New Chapter on Gibraltar
Crypto-Asset Regulation

Peter Howitt has published a new updated chapter in the Law Reviews (Virtual Currency Regulation) jurisdictional guide to crypto-assets.

Peter Howitt

Managing Director

The Virtual Currency Regulation Review is a country-by-country guide to recent legal and regulatory changes and developments in the field of virtual currencies, which also looks forward to expected global trends in the area. It provides a practical analysis of developing regulatory initiatives aimed at fostering innovation, while at the same time protecting the public and mitigating systemic risk concerning trading and transacting in virtual currencies.

Peter has recently provided an update to the Gibraltar Virtual Currency Regulation Review.

The Gibraltar Chapter covers:

  1. The DLT Provider Framework
  2. VASP Registration Guidance
  3. Criminal and Civil Enforcement Activity
  4. Securities and Investment Laws
  5. Banking and e-money
  6. AML
  7. Regulation of exchanges, miners, custodians and issuers.
  8. Tax Issues
 

Excerpts from the Gibraltar Chapter:

“I INTRODUCTION TO THE LEGAL AND REGULATORY FRAMEWORK

Gibraltar has been one of the most notable early adopters and supporters of virtual currencies ensuring that appropriate, proportionate and practical regulatory regimes are in place to manage the risks involved in such activities.

The sector has a wide range of operators, including:

a exchanges and custodians;

b over-the-counter providers;

c token sale issuers; and

d crypto funds.

 

Gibraltar is one the most popular crypto fund jurisdictions in the world: ‘Funds tend to be domiciled in the same jurisdictions as traditional hedge funds, with the top three being the Cayman Islands (34%), the United States (33%) and Gibraltar (9%)’.

Gibraltar has two primary legislative frameworks that specifically apply to cryptoassets (this term is the preferred term used herein and applies to cryptographic coins, tokens or other technologies that represent some unit of value or property on a distributed database).

One is the Distributed Ledger Technology (DLT) Provider regime (see below) that requires full authorisation for certain custodians and remitters of cryptoassets. The other is a requirement for all ‘virtual asset service providers’ to register and comply with the Proceeds of Crime Act 2015 and various anti-money laundering (AML) and counter-terrorist financing (CTF) obligations (this, inter alia, implements Financial Action Task Force (FATF) guidance in respect of Virtual Asset Service Provider (VASPs)).

The DLT Provider regime is separate to other legislation that applies if the cryptoasset activity is pursuant to other regulated, licensable or registrable activities that the commercial operator is permitted to undertake (e.g., banking, insurance and e-money). The DLT Provider regime is contained within the Financial Services Act 2019 (FSA).

Section 139 provides that certain DLT provider activities are regulated activities requiring authorisation by the Gibraltar Financial Services Commission (GFSC). Regulated activity is considered as any firm using DLT for storing or transmitting value belonging to others, in or from Gibraltar.

 …
III BANKING AND MONEY TRANSMISSION
The offering of virtual currency services would not normally fall within deposit-taking (banking) as that applies to conversion of ‘money’. The definitions of money under common law and statute do not extend to non-monetary value such as virtual currencies.
 
It is possible that a stablecoin product could fall within the definition of e-money to the extent that it represents a claim against an issuer in respect of a token that is issued on receipt of funds and is accepted by others to make payment transactions. The definition of e-money (derived from EU law) is as follows:
 
“…electronically (including magnetically) stored monetary value as represented by a claim on the
electronic money issuer which–
is issued on receipt of funds for the purpose of making payment transactions within the meaning of
paragraph 15;
 
is accepted by a person other than the electronic money issuer; and is not excluded by sub-paragraph (2)
‘ . . . funds’ means banknotes, coins, scriptural money or electronic money;
 
‘ . . . payment transaction’ means an act, initiated by or on behalf of the payer or by the payee, of placing, transferring or withdrawing funds, irrespective of any underlying obligations between the payer and the payee.”
 
The European Union is currently consulting on changes to e-money and payments directives that would bring stablecoins more clearly within the scope of EU e-money legislation (and with additional obligations) under the proposed Markets in Crypto Assets Regulation. At the same time, the United Kingdom and Gibraltar continue to consider the applicability of
a wide range of existing financial services law to cryptoassets, including virtual currencies.
 
 
VIII CRIMINAL AND CIVIL FRAUD AND ENFORCEMENT
 
i Regulatory enforcement and the powers of the GFSC
 
In the event of a breach of regulatory principles, the GFSC has various information-gathering and investigatory powers (Part 10, FSA) as well as sanctioning powers (Part 11, FSA), including administrative penalties.
 
Under Part 10, the GFSC can in respect of persons carrying out authorised activities:
 
a require them to provide the GFSC with certain information, produce particular documents and answer questions before the GFSC. The GFSC also has the power to carry out onsite inspections, where they can not only inspect any part of the premises but also question any person and request any document therein;
 
b seek a warrant from the magistrate to enter premises. A magistrate may only issue such a warrant if satisfied that there are reasonable grounds for believing particular conditions (set out at Section 135 of the FSA) are satisfied. If a warrant is issued, the Royal Gibraltar Police together with a person acting under the authority of the GFSC may enter and search the premises and take possession of documents or information for which the warrant was issued or take steps to preserve or prevent interference with the same;
 
c appoint a person to prepare a skilled person’s report on any matter about which the GFSC may reasonably require information in connection with the exercise of its functions as a regulator; and
 
d appoint an inspector to investigate the affairs of any person in Gibraltar who carries on (or is suspected of carrying on) a regulated activity in or from Gibraltar. Inspectors have the power to, inter alia, examine on oath the person under investigation, any of its employees, officers, agents, auditors, bankers, barristers or solicitors (subject to the provisions of the FSA).
 
Under Part 11 of the FSA, the GFSC can exercise sanctioning powers (one or more) against a person if the person contravened a regulatory requirement and, at the relevant time, was an authorised or regulated individual. Sanctioning powers include:
 
a administrative penalties;
 
b public statements;
 
c a cease and desist order;
 
d a temporary suspension of permission order; or
 
e a prohibition order, prohibiting the individual from exercising regulated functions.
 
Additionally, further to Part 13 of the FSA, the GFSC can apply to the Supreme Court
and seek:
 
a an injunction restraining a contravention or the disposal of or the dealing with particular assets; and
 
b an order for restitution.
 
ii Liability and enforcement issues regarding virtual currencies
 
Gibraltar’s statutory laws include acts passed by the Gibraltar Parliament, statutory laws passed in England and Wales and extended to Gibraltar by the Gibraltar Parliament and Orders in Council extended to Gibraltar. The common law and rules of equity of England and Wales apply insofar as they are applicable to the circumstances in Gibraltar (further to Section 2 of the English Law Application Act).
 
Any judgments dealing with cryptoassets as property in England and Wales would be highly persuasive.
 
In AA v. Persons Unknown, Re Bitcoin, the High Court held that Bitcoin constitutes ‘property’ but in a new category, outside of the two traditional forms of property in English law (choses in possession and choses in action). It was therefore found that a proprietary injunction could be obtained in respect of it. It was held that there was at least one serious issue to be tried and the balance of convenience lay in favour of granting relief in support of A’s claimed proprietary rights. Though this was not a statement of law, it has been deemed relevant and compelling on the question of whether Bitcoin, and thus arguably other cryptocurrencies, can be considered property. In that case, the Court took into account Vorotyntseva v. Money-4 Limited t/a Nebeus.com (unreported – freezing injunction over Bitcoin and ether).
 
In Ion Science Ltd v. Persons Unknown and (1) Persons Unknown, (2) Miriam Core, (3) Binance Holdings Ltd and Payward Ventures Ltd (as a third party) (an unreported case that is reportedly considered the first ICO fraud case to be heard by the High Court), orders were made for a proprietary injunction, worldwide freezing order, ancillary disclosure against persons unknown, Bankers Trust orders and a Norwich Pharmacal order against companies connected with a cryptocurrency trading exchange. It is reported that the judge in that case expressly made clear that the judgment should not be considered authority (in line with the practice direction that gives guidance on the status of judgments given on applications made without notice). It is, however, likely that future courts will follow the same approach. In that case, on 5 October 2021, an interim third-party debt order was made against Payward Ventures Limited in the sum of just under £3 million. On 28 January 2021, that order was made final.
 
…In April 2023, in an as yet unreported judgment, a court injunction was issued in Gibraltar ordered, inter alia, a freeze over a failed crypto trading entity’s crypto assets and for Binance and others to halt attempts to move assets from several Globix-linked crypto wallets. Globix (a platform operated by a BVI company Miracle World Ventures Limited) is an insolvent cryptocurrency trading company which is subject to various legal actions involving a search for over US$43 million in missing funds. It was not registered in Gibraltar or regulated by the GFSC but did have local investors and a local director.
 
As above, it is likely that should similar matters be brought before the Supreme Court of Gibraltar, the above case law would be persuasive. What remains to be dealt with is the question of enforcement and whether restitution is possible.
 
 
The Law Reviews Expert Panel 2023

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