Cryptocurrencies in themselves do not require regulation, but there are some other reasons the interference of regulators is still required in the industry.
Dong He, Deputy Director of the IMF’s Monetary and Capital Markets Department, recently wrote a piece called “Monetary Policy in the Digital Age”, where he stated that “cryptos have been afflicted by notorious cases of fraud, security breaches, and operational failures and have been associated with illicit activities.” That is the reason why we need clear and transparent regulations for companies operating in the crypto industry.
As crypto is gaining popularity and crypto companies are starting to manage significant digital assets of their customers, the introduction of strict regulations could help if not avoid, but considerably mitigate risks of massive fraud. This will boost confidence in the overall market.
First licences for operators working in the crypto space have already been developed and are available for applicants. One of such licences has been developed by the Gibraltar Financial Services Commission. The licence was introduced on January 1, 2018, and any company that stores or transmits value belonging to others using the distributed ledger technology in of from Gibraltar now needs to be authorised by the Gibraltar Financial Services Commission (GFSC) as a DLT Provider.
GFSC makes a point that these are not rigid rules though, as “a flexible, adaptive approach is required in the case of novel business activities, products, and business models.”
So what requirements do companies have to match to obtain Gibraltar’s DLT licence?
First, there are requirements related to reputation and attitude to business, such as “a DLT Provider must conduct its business with honesty and integrity. honesty, integrity and reputation.” When the regulator considers this point, it pays attention to skill, competence, experience, and financial position.
Second, it is about customer experience, as DLT Providers are expected to spend sufficient resources to protect consumers, have adequate complaint policies and disclosures and be able to manage and disclose any conflicts of interest.
Also, GFSC requires that IT systems are well-functioning and protected: “a DLT Provider must ensure that all systems and security access protocols are maintained to appropriate high standards.”
It is not surprising that a DLT Provider is required have systems in place to prevent, detect and disclose financial crime risks such as money laundering and terrorist financing.
Finally, a blockchain company is expected to demonstrate it has adequate financial and non-financial resources, which also means a sustainability of business model, maintenance and retention of books and records, and sound audit and reporting standards.
Dmitrij Pruglo, CEO of Covesting, a cryptocurrency trading platform registerd in Gibraltar, says, “We thought very carefully about choosing the place to register our business, as we wanted to show our clients our company is not just a scam, but a partner they can trust, and Gibraltar’s DLT Licence seems to be a perfect tool to do that.”
This licence could be a good way for crypto companies to show their customers and counterparties that they are a serious player running a solid and reliable business, given the current volatility and instability of the new industry. Besides, obtaining a special licence means easier access to payment and banking services.
This could be the best approach for companies working with the blockchain technology — basic requirements that are not too tough to discourage initiative and at the same time enough to reduce, at least at the initial s