DLT Regulation in Gibraltar – The Ten Principles

As of January 1st 2018, Gibraltar’s widely-publicised regulations on Distributed Ledger Technology came into effect, bringing some much-welcomed regulatory oversight to the DLT and crypto sphere.

This ground-breaking piece of legislation is a milestone for the crypto industry and has already started attracting interest from both investors and DLT operators throughout the world.

While drafting the legislation the regulators decided to opt for a “light touch” approach; providing solid regulatory oversight while, at the same time, being ever-mindful of the need for continued innovation in the fast-moving crypto space. Underpinning this regulatory approach are the Nine Core Principle of Gibraltar’s DLT regulation:

Principle One: Honesty and Integrity

DLT providers must act with “honesty, integrity and professionalism”; they must always conduct their operations and communications in an honourable and forthright fashion and never “pose a risk to the public or to the reputation of Gibraltar”.

Principle Two: Customer Care

DLT providers must offer the utmost standards of customer care; they must always ensure all communications are clear-cut and transparent, with full disclosure of any conflicts of interest, and that all customer complaints or issues are dealt with swiftly.

Principle Three: Resources

DLT providers must ensure adequate resources are provided; they must ensure both financial and non-financial resources are available, including adequate insurance and capital.

Principle Four: Risk Management

DLT providers must take a common-sense approach to risk management; they must employ “forward-looking risk management practices” and always consider “risks to its customers and the reputation of Gibraltar in addition to risks to its own business.”

Principle Five: Protection of Client Assets

DLT providers must take significant steps to protect client assets; they must ensure adequate storage, data protection, proper record keeping and other appropriate measures to ensure the maximum wellbeing of all client assets.

Principle Six: Corporate Governance

DLT providers must “have effective corporate governance arrangements”; they must take careful consideration regarding structure, strategy, procedures and corporate culture.

Principle Seven: Cyber Security

DLT providers must demonstrate solid cyber security; they “must ensure that all systems and security access protocols are maintained to appropriate high standards” and all employees, including senior management and board members, must be fully aware of relevant cyber security threats.

Principle Eight: Financial Crime

DLT providers must take a proactive stance against financial crime; they must perform considerable due diligence and KYC vetting in full accordance with the Proceeds of Crime Act 2015 (POCA).

Principle Nine: Resilience

DLT providers must be resilient; they must be fully prepared for all possible contingencies to ensure minimal loss and disruption to clients, even in the event of the company winding down.

Principle Ten:  A DLT Provider must conduct itself in a manner which maintains or enhances the integrity of any markets in which it participates.

DLT Providers should conduct themselves in a manner that fosters transparency, efficiency, fairness, liquidity and resilience within the markets in which they operate on an ongoing basis. This encompasses a number of key responsibilities, such as monitoring for manipulative trading and other forms of market abuse, fostering non-discriminatory market access, ensuring transparency in price formation and fair trading practices, maintaining high disclosure standards and providing robust consumer protection.

Market integrity is continuous in nature and generally cannot be judged by isolated events, although such events, and/or patterns of events can indicate the existence of issues that need to be addressed.

DLT Providers will need to implement measures commensurate with their activities in order to prevent, or mitigate the effects of, any type of manipulation or improper influencing of prices, liquidity or market information, or any other behaviour which is inimical to market integrity.

Hassans’ FinTech Team

The Hassans’ FinTech Team is able to provide expert legal and regulatory advice in the blockchain and crypto space and we remain poised to play our part in this globally transformative technology. Our team is comprised of practitioners with backgrounds in financial services, corporate and commercial law, tax and funds. We are therefore well positioned and suited to advise and guide crypto businesses through the regulatory hurdles in order to setup companies that will be licenced by a reputable regulator in a well-respected jurisdiction.

For further information see our brochure below, or simply right click here and click Save As to download.