Timing is everything in most walks of life. Things come together, planets align, and the ideal opportunity for making brave moves comes to pass. Right now, what must be exercising the minds of politicians in Gibraltar is whether this may be the right time to openly embrace the maturing crypto currency sector.
The chequered history of Bitcoin is well known and not dissimilar to most mediums of exchange. People used to bite into coins to check whether or not they were being paid in valuable silver or cheaper lead, and only last year Reuters reported that police had seized €17m worth of forged €50 notes in Naples. This has not stopped people continuing to use notes and coins backed by governments, nor does it seem to have brought a halt to people dealing in Bitcoins. Hence the question is – should Gibraltar lay out the welcoming mat to crypto currency businesses?
This is not just an idle speculative question. Both crypto currencies themselves and the technology behind them (known as the “blockchain” – a record of all steps in the life of the crypto coin) have the power to massively disrupt not only money transfers but also to transform many parts of businesses where validation or approval of phases in a process is required.
It was only last June at the PayExpo in London, for which Gibraltar was a key sponsor, when interest in crypto currencies was seen to have finally broken into the mainstream. Crypto was on the lips of most delegates (even the banks) and questions were being asked about whether or not Gibraltar had the appetite to enter the crypto world. Would they encourage start-ups in the exchanges, investment funds, miners and other related businesses? Would they try to attract the highly skilled developers to Gibraltar and what is it that Gibraltar could offer that would attract them?
While KPMG and Hassans hosted a crypto currency seminar in December aimed at educating the business community in crypto currencies (based on the number of attendees, the Gibraltar business community was eager to learn), we know now, of course, that Gibraltar Finance was also looking into the whole area for much of the summer and autumn and issued a white paper just before Christmas. This paper put forward reasonable suggestions regarding a regulatory framework for funds, exchanges and other crypto businesses and did not seek to prevent businesses from accepting crypto currencies in exchange for goods and services – the risk of movements in exchange resting with the trader, as is the case in dealing with volatile currencies such as the Rouble, Swiss Franc or Euro. What is important about this suggestion is that this would make Gibraltar one of the first jurisdictions to offer a regulatory regime covering funds and exchanges – ahead of the UK, US, Singapore, Hong Kong and the rest of Europe.
In summary, the paper recommended:
- Crypto currencies should not be afforded the status of a currency nor of a security
- Crypto currencies should be treated as a commodity
- Businesses should be free to accept crypto currency as a method of payment
- The regulatory structure should not seek to regulate the pricing, liquidity, volume or volatility of crypto currencies
- Clear and unambiguous risk statements must feature in any crypto currency activity
The regulatory approach recommended a concentration on “providing added value to the consumer”. In adopting this approach the authors hoped that the consumer would take comfort that the transaction with the regulated operator would have a greater chance of being completed. As this is a global phenomenon, offering crypto businesses a base from which to offer their services was seen as something that would be attractive to the operators, given Gibraltar’s experience with regulating both financial and online gaming businesses. Added to the availability of staff with relevant experience, a favourable taxation regime and the accessibility of key decision makers, it was felt that Gibraltar had a strong proposition.
Our December seminar clearly showed that the sector was looking to embrace regulation – crypto is no longer the sole preserve of those who want to “buck the system”, instead the sector wanted to come out of the shadows and be treated as viable, clean, respected business.
All of this actually matters to Gibraltar, as it must be aware of the actions of other countries which have a detrimental effect on doing business here. The imposition of POCT on online gaming profits by the UK Government affects Gibraltar more than any other jurisdiction while the drive for greater transparency in the financial sector is likely to see a reduction in the number of trust companies and possibly funds based here. Because we are a location with only 30,000 inhabitants such changes will have a limited effect elsewhere, but they can have a large impact here.
Responses to the white paper were due in by the end of January and are currently being considered. I hope that sufficient consideration will have taken place before KPMG’s eBusiness Summit on 23/24 April, so that Minister Isola or his officials can give us the official Gibraltar position.
So, is the time right? The sector wants regulation and Gibraltar needs to be open to new technologies and appears to be open to providing such regulation. This may well be a situation where the needs and wants of both parties are met, benefiting all concerned. I certainly hope so, and look forward to seeing Gibraltar making as good a success of crypto as it did online gaming in the early part of this century.