Oslo - April 2, 2020

What is a Gibraltar Crypto License?

Some time ago Tech Law Premium Solutions was asked to assist a Client in obtaining a Crypto License in Gibraltar. A Gibraltar Crypto License allows for a variety of Crypto businesses, including a Crypto Exchange where Fiat-to-Crypto and Crypto-to-Fiat Exchange are integrated.

Under Gibraltar legislation, any firm professionally carrying out, in or from Gibraltar, Distributed Ledger Technology (DLT) services for storing or transmitting value belonging to others (DLT activities), needs to be authorized by the Gibraltar Financial Services Commission (GFSC).

The DLT framework applies to activities not subject to regulation under any other regulatory framework that use DLT for the transmission or storage of value belonging to others. Thus, the License can be used for all types of activities within the Crypto industry, including Wallets and Exchanges; however, due to the License requirements and costs, only Crypto Exchanges and Crypto Derivative Exchanges have applied so far.

To date, around 10 Exchanges have obtained a Gibraltar License, including the well-known exchanges Huobi, CEX.IO and EtoroX.

What are the Requirements to get a Crypto License in Gibraltar?

In Gibraltar, the regulatory requirements are stated as a set of principles rather than rigid rules. Any Crypto License applicant must meet the following 9 criteria:

1. Honesty and integrity;
2. Paying due regard to the interests and needs of its customers;
3. Maintaining adequate financial and non-financial resources;
4. Forward-looking Risk Management practices;
5. Having effective arrangements in place for the protection of applicant’s assets and money including segregation of assets;
6. Effective Corporate Governance;
7. Maintaining High-Security Access Protocols;
8. Detecting and disclosing Financial Crime Risks;
9. Being resilient and having contingency plans in place for the orderly and solvent winding down of its business.

The GFSC then elaborates on the type of content that is required on a Gibraltar Licensee's web page and indicate the mandatory legal statements the website pages shall contain; however, the Commission omits to indicate the specific guidelines to be complied with by the License applicant as well as the documents any applicant has to file with the Commission in order to obtain the License.

Through the implementation of the above-mentioned requirements, the Commission intends to ensure that a Licensee's business is adequately funded, has adequate systems in place, and has the internal rules and regulations according to which the business can operate with as low risk as possible.

Indeed, the Commission main goal is that the interests of the Crypto Licensee's customers are well protected and criminal activities are effectively prevented,

The Process, Fees, and Costs

The Crypto-License application process normally starts out with a Pre-Application Engagement. At this first stage Tech Law Premium Solutions reviews Client’s application project, Client’s business model as well as the type of activity and/or services the Client wishes to provide with the GFSC Risk and Innovation team. The goal here is to get guidance on what the GFSC will require given the business model of the Client.

The next step is the Initial Application Assessment. During this phase, the GFSC will carry out an initial assessment of the inherent risks and complexity of the Client’s proposed activity and business model. The point here is both to gain an initial understanding of the business model as well as to make an assessment of the complexity of the application. This part of the process normally takes two weeks.

This is followed by a Full Application and a Presentation. At this stage, all the documentation needed must be delivered to the GFSC. In addition, the applicant will be invited to hold a presentation before a GFSC panel. The presentation is considered to be an integral part of the authorization process: indeed, the applicant is required to demonstrate how it will meet the requirements set forth in the guidelines.

The amount of the GFSC Application Fee depends on the complexity of the proposed activity. Fees are never lower than £10,000 and the more complex cases may require a fee as high as £30,000.

Exchanges will typically be in this latter category. There is no exact timeline for the application process, since this varies according to the different types of the activity proposed by the applicant. An application for an Exchange may probably take a up to 3-4 months.

In addition, it is highly recommendable to have a legal expert to assist any client with the application process; the legal consultant's fees vary according to the complexity of the application process.

Which Documentation Is Needed?

As already mentioned above, the documentation needed to support each application will depend on the proposed activity. For any application for an Exchange, Tech Law Premium Solutions usually files around 25 documents including different policies, registers and the calculation of the capital requirements.

In addition to this, the applicant will need to submit company documents, documents concerning all owners and directors, and, of course, the application itself. One should also be prepared to disclose contracts with third-party providers.

Although the amount of documents to be filed may look overwhelming, this reflects very well what it takes today to run an Exchange safely. Our experience tells us that requirements as such are not exaggerated, and this type of documentation is something that needs to be in place to operate the business safely.

The Difference between a Crypto License in Gibraltar and other Jurisdictions.

In the Crypto industry, the two other jurisdictions that are normally mentioned as alternatives to Gibraltar are Estonia and Malta.

Estonia offers two types of licenses, a Wallet-License, and an Exchange-License; this countryhas already issued over 3,000 Crypto Licenses. Most of these are “Twin Licenses”, and some have been withdrawn, but the number of companies that holds these type of licenses today is well above 1,000.

The License has been comparatively easier to obtain and at a much lower cost than the other jurisdictions. At the present time, the requirements to obtain a Crypto License in Estonia have been made stricter, thus it has become slightly more difficult to obtain a License and maintain it.

As for Malta, this country offers 4 types of licenses, from an Investment Advise License to a full Crypto-Exchange License. Until today, no licenses have been issued by the Malta authorities. Until the end of January 2020, only 8 applications had been filed, so one can expect that the first license will be be issued soon. It is worth pointing out that in Malta the Crypto License requirements are more strict and license fees are more expensive than in Gibraltar. Comparatively, the requirements for a Gibraltar License are much stricter than those established by Estonian authorities.

There are, of course, other jurisdictions that offer Crypto Licenses : Japan, Philippines, Switzerland, and Lauban (Malaysia) to name a few. These licensing options are more recent and not widely used yet, but this might change in the future.

Some Thoughts about the Gibraltar Crypto License

In Tech Law Premium Solutions' experience, the requirements for a Gibraltar License are rather strict, so it is not suitable for any business. The License is intended to be usable for a large number of activities, but for now, this license is most suitable for Crypto Exchanges given the complexity and costs involved. As for Crypto Exchanges, my opinion is that there are no better options on the market today.

Among the cited alternatives, the best one right now is probably Estonia. An Estonian License is way easier to obtain and costs much less.

Conversely, the downside of the Estonian License application process is that most banks still do not accept Crypto Currency businesses as customers. Banking in Estonia is currently very difficult in general, but even more so for Crypto companies.

The reason why the Client should consider Gibraltar for Crypto Exchanges is that the license requirements in that jurisdiction are very similar to the traditional financial services institutions' requirements,which makes the Crypto Exchange all the more trustworthy when it comes to access to banking and payment facilities.

Also, license requirements in Gibraltar are not expected to change overtime since they can be regarded as fair and sufficient according to the highest standards in the Crypto currency licenses market.

Frederik Lund