Gibraltar – a Gateway to Secure Development in the Fintech space?

Industry status

With the growth experienced in the fintech industry over the past few years, stakeholders have simultaneously hunted for jurisdictions from which they can work on and develop new technology. More often than not, lack of guidance and regulatory stance in relation to the fintech space in many jurisdictions leaves developers in a regulatory limbo.

In the past year, key industry failures and developments have only served to ignite a debate as to the legal treatment of products and services within the industry. In the past couple of weeks, it has become more obvious than ever how fragile the whole space is, with one key event being capable of triggering a domino effect across the board.

Many leap into a project with little thought of what the regulatory implications of future products they might create may be. Even where there are no adverse rules or regulations in place, the lack thereof can sometimes be as bad. This leaves projects with a large question mark hanging in front of them which they will bump into at every turn as they grow, be it licensing, tax treatment, or other operational implications.

Often overlooked by creators, a key consideration for any new venture, particularly in the web3 and crypto space is the ability to start off with the right structure. Careful legal and tax planning is crucial but above all else is regulatory certainty. In particular, founders should carefully consider the personal implications of their creations and wealth generated by them.

Key areas for developers to look out for in a jurisdiction include:

• Access to reliable advice and service providers.
• Security, both politically and geographically.
• Bespoke and clearly established regulatory frameworks.
• A familiar language and legal system.
• Tax treatment of founders and businesses.
• Location, international connections, obligations and international recognition.

In addition to all the above, and perhaps most importantly, the ability to quickly adapt.

Why Gibraltar?

Gibraltar is renowned for its legal and fiduciary services and applies a legal system based on the common law and influenced by EU law. Early adoption means that service providers and advisors are now well versed when it comes to the peculiarities of the DLT space.

An early adapter

One of the key benefits is legal, regulatory and tax certainty in what can often still be an uncertain business globally. Gibraltar has established a robust DLT regulatory framework which has been in place since 2018. From an early stage, there has been a clear push in Gibraltar to embrace new developments and not stifle growth. By creating a licensing regime early on, the jurisdiction has attracted many projects. Strict procedures and regulatory guidance have ensured that only the very best are licensed in Gibraltar. This has kept standards high and in turn attracted more projects to the jurisdiction.

Robust industry specific legal framework

Businesses in Gibraltar which carry out specific activities may be required to be licensed by or registered with the Financial Services Commission. Gibraltar licences from the Financial Services Commission having been granted to numerous large and highly reputable crypto exchanges. For token sales (which generally fall outside of the DLT licensing framework), Gibraltar has a robust registration system in place which connects project principles directly with the regulator to ensure a high standard of AML and KYC checks. Although the token issuing entity is not licensed by the regulator, this registration/approval process gives comfort both to investors and third-party service providers which are necessary to operate and interact with the traditional financial world (such as banks). Projects which fall outside of scope of the current licensing and registration framework in Gibraltar will know where they stand. In short, it can be said that Gibraltar provides:

• The 3 certainties: legal, regulatory & tax certainty with respect to crypto.
• Ability to open bank accounts for crypto-related projects.
• Common law legal system based on English law and legal system (UK Privy Council is our ultimate court of appeal).

For further info, feel free to contact me: jeremy.requena@hassans.gi