltar Crypto Industry

Regarding the Brexit effect on Gibraltar and its economy, Chairman of the Self Determination Group for Gibraltar, Richard Buttigieg, told Express.co.uk “I think it’s a wait and see game for us. I am optimistic because we have a Gibraltarian government which is leaving no stone unturned and working flat out to defend our interests.

Albert Isola said to Reuters that just 8% of Gibraltar’s 2.35 billion pound ($3.04 billion) financial sector is business with the EU, the rest derived from Britain where one in four motorists are covered by insurers based on “The Rock”.

“We are 32,000 people, and just with the UK there is more than enough business,” Isola told Reuters. Though financial firms in the City of London have invested millions of pounds on EU hubs and relocated thousands of employees, the Brexit fallout on Gibraltar, a 2,25 square mile UK Mediterranean island, has so far been far less dramatic.

Agreement with Britain for continued unfettered access to the UK market has eased concerns, along with no “significant exit” of financial firms or jobs, Isola said“. That gives us an opportunity to carry on as we are and potentially grow,” he said, referring to a growing focus on new areas like blockchain. 

There is still uncertainty looming because of political fiction between UK and Spain regarding territorial claims. Rather than coming to a judgement it is better to be cautious on how the situation will unfold in the future.

 

 

Featured Image: Makalu

 

References:
www.gfsc.gi/dlt
www.gibraltarfinance.gi/technology/distributed-ledger-technology
www.worldbank.org/en/topic/financialsector/brief/blockchain-dlt
www.ebf.eu/priorities/cybersecurity-innovation/blockchain
www.fca.org.uk/consumers/cryptoassets
news.bitcoin.com/5-crypto-exchanges-have-been-licensed-in-gibraltar-since-regulation
cryptocurrency-tax.info/se
prifinance.com/en/cryptocurrency-license/gibraltar/
www.chronicle.gi/gibraltar-finance-holds-london-seminar-on-distributed-ledger-technology/
www.cnbc.com/2019/05/02/london-stock-exchange-ceo-on-blockchain-and-cryptocurrency.
www.express.co.uk/news/uk/1243475/brexit-news-remain-british-gibraltar-warning-spain-eu-spt
www.reuters.com/article/uk-gibraltar-finance/spanish-border-logjam-a-bigger-threat-to-gibraltar-finance-than-brexit-idUSKBN2041X

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