Interview | Albert Isola, Gibraltar's Minister for Digital and Financial Services

Gibraltar is the home to many successful companies like eToroX, Huobi, Zego, Marshmallow and Bitso, to name a few. Why is regulatory clarity so important to nascent industries?

Maintaining high standards and stringent processes across all areas of business are important to us. In every area, the basic philosophy of accessible but good quality regulation and supervision are key cornerstones to our frameworks. Clarity around regulation in the DLT and insurtech industries is of utmost importance. We are very aware that no regulator can develop and maintain a robust, and effective regulatory framework without input from the industry leaders. Our strategy is to engage with industry experts to gain a true understanding of what is needed in order for the industry to thrive. We truly believe collaboration fuels innovation, and in the long run, it will help our jurisdiction to prosper. The public – private sector partnership is instrumental in achieving this.

Why has Gibraltar been successful in attracting leading firms?

In emerging industries like Distributed Ledger Technology (DLT) and insurtech, being able to move with the industry and adapt quickly is essential. We are a small and agile jurisdiction, which makes it much easier to act fast in the face of a rapidly moving industry, and is one of the main reasons why we have been able to attract seriously successful businesses.

Gibraltar is a niche jurisdiction - we are small, agile and looking to position ourselves at the cutting edge of new technologies. We were aware that regulation of Distributed Ledger Technology (DLT) needed to start from the perspective that the technology is creating a fundamentally new source of value and a new way of doing business. We realised from the onset that for there to be longevity and sustainability in the space, it could only happen with appropriate regulation in place. We felt that we would have to have an alternative approach to what we typically see with traditional financial services and fintech regulation.

Our approach to regulation often includes the formation of working groups, which promotes participation from the private sector. When we were developing our DLT framework, it was imperative that we had representatives from the private sector, the regulator and the government to work out the parameters, assessing the risks and the steps we would take to mitigate them. This framework is based around principles rather than a strict code that allows us the flexibility to provide a regulatory framework for an exciting and rapidly changing marketplace. These nine principles provide the basis for a healthy relationship with DLT providers. Through this, we have created an open, transparent, and communicative approach to start-ups in the insurtech and DLT industries. We believe this is why Gibraltar has been successful in attracting companies over the years and today there are 15 firms from all over the world who are licenced in Gibraltar.

Tell me about Gibraltar’s legislation, specific to DLT. What kind of regulatory landscape can companies expect?

We want to foster innovation rather than stifle it. In saying this, our rules are stringent and thorough, not light touch. Our regulatory framework gives companies clarity. The DLT framework was established in 2018, last year we updated our Distributed Ledger Guidance Notes to incorporate proposed FATF crypto rules. We have recently convened a working group focused on market integrity to provide new guidelines for companies operating in Gibraltar. The results of the group will see a 10th core principle added to the regulatory framework. We are confident that the 10th Core Principle will support our licensed firms and regulatory authorities in ensuring the integrity of the market, and this is expected to be released very shortly.

What challenges does the industry face when it comes to DLT regulation today?

Regulating blockchain and crypto is not a straightforward task. Worldwide, governments are confronting the surge of this relatively new technology and trying to figure out how to respond. The response globally has varied from outright banning of crypto and the launch of investigations into crypto firms to an approach that looks to develop a deeper understanding of the potential of the technology. DLT and blockchain technology is new and exciting, yet many regulators may yet not fully understand the extent of the capabilities of the technology. This is a huge challenge for industry leaders.

Industry leaders need to have regulatory certainty. There are concerns that the autonomous nature of cryptocurrency poses a threat to the preeminence of fiat systems, and the integrity of the market is a huge issue for the industry. From a regulatory standpoint, bringing industry leaders into the conversation will be essential to ensure that DLT regulation is effective going forward. This way society can benefit most from the positive impact that blockchain technology has had and, we believe, will have in the future.