Distributed Ledger Technology Proposed Regulatory Framework - Gibraltar
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"Cryptocurrencies future/regulation" conference held in Gibraltar (on 9th May 2017). Speaker: Sian Jones from COINsult and Nicholas Gomez, GFSC Head of Risk and Innovation
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Distributed Ledger Technology Proposed Regulatory Framework - Gibraltar
- 1. 1 Distributed Ledger Technology Proposed Regulatory Framework Nicky Gomez Siân Jones
- 2. In the beginning… THERE WAS CRYPTOCURRENCY
- 3. A short history of Bitcoin • 2009: System of money proposed that behaves as electronic cash • Built on computer science from 1970’s, 1980’s & 1990’s • Digital, rare & uncopiable • Combined with decentralised peer-to-peer network • Preventing double-spending • Without need for intermediaries 17 May 2017 3
- 4. 17 May 2017 4 “Bitcoin is based on an open access participatory model of market-based economic competition through risk and reward strategies based on game theoretical outcomes that ensure collaborative participation by multiple participants without anybody having the ability to cheat due to a system of emergent consensus based on mathematical rules and strong cryptography.” - Andreas M Antonopoulos
- 5. Virtual currencies & distributed ledger technology A REGULATORY PERSPECTIVE
- 7. Virtual currency • Medium of exchange • Unit of account • Store of value • Not legal tender status in any jurisdiction • Not issued nor guaranteed by any jurisdiction • Fulfils the above functions only by agreement within the community of users of the virtual currency
- 8. Not E-money • Not digital representation of fiat money • Doesn’t electronically transfer value that has legal tender status • No issuer • Not redeemable
- 10. What’s the big deal? • Cryptocurrency allows two people to exchange value directly with one another, without the need for an intermediary, and to do it wholly digitally • Both a currency AND a payment system
- 11. Where are VCs now? • Bitcoin whitepaper published 2008 • First transaction 2009 • Current market value: USD 25.7 bn (52% of all cryptocurrencies) • 2nd largest (Ethereum): USD 8.6 bn (17.5%) • 3rd largest (Ripple): USD 5.6 bn • Use: largely speculative investment • Yet to achieve widespread adoption
- 12. Distributed ledger technology • Technology underpinning Bitcoin • Also called blockchain (nuanced differences) • Built on series of networks of tamper-resistant databases • Giving immutable, shared record of truth • No need for a trusted third party • Providing trust in a trustless world
- 13. Bigger than Bitcoin • UK Government Chief Scientist • Bank of England • IMF • World Economic Forum • European Parliament
- 14. Massive potential • Sir Mark Walport: “Distributed ledger technologies have the potential to help governments to collect taxes, deliver benefits, issue passports, record land registries, assure the supply chain of goods and generally ensure the integrity of government records and services." • PWC: Blockchain: The $5 billion opportunity for reinsurers
- 15. (A few) use cases • Peer-to-peer payments & lending • Currency exchange & remittance • Proof of authorship & ownership • Insurance • Proof of identity • Data storage • Securities trading • Post-trade clearing & settlement • Smart contracts
- 16. Walport recommendations • Use blockchain technology • Invest in research • Create regulatory framework • Set standards to ensure security & privacy • Build trust & interoperability
- 17. A regulatory framework for DLT 17 May 2017 17
- 18. Gibraltar’s Proposed Approach • HM Government of Gibraltar initiative • Builds on work done by Cryptocurrency Working Group – Virtual Currency: Outline Regulatory Framework January 2016 • Acknowledges DLT as the predominant transformational innovation • Responsive to evolving technology, use cases and business models • Outcomes-focused, principles-based regulatory framework for DLT firms
- 19. Objectives • Good for Gibraltar - economic benefits • Safely so – proactive approach o Consumer protection o Protecting the reputation of Gibraltar
- 20. Scope of DLT Framework • Businesses that use DLT for the transmission or storage of value belonging to others • Firms subject to any other existing regulation under another framework will not need a new licence under this framework • Investment advice in connection with virtual currencies will not fall within scope of the DLT framework • The GFSC will have responsibility for the authorisation and supervision of DLT firms and any related enforcement 17 May 2017 20
- 21. Rationale for the proposed approach • Provide regulatory certainty • Recognises DLT is still a nascent technology • Responsive to rapidly-changing technology • Sufficiently flexibility • Enhance consumer confidence • To encourage DLT firms to be established in Gibraltar • To encourage growth in technology and FinTech skills 17 May 2017 21
- 22. 9 Principles (1 of 2) 1. Conduct its business with honesty and integrity 2. Pay due regard to the interests and needs of its customers and must communicate in a way which is fair, clear and not misleading 3. Maintain adequate financial and non-financial resources 4. 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. Have effective arrangements in place for the protection of client assets and money when it is responsible for them 17 May 2017 22
- 23. 9 Principles (2 of 2) 6. Have effective corporate governance arrangements 7. Ensure that all systems and security access protocols are maintained to the appropriate high standards 8. Have systems in place to prevent, detect and disclose financial crime risks 9. Be resilient and must develop contingency plans for the orderly and solvent wind down of its business 17 May 2017 23
- 24. Application of Principles • Not light or soft regulation • Proportionate and on a risk based approach • Apply existing regulatory provisions where relevant • Guidance will be issued • Conditions • Advisory Panel • Initial and ongoing engagement 17 May 2017 24
- 25. Timeline • Launch consultation period 9 May 2017 • DLT framework clinic 10 May 2017 • Consultation period ends 6 June 2017 • Consider responses to the consultation • Legislation and guidelines Q3 2017 • Effective date 1 Jan 2018
- 26. 17 May 2017 26 Questions Comments