Babbitt Column | Deng Jianpeng: Gibraltar Blockchain Regulatory Policy and Its Deep Thoughts

Author: Deng Jianpeng (Central University of Finance and Law Professor / PhD supervisor)

introduction

The Gibraltar region has an excellent blockchain entrepreneurial environment and is well-established in financial services legislation. In recent years, it has been a pioneer in the field of digital and innovative technologies, and is at the forefront of the regulatory environment, exploring the field of blockchain technology. Research is at the forefront of the world. Especially since 2018, government officials from the region have come to China many times to cooperate with Chinese blockchain related companies. Part of the Ministry of Commerce of the region personally led the team to attract investment from blockchain companies in mainland China. In terms of the positive attitude towards the blockchain, Gibraltar has similar areas such as Singapore, Switzerland, Hong Kong, Malta and Bermuda, but the financial industry is similar. Therefore, the openness and innovation of Gibraltar’s regulations are certain. Representation leads the policy trend.

In the regulatory policies of China's blockchain in recent years, the long-term regulatory regulations are only the “Regulations on the Management of Blockchain Information Services” issued by China National Cybercommunication Office, but this sector regulates the blockchain information service field, [1] Chain financial risk related policies are mostly manifested as “one size fits all” prohibition regulations. For example, the seven ministries and commissions such as the People’s Bank of China issued the “Announcement on Preventing the Risk of Subsidy Issuance Financing” in September 2017 [2] and other administrative norms. Sex documents. [3] Therefore, in the future, China still needs long-term regulatory regulations to continuously address the financial risks that may arise from the blockchain sector. Therefore, Gibraltar's blockchain regulation is worth learning and reference. However, the author searched the academic database "China Knowledge Network" and found that there is no corresponding research in the country at present. To this end, this paper intends to explore the specific content of the Gibraltar blockchain regulation, evaluate and consider the advantages and characteristics of the regulatory regulations in the region, and analyze the shortcomings of the current China policy, and analyze the possible long-term regulatory policies for China's blockchain. Learn from.

First, entrepreneurial advantages and application practices

(1) Advantages of entrepreneurship

Gibraltar is a British Overseas Territory and a member of the European Union, located in southern Spain. Gibraltar’s diplomacy, internal security and military are governed by the United Kingdom and are a highly autonomous region with independent parliamentary democracy. Although its area does not exceed 6.8 square kilometers, it is about 30,000 people, but it is an international financial center. The online gaming industry and financial technology industry are developing rapidly. [4] In terms of online gambling, Gibraltar has achieved great success in ensuring opportunities based on new technologies, building a vibrant environment, and maintaining good industry regulation. The local government hopes to do the same in the blockchain field. Gibraltar is currently the world's first candidate sovereign state and region of the world blockchain special economic zone [5] . It has stable economic growth and only 1% unemployment rate, and enjoys a high reputation and strong financial background in the world. The Gibraltar government supports and promotes distributed Ledger Technology (DLT, also known as blockchain technology in the industry, which is common to both) and protects the integrity and global reputation of its financial services industry. [6] Its advantages are mainly reflected in the relatively complete legislation for the blockchain industry, low taxation, international financial centers and access to the EU market.

First, the region has relatively well-developed legislation around the blockchain. The Gibraltar government was an early advocate of virtual currency and one of the first countries to enact DLT regulations. From January 1, 2018, the Distributed Accounting Technology Supervision Framework issued by the Gibraltar Financial Services Commission (GFSC) came into effect. The Act requires companies that use distributed ledger technology (DLT) for value storage and transfer to obtain a license from the Gibraltar Financial Services Commission. The bill aims to promote the development of blockchain and cryptocurrency-related rules with a view to early regulation of emerging areas. At the same time, the legislature hopes to attract high-quality blockchain start-ups through clear supervision and guidance, and further promote domestic development from all aspects. Therefore, Gibraltar is considered to be one of the first countries in the world to introduce a regulatory framework for distributed ledger technology operations.

Second, the Gibraltar government has a low tax policy and investors can enjoy many tax benefits. Gibraltar is part of the European Union and benefits from the implementation of most EU legislation. Gibraltar does not impose capital gains tax, inheritance tax, property tax and value-added tax. The flat rate is 10% corporate income tax. [7] Although Gibraltar is a member of the European Union, it is excluded from the Customs Union and does not impose VAT. Compared to other countries, the local tax system of Gibraltar provides many policy benefits.

Finally, Gibraltar is similar to countries such as Singapore and is one of the global financial centers. Many large international financial companies are stationed here with a solid financial background and cutting-edge infrastructure. However, Gibraltar enjoys the freedom of trade in all financial services sectors of the European Union such as banking, investment services, insurance, insurance arbitration and reinsurance. The chartered financial services company in Gibraltar has thus gained market access for nearly 500 million consumers across the EU. Gibraltar's financial services industry has made a 30% contribution to its GDP, and its share is even far greater than that of developed countries such as Singapore. Experts once thought that Gibraltar would be an ideal place to create a Bitcoin fund.

(II) Application practice of distributed ledger technology

In July 2016, the Gibraltar Stock Exchange [8] approved Bitcoin ETI [9] as a tool for trading bitcoin on exchanges. BitcoinETI is the first regulated digital currency-based product in the European securities market, providing investors with a safe and convenient way to invest in Bitcoin. In terms of digital currency payments, Gibraltar's first Bitcoin ATM (BTM) was installed in the reception area of ​​the World Trade Center in Gibraltar in August 2017 [10] . In the same month, the Gibraltar Stock Exchange announced plans to become the world's first regulated exchange to use the blockchain for securities trading and settlement [11] .

Gibraltar opened the Gibraltar Blockchain Exchange in July 2017, [12] and opened cryptocurrency transactions. [13] As a subsidiary of the Gibraltar Stock Exchange (GSX), the Gibraltar Blockchain Exchange (GBX) hopes to become the world's first digital token sales platform and virtual currency exchange to be approved by the European Union's licensing and regulatory framework. GBX carried out token sales activities in February 2018, and through the issuance of the exchange's own token RKT (Rock Token), they completed $27 million in private placement financing in the initial token issuance (ICO) [14] . GBX was opened to the public in July, supporting the trading of BTC, ETH, etc. and GBX's platform currency RKT in six digital currencies. The exchange used the regulatory bill to create a trading platform and corresponding business before the introduction of the regulatory bill, laying the foundation for the future to obtain a complete DLT license.

In July 2018, the semi-professional football team Gibraltar United became the first team in the world to pay players' wages through virtual currency. The players of the Gibraltar United team reached an agreement with the club, and part of the salary will be paid in digital currency next season. Blockchain and DLT have a wider range of uses, not only in the football field, but also in the detection of fake balls and corruption, as well as in drug testing and storage of results, so that players and clubs cannot tamper with the results. [15]

Second, the regulatory framework and application for licensing process

(1) Regulatory framework

In order to promote legislation in the blockchain field, Gibraltar established the cryptocurrency committee as early as 2014 to accelerate the development of cryptocurrency-related regulations and published an advisory report on digital currency regulation in January 2016. In May 2017, the Gibraltar government issued the “Recommendations for the DLT Regulatory Framework”, [16] to seek public regulatory advice on digital currency-related businesses. The document states that some businesses involving virtual currency have begun operations, GFSC is best suited to monitor such operations, and Gibraltar will also introduce a DLT regulatory framework to provide regulatory certainty, enhance consumer confidence and maintain Gibraltar's reputation. The proposal states that the most practical and effective method is to incorporate the DLT framework into the existing legal framework, including the revision of the relevant provisions of the Criminal Services Act of the Financial Services (Investment and Trust) Act 1989 to ensure that any relevant Supplementary provisions and guidance for “anti-money laundering” and “anti-terrorist financing” will apply to DLT.

In September 2017, GFSC issued the “Statement on Initial Coin Issuance (ICO)” on the official website. [17] The statement stated the nature of ICO and stated that the public needs to be alert to ICO's high speculative and risk. GFSC also stated that the current ICO investment project is not regulated, which means that investors cannot turn to any form of financial compensation plan or ombudsman.

The DLT Application Process and Charging Framework published by Gibraltar in October 2017 [18] is dedicated to a streamlined DLT application and approval process that stipulates the application process for the DLT provider and the need to pay for it. cost. In the same month, the “DLT Regulatory Framework” [19] was officially released, adding and revising the existing main provisions, and specifying the licensing, continuing obligations of the distributed ledger technology provider, and the need to comply with the nine regulatory principles and other legal requirements. The transitional provisions and other content, the "DLT regulatory framework" came into effect on January 1, 2018. On February 12, 2018, the Government of Gibraltar and GFSC stated that legislation on virtual currency (tokens) was being developed [20] to regulate local ICO activities and regulate the promotion, sale and distribution of digital tokens. A key point of the draft is the introduction of the concept of “authorized sponsors” responsible for ensuring compliance with disclosure and financial crime rules.

(2) Distributed ledger technology provider application for license and process

The DLT Regulatory Framework [21] stipulates that no matter what the company's service direction is, it must be licensed to use DLT to transfer or store the “value” [22] of someone else. Therefore, the so-called distributed ledger technology provider includes each virtual currency exchange, and also includes a software and hardware wallet or virtual currency ATM machine that provides others with storage virtual currency, and the like. The DLT Application Process and Charging Framework [23] specifies the process for the distributed ledger technology provider to apply for the licensing process and the fees to be paid. Companies that want to use blockchain technology must be licensed in accordance with this process before they can engage in related businesses.

The application process of the distributed ledger technology provider is mainly divided into three parts: pre-application, submitting the preliminary evaluation application, and submitting the complete application. In order to protect the public interest and maintain the reputation of the Gibraltar government, the government has adopted a strict approval process to prevent and control major risks. However, due to the nature of the applicants and the broad applicability of the DLT structure, GFSC strongly encourages the company to seek advice from local professional consultants to determine whether the proposed business model is within the scope of the DLT structure. GFSC recommends that the team you want to apply to work with GFSC's risk and innovation team as early as possible.

In the initial evaluation phase, it is not necessary to renew and exchange the results of the application and obtain permission. Based on the information and materials provided in the initial evaluation application phase, the regulator will present its own considerations. Applicants need to focus on the key concerns of the regulatory, prepare corresponding documents or respond, and prepare for how to meet the 9 principles (see below). Related countermeasures and documents. After all the materials have been submitted, you can talk to GFSC about the time. For the time being, GFSC does not directly give the company a full license, but instead issues a major license (principal license) and then asks the applicant to meet some of their conditions (such as the annual fee) and finally issue a full license.

In the pre-application phase, the first step in applying for a license is a pre-application. Applicants are required to contact the risk and innovation team to discuss the company's application plan, business model and activity or type of service. GFSC will provide appropriate guidance for applicants on the application process and licensing system through pre-application. More importantly, GFSC will discuss the proposed activities through pre-applications, whether the services fall within the scope of the DLT framework, that is, whether the company can use DLT to transmit or store “values” belonging to others.

In the initial application evaluation stage, once the application activity is determined to be within the scope of the DLT framework, it will enter the preliminary application evaluation stage. After the initial application documents are submitted, the applicant will receive credentials to submit the application through the cloud service. Applicants are required to pay a fee of £2,000 to GFSC. The Risk and Innovation team will initially assess the application within two weeks of receiving the initial assessment application and classify the company based on the applicant's business model, business inherent risk and complexity, and determine the type of license application.

Applicants can communicate with GFSC during the initial evaluation application period for any specific needs arising from the nature and complexity of the application business. In addition, any significant mid-term changes to the business model of the DLT supplier require prior approval from the GFSC. GFSC will then assess whether the type of license application needs to be changed based on the actual situation of the company after the change. The company's subsequent full application fees and annual fees will be based on the type of license application.

At the full application and presentation stage, after the applicant submits the full application and pays the balance of the evaluation application fee, GFSC will check and confirm the application. The applicant then receives an GFSC interview invitation and presents a report to GFSC. The GFSC team is expected to include risk and innovation team members, any individuals required in the panel, and key GFSC decision makers. GFSC believes that the presentation phase will give applicants an opportunity to demonstrate how they meet GFSC regulatory indicators/principles. This approach will help reduce the time it takes for GFSC to understand the company's business, assess whether the company is compliant with regulatory principles, and make the licensing process more efficient.

Companies wishing to apply for a license should seek the assistance of a local well-known law firm or local professional consultant to maintain good communication with GFSC and meet regulatory principles. The company should be cautious in the production of the presentation report, and do a good job in future planning for business risk isolation and compliance. During the demonstration process, the applicant also needs to clarify that the content displayed in the presentation report is true and effective in actual operation to obtain the understanding and trust of the GFSC work team, which is an important part of obtaining the license. Subsequently, GFSC evaluates the application, exchanges the results of the application and decides whether to approve the license.

Third, the nine principles of supervision

The distributed ledger technology provider must comply with the nine regulatory principles in the process of applying for a license and in the actual business, which is the core of GFSC's supervision. The details are as follows:

(1) Maintain integrity and integrity

Distributed ledger technology providers must operate with integrity and integrity and respond to personal due diligence as a holder, financial controller or shareholder. Distributed ledger technology providers should be honest and honest in their business operations. Its general shareholders, ultimate beneficiaries/controllers must demonstrate that they can conduct business with integrity, integrity, integrity and professionalism, and do not pose a risk to the public and the reputation of Gibraltar.

Distributed ledger technology providers and their holders, financial controllers, and shareholders must continue to meet suitability requirements when applying for business licenses. The GFSC will consider the suitability of the licensee, the role holders to be notified, the chief financial officer and the shareholders, focusing on a number of key factors related to the fundamentals of integrity, integrity, credibility, competence and financial condition. Appropriate policies and procedures include that distributed ledger technology providers should develop policies and procedures based on appropriate requirements, including an assessment process for suitability requirements for individuals who are preparing to be the primary holders of distributed ledger technology providers; A description of the situation in which the "suitability requirements" are evaluated. The distributed ledger technology provider shall ensure that itself and its principal holders, controllers and shareholders address any public statements and white papers relating to the business of the distributed ledger technology provider in good faith, integrity, integrity and professionalism.

(2) Ensuring customer benefits

The distributed ledger technology provider should fully consider the interests and needs of each customer, the overall interests and needs of all customers, and communicate with them in a fair, clear and non-misleading manner, and should invest as much time and effort as possible to protect customers. Benefits, invest sufficient resources to protect customers; reduce the risk of related customers using distributed ledger technology services. In the case of conflicts of interest, distributed ledger technology providers should take reasonable steps to identify and avoid potential conflicts of interest that may arise in their business.

Distributed ledger technology providers should maintain effective organizational and administrative arrangements to prevent conflicts of interest. For example, all directors, senior management, managers and key employees who may have potential conflicts of interest are required to formulate policies to clarify how they should be managed; when a conflict occurs, appoint an independent director or manager to be specifically responsible for assessing the nature and risks of conflicts of interest and ensuring that Appropriate measures to avoid conflicts, or to prevent harm to the customer's interests if the conflict cannot be avoided; to divide the responsibilities of key management personnel and maintain effective technical and operational standards that will help prevent, manage and monitor Conflict of interest, etc.

In terms of information disclosure and communication, distributed ledger technology providers are required to disclose to their customers information that may be influential and significant to them, and all communication to their customers should be accurate, concise and not misleading, and at a reasonable time. It is presented in a form that is fully understood by a group that can be used by it. The information that the distributed ledger technology provider should clearly explain to the customer includes: service standard terms and conditions; regulated services and activities and their regulatory standards; when distributed ledger technology providers provide unregulated supplementary services to their licensees At this time, the customer is required to inform that the specific service is not regulated; the cost of the distributed ledger technology provider.

In the handling of complaints, distributed ledger technology providers should establish a process to ensure that any complaints are resolved as quickly as possible and, if necessary, to conduct an internal review of the quality of the services provided. The distributed ledger technology provider should establish a written complaint procedure.

(3) Sufficient financial and non-financial sources

Distributed ledger technology providers should maintain sufficient financial resources to ensure that the business operates in a healthy and secure manner. In terms of the calculation of regulatory capital requirements, GFSC expects companies to consider the inherent risks associated with their business in order to achieve adequate regulatory capital requirements. When considering regulatory capital requirements, all major risks should be assessed and considered, including credit risk, market risk, operational risk and liquidity risk. Distributed ledger technology providers need to notify GFSC of the regulatory funds they plan to hold. Any reduction in the ongoing regulatory capital requirements for distributed ledger technology providers requires prior approval from the GFSC.

In terms of using virtual currency as a regulatory capital, GFSC expects distributed ledger technology providers to hope to meet their ongoing regulatory capital requirements through both fiat currency and virtual currency. If the distributed ledger technology provider wants to use virtual currency as part of its regulatory capital, it will need to satisfy the liquidity of the virtual currency; the holding ratio of the virtual currency is reasonable relative to the director's capital; there is sufficient margin to deal with the virtual Currency volatility and risk requirements.

(4) Comprehensive risk management

Distributed ledger technology providers must consider their business and customer risk and will be expected to apply good, forward-looking risk management practices to ensure they are better able to respond to risks and control risk in a timely manner, thereby reducing the need for effective identification and management. The possibility of a significant risk. Comprehensive risk management includes the internal risk management framework, environmental control and management information systems.

Taking the risk management framework as an example, a distributed ledger technology provider should develop a risk management strategy into an internal risk management framework with appropriate policies and responsibilities. To do this, distributed ledger technology providers should identify and assess their current major and potential risks for integration into an enterprise-wide risk management framework. Distributed ledger technology providers should assess important internal and external risks and document them officially into the risk register.

(5) Customer asset protection

The distributed ledger technology provider is responsible for the protection of customer asset protection and client funds (mainly for virtual currency with “value”) and must be effectively arranged. The distributed ledger technology provider shall take all reasonable precautions to protect the client's assets and funds held or controlled by it in response to any circumstances and threats that may arise. Managed assets and funds must be separated from the distributed ledger technology provider's own assets and funds. If a distributed ledger technology provider holds the fiat currency of its customers, then any such funds must be protected and fully liquid, and must be clearly isolated from the regulated credit, electronic money or payment institution.

Distributed ledger technology providers must develop appropriate policies, procedures, and procedures to protect customer assets. When managing private keys associated with customers' encrypted virtual currency, the same key should not be used to store assets belonging to different customers. A distributed ledger technology provider that uses third-party storage or protection of customer assets will need to take all reasonable steps to ensure that the systems and controls used by third-party vendors comply with this guide and any other obligations of the distributed ledger technology provider. All customer asset records should be securely stored in a relationship with the customer and kept for at least 5 years after the termination of the customer relationship.

(6) Effective corporate governance arrangements

Distributed ledger technology providers must have effective corporate governance arrangements to establish a company's operations and business oversight systems, including their structure, processes, culture, and strategy. It will establish rules governing the exercise and decision-making of all risk types and exposures.

(7) System and secure access

Distributed ledger technology providers should ensure that all systems and security access protocols are maintained at appropriate high standards, focus on network security and the risks associated with IT vulnerabilities, and take network-related precautions to protect the environment and mitigate these risks. Guide and define the responsibilities of directors and senior management in cybersecurity, emphasizing the importance of information security.

(8) Prevention of the risk of financial crimes

Distributed ledger technology providers must have systems to prevent, detect and disclose financial crime risks such as money laundering and terrorist financing, and should be required by the Financial Services (Investment and Fiduciary Services Act) Under the supervision of related activities, the related financial business is also regulated by the Proceeds of Crime Act (POCA). In addition, GFSC's guidance on “Preventing Financial Systems for Use in Money Laundering or Terrorist Financing Regulatory Systems (AMLGNs)” also applies to distributed ledger technology providers. Gibraltar seeks to significantly reduce the risk of money laundering and terrorist financing by enabling regulated bookkeeping technology providers to be regulated and supervised and to apply POCA to its activities.

In terms of additional measures for B2B and B2C services, distributed ledger technology providers may conduct B2B [24] and B2C [25] services. The POCA regulations require organizations to implement the Customer Identification System (KYC) in general. Distributed ledger technology providers must document and evaluate their risk tolerance for each product or service they provide in accordance with Chapter 6 of AMLGNs. Regardless of any type of product or service, if it involves money laundering and terrorist financing, the relevant personnel need to submit a Suspicious Activity Report (SAR) according to the POCA regulations.

For B2B services, distributed ledger technology providers need to focus on the nature of the customer's business, the managers and business owners, and how they operate. A distributed ledger technology provider provides services or products based on B2B, does not provide legal currency conversion to any type of storage value business, and does not need to apply AMLGNs to B2B potential customers for transaction monitoring requirements. However, the provisions of the POCA should apply. For B2C services, if the product or service contains storage and/or payment value factors, either through cash or through a more traditional conversion mechanism, which can be converted to fiat currency or converted from legal tender to other types of storage value, then AMLGNs will apply. .

(9) Emergency response capability

Distributed ledger technology providers must have emergency capabilities, develop contingency plans, and end their business in an orderly and solvable manner. Distributed ledger technology providers develop business continuity plans, disaster recovery plans, and crisis management plans for development, testing, and maintenance, and embed them into risk management policies and procedures. The business continuity plan includes people, responsibilities, and actions to ensure business continuity after any significant disruption. The disaster recovery plan requires the company to have documented event handlers that enable distributed ledger technology providers to trigger from the detection of unexpected events until a smooth transition is achieved. In addition, comprehensive functional and safety testing should be performed before the system is put into operation, and then tested at appropriate intervals based on the scale and structure of the distributed ledger technology provider.

Fourth, ICO supervision and guidance

In September 2017, GFSC issued a “Statement on Initial Coin Issuance (ICO)” on the official website [26] , stating the nature of ICO, indicating that the public needs to be alert to ICO's high speculative and risk, and warns ICO investors to consider factor. GFSC also stated that the current ICO investment project is not regulated. In February 2018, the Government of Gibraltar and GFSC stated that they are developing legislation on virtual currency (tokens) to regulate local ICO activities and regulate the promotion, sale and distribution of digital tokens. Before the official bill was issued, GFSC published the "Recently Asked Questions" on the official website to provide an official answer to some key issues of ICO. This represents the official foundation and future direction of the ICO supervision. The currency issuer serves as a reference and guide. The main points are as follows:

(1) ICO or token sales are usually not regulated by the DLT framework

In general, ICO or token sales are not covered by the DLT framework. However, in some cases, ICO or token sales may be in line with existing financial services legislation, depending on the token usage and the token issuance model, for example, as a collective investment plan and an alternative investment fund. The regulatory authorities recommend that ICO issuers seek legal advice to determine whether the ICO to be issued will be regulated by existing financial services legislation.

(2) Supervision of the company that obtained the license

Existing companies licensed under the Financial Services legislation, if they use DLT to improve their monitoring, procedures and processes, they do not need to obtain additional licenses under the DLT framework, unless the company operates Not within the scope of the licenses it holds. For example, if it obtains a banking license and wants to use DLT as part of the business process, then there is no need to obtain a separate license under the DLT framework. However, if it obtains a banking license but intends to provide a digital currency wallet and or other services, it will need to obtain additional licenses under the DLT.

(3) Requirements for anti-money laundering/anti-terrorism financing

Distributed ledger technology providers will be required to at least comply with local “anti-money laundering”/“anti-terrorist financing” requirements – the Crime Proceeds Act and their “anti-money laundering”/“anti-business” in any jurisdiction Terrorist financing requirements. The obligation to “anti-money laundering”/“fighting against terrorism financing” began with the issuance of an offer from ICO to the public. This means that the “know your customer” requirement begins with the stage before it is released to the public. In addition to keeping records, the “anti-money laundering”/“anti-terrorist financing” obligation is terminated after the token is distributed.

Before the new rules for the issuance of tokens were not introduced, FSC currently allowed the company to outsource the functions of money laundering officers and “anti-money laundering”/“anti-terrorist financing” to third parties, but it needs to comply with the GFSC Outsourcing Guidance. This also applies to money laundering reporting officials located outside of Gibraltar, provided that it meets local requirements. However, it should be noted that the outsourcing of this function and obligation does not exempt the company and its senior management from ensuring compliance with POCA's responsibilities.

The company's policies and procedures to be documented focus on procedures and policies based on the company's “anti-money laundering”/“anti-terrorist financing”, such as the duties of money laundering reporting officers, risk-based customer identification methods and processes.

(4) The requirements of the ICO issuer's customers

The obligation of customer identification begins with the ICO’s issuance of an offer to the public and must be completed prior to receiving the proceeds from the token sale. Customer identification requirements under POCA will include: determining whether the applicant is not a terrorist financing institution, whether it is associated with a previous ICO, whether there is a connected transaction in the same ICO, whether it is in the pre-sale phase or public sale. stage.

The GFSC generally believes that unless the token can be detained, the potential investors need to be adjusted before the public offering of the token is sold. The scope of the due diligence that has been mastered will then be reviewed and adjusted according to a risk-based approach to ensure the appropriateness of the release. Nonetheless, as long as the customer identification obligation is fulfilled before the payment is received, FSC will consider other arrangements.

(5) Other requirements

GFSC expects companies that provide token sales to comply with the requirements of independent auditing. However, if the company operates a “related financial business” for a short period of time, then this may be considered necessary. For companies that offer token sales, they need to meet the requirements for continuous recording, which applies to all one-time transactions and business relationships in excess of €15,000. There are no ongoing monitoring requirements for companies involved in providing only token sales (ie, after the transaction is completed). If there is a secondary token market, the due diligence requirement will be with the relevant entity rather than the original token issuing company.

V. Evaluation, Enlightenment and Thinking

(1) Evaluation of regulatory policies

Gibraltar's regulatory policy shows that the local government is committed to developing a friendly business environment, including encouraging technological innovation; embracing regulation; caring for business development; providing a reasonable and safe environment for business prosperity; and convincing consumers to protect their interests. The relatively low taxation of the Gibraltar government, the status of the international financial centre, and the geographical location that facilitates access to the EU market can help promote the development of blockchain companies.

More importantly, Gibraltar has timely improved the relevant legislation in the blockchain field, providing more regulatory certainty for blockchain enterprises. Since 2017, the Gibraltar government has issued a radical, bold and adaptable blockchain regulatory framework. This stems from the fact that the local government has closely monitored the development of virtual currency and blockchain technology for three years and found the need for regulatory certainty, hoping to provide leadership and industry development certainty in this area. Regardless of the price of Bitcoin or other virtual currencies, regardless of the TOKEN-based ICO results, the local government fully recognizes the true value behind the technology, including blockchain technology to improve efficiency, reduce costs, and promote Innovation, the creation of new business institutions, and the stimulation of economic development offer great opportunities, so it hopes to attract well-functioning blockchain technology companies to bring economic benefits to the local.

Compared with other countries and regions, the Gibraltar government is one of the first countries to carry out regulatory legislation on blockchain technology. Its legislative coverage is extensive and detailed, and it is at the forefront of the international arena. Unlike the ever-changing policies of Thailand and Russia (first banned and then gradually liberalized), Gibraltar's regulatory policies have long-term stability, reducing industry uncertainty and operating costs. The regulation of blockchain in countries such as Singapore and Thailand is mainly concentrated in the virtual currency field. The regulatory area of ​​the Gibraltar government not only focuses on virtual currency, but also on the blockchain technology behind virtual currency, that is, using blockchain technology to transmit or Companies that store "values ​​belonging to others" are subject to relevant licensing and supervision. Therefore, unlike the legislation in countries such as Singapore and Japan, the legal supervision of the region extends from virtual currency exchanges to virtual currency soft and hardware wallets and such as Bitcoin ATM machines.

The regulatory practice of Gibraltar is humane and meticulous in its consideration, and there is no simple and rude "one size fits all" feature. For example, after receiving the applicant's documents, GFSC will consider different factors when determining the type of license application, such as how the company will apply the maturity of DLT and DLT technologies; the added complexity due to the use of smart contracts; will the company Holding or controlling customer assets; the quantity and type of products and services provided to customers; whether the activities carried out are regulated by other types of regulatory systems; whether the company will provide customers with investment-related products and services, and these products and services Risk and complexity; risk involved in money laundering, terrorist financing; whether its business model, product or service has passed the test and inspection; and issued different types of licenses based on the above information. Applicants can communicate with GFSC during the initial evaluation application period for any specific needs arising from the nature and complexity of the application business. In terms of the calculation of regulatory capital requirements, GFSC did not propose a “one size fits all” regulatory capital requirement calculation method. Instead, GFSC expects companies to consider the inherent risks associated with their business in order to achieve adequate regulatory capital requirements.

Gibraltar mainly conducts full-scale supervision of distributed ledger technology providers, and its special legislation and guidance are detailed and sound. The regulatory policies of other countries mainly focus on virtual currency transactions and token issuance. Gibraltar's nine basic regulatory principles in the blockchain field not only take into account some of the industry's basic risk bottom lines, but also require distributed ledger technology providers to anti-money laundering and counter-terrorism financing. Conducting due diligence measures on customers, segregating and protecting customer assets, maintaining network system security, etc., and proposing innovative regulatory practices, distributed account book technology providers need effective corporate governance arrangements, comprehensive risk management, Adequate financial and non-financial sources, emergency capabilities, and more. This comprehensive, efficient and secure regulatory framework is conducive to the sustainable development of the industry.

Gibraltar’s blockchain legal regulation has demonstrated cutting-edge features and its series of measures are forward-looking. As mentioned earlier, as early as 2014, the Gibraltar government created the cryptocurrency committee to study the development of relevant regulations and issued an advisory report in January 2016. Although Gibraltar is only a space-limited area, some of its rules are internationally representative. For example, it suggests that, in some cases, ICO or token sales may be regulated by existing financial services legislation, for example, when tokens can be considered as collective investment plans and alternative investment funds. As another example, distributed ledger technology providers will be required to comply with local “anti-money laundering”/“anti-terrorist financing” requirements.

(2) General regulatory rules for blockchains

In recent years, the financial sector developed by the Gibraltar regulatory authorities, including Switzerland, Singapore and Bermuda, has always had a strong sense of crisis. After the emergence of this emerging technology, we are striving to create regional and even global blockchain R&D and industrial centers, and strive to lead the development trend of blockchain.

Specifically, Singapore is an important financial center in the world. The Monetary Authority of Singapore (MAS) is actively embracing technology and is trying to make Singapore a global financial technology innovation hub. To this end, Singapore's regulatory policies are generally inclusive of the blockchain industry. In March 2014, MAS issued the “MAS Statement on Virtual Money Intermediaries on Money Laundering and Terrorist Financing Risks” [27] , indicating that it would supervise virtual currency intermediaries in Singapore to address potential money laundering and terrorist financing risks, namely MAS Media that do not regulate the virtual currency itself, but require trading or promotion of virtual currency transactions with real money, identify the nature of the customer.

Among the 26 federal states in Switzerland, the state of Zug is known as the “encryption valley” and is the most in-depth and widely used place in the Swiss blockchain technology. The local government wants to attract leading encryption technology startups to help them build their businesses, provide professional services, and promote a friendly regulatory environment. [28] In September 2017, the country's financial regulator FINMA issued the ICO Guide (FINMA Guidance 04/2017, Regulatory treatment of ICO), recognizing the innovative potential of distributed ledgers and blockchains, welcomed and supported at the Swiss Financial Center All efforts in blockchain solutions. In February 2018, FINMA released the ICO Regulatory Guide again [29] , supplementing the rules issued earlier. Accordingly, all projects need to prevent participants from laundering money through ICO. Swiss regulatory rules adhere to the basic principles of anti-money laundering, user identification and other basic principles, moderately contain the risks that may arise in the development of technology, and encourage innovation.

Bermuda (Bermuda, also known as the Bermuda) in the North Atlantic is economically dependent on the financial industry and tourism. The Bermuda Monetary Authority (BMA) hopes to develop a regulatory framework to attract more cryptocurrency startups and regulate virtual currency activities in the region. In April 2018, BMA promulgated the "Virtual Money Business Act of 2018" [30] , hoping to develop a regulatory framework to attract more cryptocurrency startups and regulate virtual currency activities in the region. The focus of regulation is mainly on anti-money laundering and counter-terrorism. Financing and prudential supervision. BMA enacted the 2018 Virtual Money Business Act [31] in April 2018 to protect the interests of people or potential customers engaged in virtual currency business. In addition, BMA refines the content of the Act, such as the “Virtual Money Business Principles” [32] “Virtual Money Business (Network Security) Rules 2018” [33] “Virtual Money Business (Customer Disclosure) Rules 2018 [ 34] and the "1818 Virtual Money Business (Annual Return) Rules" [35] . Legislation related to anti-money laundering and counter-terrorism financing applicable to other financial sectors also applies to virtual currency business. Therefore, Bermuda is one of the few jurisdictions that have prudent supervision and comprehensive legislation on the virtual currency system.

In the above-mentioned countries and regions, the blockchain supervision generally follows the following similar rules: First, the supervision essentially pursues “bottom line thinking”, such as customer interest protection, anti-money laundering and counter-terrorism financing. Second, the regulatory rules in most regions are type-for-money, strictly supervising the securities of the securities issued by ICO, and other types of tokens are usually supervised, which is particularly evident in Singapore and Switzerland,[36] There is no one size fits all. 3. When such new technologies and industries are not yet in formal law, the supervisory authority usually provides risk prevention guidelines, industry exhibition guides, question and answer forms or simulation cases in advance to provide detailed reference plans and basis for industry development and risk control. Fourth, based on the “tightening of the external loose” strategy of the regulatory authorities, or the market space of these countries and regions are very limited, the relevant investors or consumers in the blockchain are mostly from large population countries and large economies, making financial risks inevitable. Spilled into other countries. 5. The regulatory rules are usually strictly enforced to ensure consistency and stability, and to create a good business environment.

Therefore, as long as these countries and regions actively embrace the blockchain for a long time and directly integrate the blockchain business involving financial risks into a long-term regulatory mechanism, the one-size-fits-all injunction policy of other countries cannot completely prohibit domestic virtual currency. Trading and ICO and other businesses. Although Gibraltar's own space is extremely limited, it relies on the entire EU market and has great appeal to blockchain-related companies.

(3) Enlightenment and reflection on China

1. The dilemma of property attributes of virtual currency and the protection of consumer rights

Gibraltar’s legal regulatory recognition is based on the legal value of “value” transmitted and preserved by blockchain technology, emphasizing that distributed ledger technology providers should take all reasonable precautions to protect the client assets they host or are under their control. Funding to deal with any situations and threats that may occur. Managed assets and funds must be separated from the distributed ledger technology provider's own assets and funds. This legislative principle is of great significance to China in protecting the legitimate property rights of consumers. Since the issuance of relevant bans by Chinese financial regulators in September 2017, some local courts have misunderstood and accepted adverse social impacts when accepting similar cases.

In judicial practice, such as the People’s Court of Jiangning District, Nanjing City, Jiangsu Province, in 2017, when a virtual currency-related case was tried, after consulting the aforementioned administrative normative documents, the virtual currency was considered to be a specific virtual commodity and did not have the law equivalent to currency. Status, while the court pointed out that citizens' investment and trading of XX coins, such as illegal things, are personal freedom, but they cannot be protected by law. The consequences of the original defendant’s trading behavior shall be borne by itself. [37] At the administrative normative document level, according to the “Notice on the Prevention of Bitcoin Risks” issued by the five ministries and commissions of the People's Bank of China in 2013, Bitcoin is a virtual commodity, and individuals can legally hold and trade. [38] On September 4, 2017, the “Announcement on Preventing the Risk of Subsidy Issuance Financing” jointly issued by the seven ministries and commissions denied the monetary property of the virtual currency, but did not negate the property of the virtual currency. At present, all administrative normative documents do not clearly stipulate that the virtual currency is illegal. The normative documents are less likely to have the authority to clarify that the virtual currency is not protected by law. Therefore, this judgment lacks sufficient legal basis. The Taizhou Intermediate People's Court of Zhejiang Province, in the case of the theft of Wu Mou, found that Bitcoin as a virtual property in the second-instance criminal ruling can be the object of theft, which in fact recognizes the property nature of Bitcoin. [39] The above judicial practice shows that in the absence of explicit provisions of the law, some judicial institutions have misunderstood and misdirected references to normative documents, resulting in different outcomes.

In another case, according to a civil judgment published by the People's Court of Yiwu City, Zhejiang Province in 2017-2018, Li was defrauded by the purchase of a XX coin (a virtual currency) mining machine from a foreigner and sued the defendant. The court held that illegal debt was not protected by law. XX currency is a kind of network virtual currency similar to Bitcoin. According to the notices and announcements issued by the People's Bank of China and other departments, the virtual currency is not the currency issued by the authorities. It does not have monetary attributes such as legal and mandatory. It is not true. Currency. In terms of nature, XX currency is a specific virtual commodity similar to Bitcoin. It does not have the legal status equivalent to currency. It cannot and should not be used as currency in the market. Li Mou invested in the commission of the defendant to invest in the mining machine on the XX currency platform. It is engaged in illegal financial activities, disrupting the national financial order, and its actions should not be protected by law. The losses caused by this should be borne by Li. [40] The court cited administrative normative documents such as notices and announcements issued by the People's Bank of China and other departments in the judgment, but this is not a legal or administrative law, especially in the notices and announcements mentioned by the court. The behavior is characterized as "illegal financial activity" content. The aforementioned normative documents are not suitable as the legal basis for the judgment of the court. The court shall protect the legitimate rights and interests of the plaintiff in accordance with the general civil legal relationship and in accordance with the relevant laws of the contract law. For example, scholars believe that in China's judicial practice, the normative documents can be said to be almost the same as the status of administrative legislation. The normative documents that are not binding in theory are usually used by the court as the basis for supporting the legitimacy of administrative actions. In fact, it gives the normative document binding. [41] Strictly speaking, normative documents are not laws, they should not be used as legal sources, and they cannot create rights and obligations. It is a wrong practice for judicial institutions to confuse them with laws and regulations in judicial practice.

2. Normative supervision and reflection of the ban mode

In recent years, for the fields of virtual currency trading and ICO, the regulatory documents issued by China's central financial regulatory agencies for the blockchain field are mostly limited to risk warning or ban mode. However, since the beginning of 2018, a large number of blockchain financing projects in China have continued to channel their financing to Chinese citizens through “going out to sea”. Undisclosed financing projects to unspecified Chinese citizens. The project sponsors transfer social funds abroad through illegal activities. Such funds do not need to be transferred in the form of bank accounts or third-party payments, which greatly increases the difficulty of supervision and tracking of such violations by the regulatory authorities, and is one of the implementation dilemmas of the current relevant regulatory policies. Some researchers pointed out that based on the characteristics of blockchain finance, the legal rights of consumers of virtual currency transactions, such as the right to know, fair trade, property security and claims, are easily infringed. [42]

In general, China's normative documents involving blockchains have jumped from the previous regulatory gap to the ban mode. The regulatory policies are extremely characterized and have a large negative effect, which has a certain impact on the blockchain enterprises. As the researchers say, this kind of fence-free and sport-style supervision that is not predictable and completely dependent on administrative orders is not only not conducive to financial technology innovation and consumer protection, even for the prevention and resolution of major financial institutions. The realization of the value pursuit of risk is also obviously unfavorable. [43] These normative documents indicate the contradictory mentality of the regulators. On the one hand, they hope to promote the industry to grasp the trend of technological development, and on the other hand, they are deeply worried about the risks of the industry. The attention of regulators to financial security first translates into the pursuit of financial security only and negatively affects industry development. The current regulatory policy of the ban mode is simply and violently rushing virtual currency transactions and ICOs abroad, but these services are essentially supported by the technical characteristics of blockchain-to-point cross-border circulation and are still widespread in mainland China. The domestic financial risks and social problems brought by the blockchain are inconsistent.

With reference to Gibraltar and the regulatory policies of some of the above-mentioned countries and regions, China's regulatory documents are inherently lacking, such as randomness, temporary, departmental and fragmentation, suitable for simple response to industry risk events, and individuals who easily reflect the heads of regulatory agencies. Tendency and will, the lack of legislative procedures and public opinion (especially practitioners) in the formulation process, some of which are contrary to the modern rule of law concept, some of which affect the legitimacy of normative documents. Therefore, in terms of “hard law” regulation, Chinese regulators should seek support from the upper-level law, promote relevant legislation at the national level through comprehensive consideration of blockchain industry and risks; and introduce long-term regulatory rules of the system to change the current A simple form of documentary release in a simple response, piecemeal mode under extreme risk. With reference to the regulatory policies of Gibraltar and other countries and regions, Chinese regulators should give a clearer legal definition in the blockchain field and gradually establish a complete regulatory framework to promote the healthy development of the entire blockchain entrepreneurship industry; Jointly with relevant countries to jointly develop guidelines for international regulatory rules and standards.

The blockchain is basically judged by most professionals as a technology of great significance. From the global regulatory trends, the relevant areas of blockchain are gaining more and more living space. In the report issued by the European Parliament (EP) in June 2018, the authors held a more positive attitude towards virtual currency. The report entitled "Virtual currencies and central banks monetary policy: challenging ahead" was commissioned by the European Parliament's Economic and Monetary Affairs Committee. The core issue of the report pointed out that “virtual currency is a contemporary private currency. Due to its technical characteristics, the virtual currency global trading network is relatively safe, transparent and fast. This provides a good prospect for the further development of virtual currency. However, virtual currency is unlikely Challenge sovereign currency and central bank dominance, especially in areas where mainstream currencies are used. As for other innovations, virtual currency anonymity and cross-border characteristics pose challenges to financial regulators.” [44] This report is more relevant to the blockchain industry. The positive attitude and the positive attitude embodied in it are in line with the relevant regulatory policies of Gibraltar.

The distributed technology feature makes the blockchain-based digital assets not have a central node, and the transmission of its value easily breaks the national space boundary and is dispersed like the air in the world. As mentioned above, as long as there is a country or region that has a regulatory and judicially friendly attitude towards the blockchain, the regulatory policy of a single country's ban mode will be difficult to achieve the expected results. The extent to which the blockchain industry is prosperous and whether it has a competitive advantage is closely related to the regulatory policy environment in the region. Effective regulatory policies have boosted the rapid development of the blockchain industry and reduced financial and related risks. Regulatory policies have a fundamental and overall impact on the development of the industry and determine its future. Therefore, the competition between different countries and regions is essentially a contest of institutional heights.

From a global perspective, many countries have actively promoted the development of financial technology industries, including blockchains, and strived to climb the industry peak. Whether an industry can prosper is closely related to the strengths and weaknesses of relevant regulatory policies and regulations. Effective and excellent regulatory policies will inevitably help the industry to develop more rapidly while reducing financial risks. The competition among national regulatory policies has a fundamental and overall effect on the development of a country's industry, and largely determines the future development of financial technology. Gibraltar’s open and active regulatory policy has full implications for China.

(This article is the revised proposal of Dr. Bi Yanmei, and I would like to thank you! The author is responsible for the responsibility.)

This article was authored by the author Deng Jianpeng to authorize the Babbitt information network, without permission, please do not reprint.

Note:


[1] The regulations of this department were promulgated on January 10, 2019, see http://www.cac.gov.cn/2019-01/10/c_1123971164.htm, visit time: January 11, 2019. However, it remains to be seen whether the regulation of this regulation can be implemented. See Deng Jianpeng: “Technical Discussion on the Draft of Blockchain Supervision”, in Securities Daily 2018-11-10 (A03).