“Blockchain Rock”: Gibraltar to become the world’s leading cryptocurrency hub | Crypto-currencies
ohn the southern Mediterranean coast, nestled in the shade of the Rock’s sheer limestone cliffs and its tangle of wild olive trees, the Gibraltar Stock Exchange (GSX) is quietly preparing for a corporate takeover that could have global consequences for the old naval garrison.
Less than a mile away, next to the blue waters of Gibraltar Marina, regulators on the peninsula are examining a proposal that would prompt blockchain company Valereum to buy the exchange in the New Year – which means the UK Overseas Territory may soon host the world’s first integrated exchange, where conventional bonds can be traded alongside major cryptocurrencies such as bitcoin and dogecoin.
It’s a bold move for a territory of just 33,000 people, where the financial sector – which accounts for around a third of Gibraltar’s £ 2.4 billion economy – is overseen by a regulator made up of 82 employees. If all goes according to plan, the enclave could become a global cryptocurrency hub; if the controls put in place by the small team of regulators fail, it risks damaging its reputation and, ultimately, diplomatic sanctions that could threaten its economy.
While countries like China and the UK have banned or openly cautioned against investing in crypto assets, Gibraltar has turned the tide, having pledged to officially regulate cryptocurrencies in a bid to keep the market going. status of the territory as a financial hub.
It comes as Gibraltar struggles to shake off its reputation as a global tax haven, as the government has sued a Spanish newspaper in an attempt to restore its global standing.
Albert Isola, Gibraltar’s Minister for Digital, Financial and Public Services, said that while Gibraltar was a tax haven 20 years ago, the territory has now overhauled its tax and information-sharing policies. The introduction of crypto regulation has a similar effect – eradicating bad actors and providing insurance to investors, he says.
“If you wanted to do naughty things in crypto, you wouldn’t be in Gibraltar, because the companies are licensed and regulated, and they’re nowhere else in the world,” Isola says.
Gibraltar’s regulator has so far approved 14 cryptocurrency and blockchain companies for its licensing program, drawing the attention of former Sirius Minerals chairman Richard Poulden, who has chosen Gibraltar for the project. Valereum cryptocurrency exchange. Valereum, he says, is trying to mine a cryptocurrency industry that’s worth around $ 3.5 billion (£ 2.6 billion) – roughly the combined value of all the companies listed on the Exchange. from London.
Poulden is the chairman of Valereum, which is based in Gibraltar and focuses on providing technology to link traditional conventional currencies such as the pound and the dollar with crypto assets.
It will be a major task to overhaul an exchange that currently only has three employees and will require an amendment to Gibraltar’s regulations to govern how crypto will be traded on the GSX. But Poulden says his business relies on technology, rather than people, to take out bad actors.
He says performing anti-money laundering checks on cryptocurrencies is “not much different than performing checks on currencies from any other source. And indeed, in some cases, because you can go back up through the blockchain and see exactly where that money is coming from, it can actually be a lot easier than trying to find where a block of funds is coming from in. a bank.
Other countries will follow closely. Neil Williams, based in London Deputy Head of Complex Crime at Reeds Solicitors, says: “If it’s a success, you would definitely think other jurisdictions would be looking to follow, because it’s an increasingly valuable commodity.
However, experts have warned that Gibraltar could face sanctions from countries such as the United States if its regulators end up giving legal approval to crypto firms that, even inadvertently, give a pass. to money launderers, black market criminals or kleptocrats who prefer crypto anonymity. assets.
It comes as the world’s leading financial regulators, including the Bank of England, worry about the rapid development of crypto assets and the potential consequences for consumer and investor protection, market integrity, money laundering. money and the financing of terrorist groups.
“It could allow or facilitate money laundering, sanction evasion, terrorist financing, so everyone is wary of that as well,” said Charlie Steele, partner at the accounting and consulting firm Forensic Risk Alliance and former head of the US Department of Justice.
“Regulators around the world, almost all of them in fact, approach it from a position of deep skepticism… so it’s a bit outside of this tendency of thinking for a country to welcome them to buy a stock exchange. “.
A month before Valereum announced its offer for the GSX in October, the head of the United States Securities and Exchange Commission, Gary Gensler, said that as an asset class, crypto looked “more like the Wild West… plagued by fraud, scams and abuse. in some applications ”, raising further concerns about the possibility of criminal funds infiltrating the traditional financial system.
Lax anti-money laundering (AML) controls have led jurisdictions such as Malta to appear on the gray list of the global money laundering and terrorist financing (FATF) watchdog, for lack of basic financial guarantees. This could seriously harm Malta’s economy and has served as a stark warning to other countries and territories that may be tempted to drop the regulations.
Meanwhile, Singapore has had to do an about-face on its approval for the standalone crypto exchange Bitget. He suspended the exchange earlier this month for promoting a digital currency involved in a high-profile branding dispute, using an unauthorized image of K-pop group BTS to maximize its profits.
“If it starts to look like everyone has been running in Gibraltar to get away from the real regulators, it won’t turn out well for them,” Steele warns.
If anti-money laundering rules or sanctions are broken or circumvented, “there is a lot that they could do, and lead internationally through the FATF, to make it difficult for Gibraltar. You will see that the FATF can impose all kinds of measures, which will force its members to put limits on doing business with this country, ”he adds.
But Gibraltar insists it has welcomed crypto firms with its eyes wide open, having consulted on its regulations for the sector for four years before introducing it in 2018, helping it secure a reputation as “Blockchain Rock”. By filtering and licensing companies, Isola says, they are eliminating bad actors.
“I don’t understand how there can be increased risk in Gibraltar, when today you can go to any other European country and run the exact same business without being supervised, unlicensed and unregulated. So how can we be more exposed by regulating them? It’s the complete opposite, ”says Isola.
He points out that the country’s regulator has only approved applications for 14 companies over three years, a number he says is a testament to the stringency of the licensing regime. “It’s not really a gold rush,” he says.
“The knee-jerk reaction of any commentator when it comes to blockchain-based innovations – especially when it comes to a small jurisdiction like Gibraltar – is’ Oh my God, the risk, the alarm and everything else, “” says Tom Keatinge, director of the Center for Financial Crime and Security Studies at RUSI. “I think it’s very important to understand the capacity of the court before you get down on your knees, and why I say this is because of all the small jurisdictions on the planet, the one that has invested the most time and effort in understanding the opportunity offered by blockchain is Gibraltar. ”
Gibraltar’s Financial Services Commission declined to comment on the deal with Valereum.