The amending regulations add a 10th Regulatory Principle to Gibraltar’s Financial Services (Distributed Ledger Technology Providers) Regulations, requiring that all DLT providers operating in Gibraltar conduct themselves in a manner which maintains or enhances the integrity of the markets in which they participate.

Simultaneously, and maintaining consistency with the approach to the other 9 Regulatory Principles, the Gibraltar Financial Services Commission published a Guidance Note which sets out its expectations of DLT providers in this context.

The working group is responsible for defining the appropriate market standards for exchanges operating in the digital asset space.

"The GFSC is currently considering with HM Government of Gibraltar whether any legislative changes are required to the existing EIF regime specifically catering for EIF firms investing in digital assets", the GFSC said. 

It added that, provided that EIF regulations are complied with, it has no objection to EIFs investing in digital assets. 

However, because of the risks associated with such investments, the GFSC expects EIFs to consider various matters, including whether the fund's offer document appropriately disclose the risks associated with investing in digital assets and whether security arrangements are clearly explained, especially how private keys will be safeguarded. 

Measures to protect against cyber threats also need to be considered. 

The GFSC also expects directors to consider if there is a requirement or potential future need for a depositary under the Alternative Investment Fund Managers Directive and, if the fund is accepting subscriptions, how it will comply with anti-money laundering legislation and identify ultimate beneficial owners of any subscribing entities. 

Valuation policies should also be explained to investors in sufficient detail.

Since January 2018, organisations that use DLT to store or transmit value belonging to others, in or from Gibraltar, need to be authorised by the GFSC as a DLT Provider, subject to the transitional arrangements.

An “in-principle” decision is the first stage of full authorisation where an applicant needs to satisfy the GFSC on one or more requirements in order to obtain a licence.

The paper explains that "unless structured as a security… or a debt instrument, tokens do not constitute any form or regulated instrument". It then goes on to state that most often tokens are not considered securities under Gibraltar or EU legislation.

The paper adds that, "in many cases, [tokens] represent the advance sale of products that entitle holders to access future networks or consume future services". 

As such, the paper says that these tokens are commercial products, not securities. 

However, in some cases, for example where a centralised virtual currency is involved, the regulation on distributed ledger technology may apply, but the token sale itself remains unregulated. 

On token regulations, the paper states that the intention is "to regulate primary market promotion, sale and distribution of tokens, that are neither securities nor outright gifts or donation, conducted in or from Gibraltar". 

Tokens that function only as a decentralised virtual currency or as central bank-issued digital currency will be excluded from this part of the regulation, but hybrid tokens (ie those that are a virtual currency and something else) will be caught. 

The paper also includes proposals on disclosure rules and an authorised sponsors regime, under which an authorised sponsor would have to be appointed in respect of every public token offering promoted, sold or distributed in or from Gibraltar. 

Authorised sponsors will need to have codes of practice in place. 

The paper also states that the Gibraltar Financial Services Commission (GFSC) "will authorise and supervise secondary token market operators, and establish and maintain a public register of such operators". 

The GFSC will also supervise token investment service providers and maintain a register of such providers. 

Advice on investments in tokens, virtual currencies and central bank-issued digital currencies will also be regulated, including "generic advice", "product-related advice" and "personal recommendations". 

In terms of implementation, the white paper states that a draft bill is expected to be ready by the end of this month. 

"Draft Regulations for the promotion, sale and distribution of tokens should be ready in May 2018. The last of the three Regulations should be completed by the end of October 2018," the paper added.