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ICOs – Token Launches

BLOCKCHAIN/DISTRIBUTED LEGER TECHNOLOGY/FINTECH/INITIAL COIN OFFERINGS

 

Background to Gibraltar’s revolutionary DLT legislative framework
By way of an amendment to the Financial Services (Investment and Fiduciary Services) Act and by introducing the Financial Services

(Distributed Ledger Technology Providers) Regulations, 2017 thereunder, Gibraltar has created a DLT Regulatory Framework which, as from 1 January 2018, requires that any firm carrying out by way of business, in or from within Gibraltar, the use of DLT for storing or transmitting value belonging to others, will need to be licensed by the Gibraltar Financial Services Commission (“GFSC”).

The DLT Regulatory Framework was designed to provide an efficient, safe and innovative regulatory framework which is based on nine core principles.  Further details can be found at http://www.gfsc.gi/dlt.

Gibraltar is also set to regulate Initial Coin Offerings/Token Launches

In addition to the DLT Regulatory Framework, Gibraltar has also announced its intention to regulate initial coin offerings/token launches which we will call Initial Token Offerings (“ITOs”).  It is expected that, during the course of 2018, Gibraltar will introduce a complementary regulatory framework covering the promotion, sale and distribution of digital tokens and secondary market activities (“ITO Regulatory Framework”).  GFSC has announced that the ICO Regulatory Framework will be aligned with the DLT Regulatory Regime.  It is therefore expected that the ITO Regulatory Framework will be principled based and that the 9 regulatory principles[1] that apply to all DLT providers will be adapted to cater for ITOs.

Until such time as the ITO Regulatory Framework comes into force, GFSC expects advisers in Gibraltar to have consummate regard for Gibraltar’s reputation and to have a good understanding of any ITOs launched in or from Gibraltar by considering, in particular:

  • the accuracy and completeness of information [in White Papers and associated documents]
  • risk disclosures to customers
  • governance arrangements
  • fitness and propriety of the founders/promoters
  • whether there is a clear strategy following a successful token launch
  • financial crime risks
  • reputational risks
Gibraltar banking services for ITO companies

Some Gibraltar banks offer banking services to ITO firms.  In addition to standard account opening processes, banks have additional requirements for ITO vehicles which commonly include:

  • an introductory memorandum from a Gibraltar law firm explaining the work undertaken on behalf of the ITO and a summary of all checks and controls performed
  • the ITOs White Paper (in advanced form and including associated documents in advanced form)
  • a Business plan for the ITO company including financial projections and budget for at least 3 years, showing main sources of income and expenses and health of cashflow
  • a Gibraltar legal opinion confirming that the underlying activity does not fall under any applicable financial services regulations requiring the applicant to be licensed
  • details of the ITOs client onboarding due diligence (AML/CFT/KYC) process and details of who will be performing the requisite checks
  • details of where “mind and management” of the ITO firm will be performed (there is a strong preference for a physical presence and for mind and management of the company to be in Gibraltar).

Banks may also require to meet founders in Gibraltar face-to-face.  Account opening fees also apply.

Attias & Levy’s ITO services
Attias & Levy’s associated company incorporation and management arm, A & L Corporate Services Limited[2] (“A&L Corporate”), will only incorporate ITO vehicles if Attias & Levy are also instructed in relation to the Gibraltar legal aspects of the ITO.  Both A&L Corporate and Attias & Levy will need be fully satisfied that the proposed ITO is likely to meet the standards expected to be required once the ITO Regulatory Framework is enacted and comes into force.

Subject also to satisfactory KYC and general client onboarding processes, the fees of A&L Corporate for incorporation of an ITO company will be £2,000 – £2,500 and annual fees for the provision of registered office and company secretarial services will be a similar amount.  Please note that A&L Corporate does not provide nominee services or directorships for ITO vehicles as we believe that doing so raises issues of potential conflicts of interests as Attias & Levy will be providing independent legal advice and services.

  Attias & Levy has a dedicated DLT team providing legal and regulatory advice and services to ITO companies.  As each ITO is different, it is not possible to estimate legal fees until detailed information is provided[3].  Fees estimates can be given once the number of hours likely to be needed is capable of being evaluated.  It is also Attias & Levy’s preference that a local firm of blockchain/cryptocurrency consultants is engaged who will work with the ITO vehicle and Attias & Levy from a technological perspective.  We also have a preference for ITOs which will be managed and controlled from Gibraltar.

Since Gibraltar has implemented the DLT Regulatory Framework, we are seeing immense interest in both DLT Provider licence applications and ITOs from the cryptocurrency sector.  We have an appetite for accepting instructions only from entities and professional colleagues who demonstrate a keen desire to conduct ITOs (or provide DLT services) to very high standards.

For further information please contact our DLT team by email at dltteam@attlev.gi

[1] 1. honesty and integrity, 2. pay due regard to the interests and needs of customers, 3. maintain adequate resources, 4. forward looking risk management practices, 5. protection of client assets and money, 6. effective corporate governance, 7. maintain high security access protocols, 8. detect and disclose financial crime risks, and 9. be resilient

[2] Regulated by GFSC, licence number FSC1159B

[3] Attias & Levy reserves the right to apply a preliminary screening fee which will be approximately £1,000 – £2,000

Gibraltar announces another bold Fintech step

Hot on the heels of confirmation of the introduction of a Distributed Ledger Technology (DLT) regulatory framework, Gibraltar now looks to create a complimentary framework for Initial Coin Offerings (ICOs) which will cover the promotion, sale and distribution of tokens

Whilst there have been very successful ICO campaigns, investing in an ICO is speculative and risky and should only appeal to discerning investors or those with sufficient technical knowledge. So, Gibraltar’s announcement that it will create a regulatory framework which will cover the promotion, sale and distribution of cryptocurrency is welcome news as it is likely to result in interest only from responsible promoters who have well thought out business objectives.  The attraction of Gibraltar regulated ICOs will undoubtedly be the additional confidence prospective investors may feel when evaluating whether to invest. As the Gibraltar Financial Services Commission (GFSC) have re-confirmed that Gibraltar is committed to being a sound and safe place to do business with and announced that ICO regulation will be a complementary regulatory framework, aligned to the DLT regulatory framework, let’s start with some basics relating to the DLT regulatory regime. What activities are covered by the DLT regulatory regime? The Financial Services (Distributed Ledger Technology Providers) Regulations 2017 (DLT Regulations) have now been published and will come into operation on 1 January 2018.  The DLT Regulations amend the Financial Services (Investment and Fiduciary Services) Act by introducing a new category of restricted activity, that of a DLT Provider – “carrying on by way of business, in or from Gibraltar, the use of distributed ledger technology for storing or transmitting value belonging to others”.  “Distributed ledger technology” means a database system in which (a) information is recorded and consensually shared and synchronised across a network of multiple nodes and (b) all copies of the database are regarded as equally authentic.  “Value” includes assets, holdings and other forms of ownership, rights or interests, with or without related information, such as agreements or transactions for the transfer of value or its payment, clearing or settlement. The DTL regime therefore covers the use of DLT for storing or transmitting value belonging to others by way of business in or from Gibraltar, but does not cover or seek to regulate:
  • cryptocurrencies themselves
  • the development of DLT
  • ICOs
  • cryptocurrency investment advice (investment advice is regulated separately)
  • firms or persons using DLT for their own benefit (as opposed to by way of business)
How will GFSC regulate DLT Providers?   The DLT Regulations are principles based and outcomes focused.  There are 9 core principles as follows.  A DLT Provider must: –
  • conduct its business with honesty and integrity;
  • pay due regard to the interests and needs of each and all of its customers and must communicate with them in a way that is fair, clear and not misleading;
  • maintain adequate financial and non-financial resources;
  • manage and control its business effectively, and conduct its business with due skill, care and diligence; including having proper regard to risks to its business and customers;
  • have effective arrangements in place for the protection of customer assets and money when it is responsible for them;
  • have effective corporate governance arrangements;
  • ensure that all of its systems and security access protocols are maintained to appropriate high standards;
  • have systems in place to prevent, detect and disclose financial crime risks such as money laundering and terrorist financing; and
  • be resilient and have contingency arrangements for the orderly and solvent wind down of its business.
A firm intending to apply for a DLT Provider’s licence must first submit an initial application assessment request to GFSC in a form and manner yet to be determined.  Upon receiving an initial application, GFSC must: –
  • assess the nature and complexity of the applicant’s proposed business model and the products and services which the applicant proposes to offer and;
  • provide the applicant with an initial assessment notice informing the applicant of –
  • any steps which the applicant must take before making a full application; and
  • the documents and other information which must accompany the full application.
GFSC have indicated that when assessing an initial application, it will have regard to the following complexity and risk factors:
  • application of DLT and its maturity
  • use of smart contracts
  • holding or control of client assets
  • type of customers
  • number and variety of products and services
  • interaction and interplay with other types of regulatory regimes
  • investment related products and services
  • outsourcing
  • organisational structure
  • exposure and vulnerability to money laundering and terrorist financing risks
  • tried and tested
  • scale and size
Having regard to the above factors, GFSC will categorise complexity by using 3 levels, Category 1, Category 2 and Category 3 (Category 1 being the lowest and Category 3 the highest in terms of complexity and risk. Once an applicant has received an initial assessment notice from GFSC, it may proceed to make a full application for a DLT Provider’s licence, provided the full application conforms with the requirements of the initial assessment notice. This principles based and outcomes focused DLT regime should not be considered by potential applicants to be light touch or soft regulationOn the contrary, DLT Providers must at all times not only comply with the core principles and any specific conditions its licence may contain, but also with its obligations under the Financial Services (Investment and Fiduciary Services) Act and all other applicable Financial Services Legislation.  In fact, GFSC has announced that it will shortly be issuing Guidance Notes which, like all regulatory guidance, will require compulsory compliance.  As the DLT space is a fast moving one, the Guidance Notes will be a “live document” which will be adapted and evolve to keep pace with the evolution of the DLT space itself.  Also, GFSC intends to appoint a panel of industry experts to assist with the evolving nature Guidance Notes.   So as GFSC have announced that it is considering a complementary regulatory framework ICOs which is aligned with the DLT framework, what might the ICO regulatory regime look like? As GFSC’s announcement states that an ICO regulatory framework will be aligned to the DLT framework and re-affirms Gibraltar’s commitment to being a sound and safe place to do business with, we believe that we can also expect a principles based and outcomes focused regime for ICOs.  Attias & Levy’s view is that most of the 9 core DLT principles would apply equally well to ICOs as they are principles of best possible practice which focus on consumer protection and risks. In a recent briefing to the financial services industry, GFSC stressed that between now and when the ICO regime comes into being (which may even coincide with the DLT regime coming into operation on 1 January 2018) , it is incumbent on Gibraltar advisers to act as the guardians of Gibraltar’s reputation by ensuring that they fully understand ICOs and considering –
  • the accuracy and completeness of information [contained in White Papers/T&Cs]
  • risk disclosure to customers
  • corporate governance arrangements and procedures
  • the fitness and propriety of promotors
  • whether there is a clear strategy following a successful token launch
  • financial crime risks – AML/CFT, risks of fraud
  • reputational risks
We believe the intended new Gibraltar regulatory regime for ICOs will be rolled out sooner rather than later.  In fact GFSC have already indicated that they consider that the best term to use is “Initial Token Offering” and therefore the forthcoming ICO regulations will be known as ITO Regulations, watch this space for further news……………………..    

Gibraltar to see a Housing Boom

Following on from yesterday’s press conference wherein it was confirmed that there will now be three housing developments. They will provide approximately 1,600 affordable homes. The first is Sir Joshua Hassan Centenary Terraces which will be located on the East Side. Completion is expected by February 2020. The second will be Bob Peliza Mews which will now be located at Water port where the power station is currently placed. Completion for this is expected by March 2021. The third will be on Europort Avenue. This will house around 400 people. Completion for this is expected between June and December 2021. The full press release can be found on: https://www.gibraltar.gov.gi/new/sites/default/files/press/2017/Press%20Releases/567-2017.pdf   Each applicant will have to complete a questionnaire which can be found at:   https://www.gibraltar.gov.gi/new/sites/default/files/press/2017/Press%20Releases/567.1-2017%20-%20Expression%20of%20Interest%20Questionnaire.pdf.

ATTIAS & LEVY

Barristers & Solicitors

  Our conveyancing team is ready and able to represent our clientele in the purchase of their new property and is now assisting clients with the preparation of the Government’s Questionnaire as an expression of interest in the purchase of a new affordable property. All work will be carried out by qualified lawyers. This is an exclusive opportunity to register your interest and engaging us to act on your behalf in the purchase of your future home. We are offering a free 30 minute consultation to discuss the process and assist in the completion of the Government’s Questionnaire. To do so, please contact us. Exciting times to come!  

A single point of responsibility under the JCT Design and Build Contract 2011

An employer should be aware, in seeking to ensure that the contractor is fully responsible for the design of the project, that the JCT Design and Build Contract 2011 without certain amendments will not necessarily guarantee that the contractor has acquired complete design responsibility. The JCT Design and Build Contract 2011 edition, a standard form contract, can provide the employer with the certainty of a fixed lump-sum price, a set date for practical completion of the construction works and to a certain extent, a single point of responsibility for the design. In seeking such certainties, the employer can expect to pay a premium as with single point responsibility and a fixedprice lump sum the contractor will be subject to greater exposure, the unknown quantity as to what potential risks lie in wait. At the outset of the project, it is usual practice for the employer to employ design consultants in order to provide outline designs and specifications with a view to obtaining the necessary building and planning permissions. On appointing a contractor under a design and build contract, the subsequent design as well as the construction is then the responsibility of the contractor. On appointment, it is quite usual for the employer’s design consultants’ contracts to be novated to the contractor. In doing so and with the contractor being responsible for both design and construction, any argument that a defect is a result of construction or design is attempted to be negated. However, the standard form without amendments will continue to provide that the design responsibility is apportioned between the employer and the contractor. The design contained in the employer’s requirements, the outline design and specifications, being the responsibility of the employer and with the contractor responsible for the subsequent design works which are then carried out to project completion. Should there be a defect in the design, the employer may in seeking recourse for any loss, be required to pursue either the contractor or its design consultants for any damage caused by the design defect. An un-amended standard form provides that the contents of the employer’s requirements are not the responsibility of a contractor and that it is also not the responsibility of the contractor for verifying the adequacy of any design contained within them. The employer is responsible for any discrepancy contained within the employer’s requirements. Should any inadequacy be found, which is not the responsibility of the contractor to verify, then, the employer’s requirements are to be amended accordingly and subject to certain provisions, the amendment shall be treated as a change to the contract. In such circumstances, the contractor may be entitled to an increase in the contract sum, an extension of time flowing from the change and with it a delay in the practical completion of the construction works. Notwithstanding the direct cost of the variation to the contract sum, any change to the contract can impact on works which are part of the critical path on the contract programme of works. Any variation and with it an extension of time will then ensure that the preliminaries element of the contract sum which will include for management costs, construction plant and rental costs etc., will also increase due to the increased time spent on site. Despite the impact any delay to the practical completion date will have on the project’s finance arrangements, this increase in costs can be quite substantial. The employer will be unable, where the contractor is not at default, to claim liquidated damages as provided for in the contract for the resulting increase in the contract programme. An agreed rate of damages inserted in the contract to compensate the employer if the contractor does not complete the works on time. In order to limit its exposure, the employer should ensure that the contractor has full responsibility for the design of the works and so amend the standard form and create a single point of responsibility. Any necessary amendments require careful consideration due to the interaction of the clauses contained within the standard form. Failure to do so and the contract will lose meaning. On amendment complete responsibility for all aspects of the design, which will include any design works carried out on behalf of the employer as part of the employer’s requirements will be passed to the contractor. In doing so, the contractor will be responsible for the design work carried out by the employer’s design consultants, whether this was carried out before or after the entering into of the contract.  

Attias & Levy

First Floor Suites, 39 Irish Town, PO Box 466, Gibraltar

Telephone

  • Tel: (+350) 20072150,
    Fax: (+350) 20074986
  • Email

  • attlev@gibraltar.gi