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The Gibraltar Financial Services Commission (GFSC) has noticed the increasing use of tokens or coins based on Distributed Ledger Technology (DLT) as a means of raising finance, especially by early-stage start-ups. The sale of such tokens is often conducted using terms such as initial coin offering (ICO), token sale, initial token offering and the like.

A new regulatory framework for DLT which will become operational as from January 2018 will regulate the activities of firms, operating in or from Gibraltar, that use DLT to store or transmit value belonging to others, such as virtual currency exchanges.

Gibraltar is committed to being a sound and safe place to do business with and is considering a complementary regulatory framework covering the promotion and sale of tokens, aligned with the DLT framework.

ICOs are an unregulated means of raising finance in a venture or project, usually at an early-stage and often one whose products and services have not yet been significantly designed, built or tested, let alone made operational or generating revenue. Such forms of crowdfunding are often used by start-ups to bypass the rigorous and regulated capital-raising process required by venture capitalists or financial institutions. In an ICO, tokens are sold to early supporters of a project in exchange for cash or cryptocurrency, such as bitcoin or ether.

Tokens vary widely in design and purpose. In some cases, tokens represent securities, such as shares in a company, and their promotion and sale are regulated as such. More often, tokens serve some cryptocurrency or functional use that is unregulated, such as prepayment for access to a product or service that is to be developed using funds raised in the ICO.

New ventures are highly-speculative and risky, and early-stage financing is often best undertaken by experienced investors who are familiar with assessing the nature of a project and its business plan, the technical characteristics of proposed products, the market for those products, and the capabilities of founders and their team. Experienced investors know how to evaluate the likelihood of success and that more high-risk ventures fail than succeed, and they understand only to invest such sums as they can afford to lose.

Anyone considering investing in tokens through an ICO is advised to consider the following:

  • Regulation: Do you understand that tokens and ICOs are unregulated and that you have no recourse to any regulatory authority, financial compensation scheme or ombudsman?
  • Volatility: Are you aware that the value of a token may be highly volatile and there may be no way for you to trade or sell tokens?
  • Disclosures: ICO whitepapers are unregulated and may contain inadequate, inaccurate or misleading statements and disclosures. Are you satisfied you have all the information necessary to make an informed decision?
  • Risk appetite: Recognising that investing in early-stage startups is high risk and speculative, can you afford to lose your entire investment?

In common with regulators around the world, the GFSC continues to monitor the use of unregulated tokens as a means of raising finance.

For further information or to report any concerns please contact us at