Gibraltar announces plans to regulate ICO tokens as commercial products

The British Overseas Territory has issed a white paper that sets out proposals for the regulation of initial coin offerings, with a draft bill meant to be ready by the end on March

What has happened?

Gibraltar has released details about its proposed regulation of initial coin offerings (ICOs).

What does this mean?

The government of Gibraltar has issued a white paper, setting out its regulatory response to ICOs.

The paper explains that "unless structured as a security… or a debt instrument, tokens do not constitute any form or regulated instrument".

It then goes on to state that most often tokens are not considered securities under Gibraltar or EU legislation.

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

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

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

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

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

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

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

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

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

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

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

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

In December 2017, Gibraltar's Parliament approved legislation that prepared the legal basis for a new blockchain-based framework.

In January 2017, the British Overseas Territory became the first jurisdiction to launch a regulatory framework for blockchain.

Next steps

If you want to take advantage of blockchain's huge potential and disruptive impact, while avoiding falling foul of ever-developing regulatory and legal requirements, visit our Hogan Lovells Engage Blockchain Toolkit.

John Salmon


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