Gibraltar set to introduce regulations to support the safe use of digital tokens as a means of crowd funding
In February this year in a press release issued jointly by Albert Isola Minister for Commerce on behalf of the Government of Gibraltar and the Gibraltar Financial Services Commission (“GFSC”) it was announced that the Government and GFSC are developing legislation (“Token Regulations”) relating to tokenised digital assets (tokens), essentially those created and traded using distributed ledger technology (“DLT”)
The Token Regulations, which are due to be published and come into force shortly, will regulate the following activities conducted in or from Gibraltar:-
- The promotion, sale and distribution of tokens (commonly known as “ICOs”);
- Operating secondary market platforms trading in tokens (token exchanges); and
- Providing investment and ancillary services relating to tokens.
Insofar as ICOs are concerned, it is Gibraltar’s intention to support the safe use of tokens as a means of crowd funding. The manner in which the Token Regulations will regulate ICOs is as follows (subject to any changes or additions which will become apparent when a draft of the Token Regulations is released):
- The regulations will require that adequate, accurate and balanced disclosure of information to enable anyone considering purchasing tokens to make an informed decision. The regulations are likely to prescribe what, as a minimum, constitutes adequate disclosure and in what form disclosures are made (e.g. aside from the White Paper, a key facts document not exceeding two pages). GFSC is also expected to issue Guidance Notes on the disclosure rules.
- The regulations will establish a regime for Authorised Token Sponsors who will need to possess appropriate relevant knowledge and experience and who will be responsible for compliance by the ICO vehicle with the disclosure rules and also financial crime risks (see below).
- Authorised Sponsors will be required to have in place one or more Codes of Practice relating to the ICOs they sponsor. GFSC see this as a very important step in establishing best practice for token sales. A Code of Practice will have to be incorporated into the engagement letter or management agreement with each Authorised Sponsor’s clients thereby constituting an agreement between the ICO vehicle and the Authorised Sponsor to adhere to the Code of Practice utilised.
GFSC will keep a public register of all Authorised Sponsors and their Codes of Practice. The Authorised Sponsors will be required to register with GFSC of all their sponsored ICOs including details of the clients for who they act, the tokens included in the offering, the Code of Practice Applicable and any interest they, and connected persons have in the tokens offered. These details will all be public.
On 16 March 2018 Gibraltar extended the Proceeds of Crime Act (“POCA”) to ICOs. All ICO vehicles must therefore implement all requisite POCA measures such as applying customer due diligence, ongoing monitoring, record keeping, risk assessment and management, compliance management, employee screening, the establishment of policies and procedures, and training. An ICO vehicle may outsource KYC/AML on applicants for tokens and source of funds. However, as with all regulatory outsourcing, the directors of the ICO vehicle will remain responsible for ensuring obligations are met.
On 1 January 2018 what are known as the “DLT Regulations” came into force in Gibraltar. In the February press release Minister Albert Isola commented “This Government successfully delivered DLT Regulations which came into effect in early January 2018. I am very pleased and encouraged by the volume and quality of applications received by the GFSC. I announced last year that we would introduce complimentary yet distinct legislation covering token sales and have asked the GFSC to complete this work-stream at the earliest opportunity. We remain fully committed to ensuring that we protect consumers and the reputation of our jurisdiction”. Sian Jones, Senior Advisor on DLT at the GFSC said “Token Regulations is the natural progression following the regulation of DLT Providers, being vital to the protection of consumers”
The DLT Regulations provide that any firm carrying out by way of business, in or from Gibraltar, the use of DLT for storing or transmitting value belonging to others, needs to be authorised by the GFSC as a DLT Provider.
A draft of the Token Regulations is eagerly awaited by those wishing to take advantage of the reputational benefits of conducting ICOs in a regulated environment and by firms looking to base their DLT operations in Gibraltar.
Contributed by Attias & Levy Gibraltar
