Regulations are sometimes framed as the enemy of innovation, an enemy force that impedes progress in the name of bureaucracy. However, regulation, when used wisely and proportionately, can enhance the reputation of the private sector by creating the necessary conditions for companies to focus on and foster innovation.
To do this, you need to work with entrepreneurs and give them the opportunity to innovate and experiment, and to ensure that standards are met that promote good corporate governance and prevent illegal activities. By ensuring strong control, modern diseases such as money laundering and terrorist financing can be effectively addressed. Open dialogue between regulators and the business community means that companies and entrepreneurs are interested in building a new open ecosystem.
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A critical aspect of proactive regulation is the failure to adapt new technologies to existing legislation. Many of these regulations assume that money is a physical commodity that depends on central banks and complex international agreements to preserve value. The organization of distributed ledger technology must start with the view that technology creates a new primary source of value and a new way of doing business.
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With a carefully selected working group that includes representatives from the private sector, governments and regulators, Gibraltar has begun to review the regulatory process for DLT. We then deliberately designed our regulation from the first principles of the digital environment, avoiding the temptation to impose restrictions or formulate regulations that correspond to a potentially outdated stage of technological maturity. This approach is based on principles, not strict standards, which allows us to maintain our commitment to high regulatory standards, and gives us the flexibility to offer a “live” regulatory environment for an exciting and rapidly changing market. The nine principles provide the basis for healthy and resilient relationships with DLT suppliers.
Adherence to these principles has created a thriving sector in the DLT field in Gibraltar. In the future, we will continue to adapt and improve it as it supports and defines this industry. We see these principles as living tools, not stone. We’ve updated seven of the nine principles since they came into effect in 2018 – and we see this as a function, not a mistake. These principles are designed with a certain level of flexibility built in in mind. Combined with a regulatory body with the flexibility to adapt to market needs, this sets Gibraltar apart from the global economy.
We are also working on adding a tenth key principle, which outlines how to further protect market integrity by adopting legislation free from market manipulation. Market manipulation does not create value or harm the brand or the reputation of the entire DLT industry, which is why we believe this action will boost the sector and add value to companies based in Gibraltar.
In order to bring Virtual Asset Server (VASP) providers to international standards while unleashing the potential, we must ensure that all transactions performed by them are reliably and accurately recorded as required by the Financial Action Task Force. This provides the added benefit of demonstrating the value of digital assets for their ability to eliminate publishing and disrupt traditional financing, while reducing unwanted connections with illegal payments.
By prioritizing innovation, regulators in Gibraltar can work as trusted partners primarily in the DLT sector. An example of this is our decision to define value within our organization, which in turn clarifies the definition of VASP. This gives confidence to the companies located in Gibraltar, as they have clear evidence of their regulatory status. The end result is that they are allowed to focus on building an innovative business rather than worrying about their regulatory status or fear that future regulation in their country of registration will threaten that status. Gibraltar-based companies know what to expect from regulators and know that authorities are ready to engage and work with the industry to build a fair and innovative digital transaction technology economy.
This trust is the key to enabling our companies to grow with the confidence they need. They can comply and benefit from a regulatory system that aims to foster innovation in a way that reduces risk and provides consumers with the same protection they deserve from any regulated business.