GFSC’s CEO Delivers Keynote Speech At Barcelona Trading Summit Conference
Samantha Barrass, Chief Executive Officer of the Gibraltar Financial Services Commission, delivered a keynote speech at the Barcelona Trading Summit Conference yesterday.
The speech focused on the value of good regulation in protecting the market, investors, and consumers. Ms Barrass also outlined the important work of international organisations in DLT regulation, and the implementation of Gibraltar’s DLT regulatory framework.
Ms Barrass explained that it is important for regulators to keep up with market developments in order to ensure that the regulatory perimeter adequately covers new financial innovations. She said “most regulators are extremely interested in the role that virtual assets regulation can play in supporting the safe development of businesses that have the potential to provide enormous benefits to the economy and consumers.
“It is a truism the past few years have seen technology evolving at an incredible pace that is affecting our day-to-day lives in a multitude of ways. This is massively challenging for current legal and regulatory systems, which are continuously playing catch-up. The challenge for regulators is to react appropriately, delivering our protection objectives, whilst continuing to allow innovation to take place.
“But we have to step up to the task because more than ever it is the case that if systems, including regulatory and legal systems, fail to keep up with rapidly advancing technology, these systems will fail to protect consumers, and fail to secure stable economies and will cut across innovation that will benefit society.”
Ms Barrass highlighted the good work of other regulatory bodies who are responding to the development of DLT and virtual assets, and its place in the financial system: “I can say that this is a challenge which many of my peers and counterparts in other regulatory bodies are actively seeking to rise to. There is a lot of great work being done by regulators, much of it behind the scenes. Now much of this behind the scenes work is now coming to fruition and we can see some great policy work resulting in regulatory changes at a variety of regulatory forums.”
Ms Barrass specifically noted the developments at Financial Action Task Force (FATF) regarding virtual asset service providers (VASPS). “The FATF is bringing in virtual asset service providers, or "VASPS", into its recommendations, and has been working on virtual currencies as far back as 2014. Clearly years of work have gone into considering the AML/CFT risks associated with virtual assets. In time, VASPS will need to be registered or authorised and regulated by a national level competent authority.”
Ms Barrass stressed that regulation is “exactly what this industry needs to be able to bridge the gap between what can be characterised as a crypto wild west of the past and the adoption and main streaming of virtual assets and distributed ledger in the future. IOSCO, the International Organisation of Securities Commissions, have also been active in this area and during May of this year released a consultation paper on ‘Issues, Risks and Regulatory Considerations relating to Crypto-Asset Trading Platforms’.”
Ms Barrass noted that international work in this field “is not a knee jerk reaction to recent developments but a result of much work. We are proud to take part in IOSCO work to consider virtual assets in some form. In fact, IOSCO have publicly stated that crypto assets are one of the board level priorities for 2019. Both FATF and IOSCO are international organisations prioritising developing a thoughtful understanding of how to view all crypto and fintech developments from the perspective of their public interest standpoint. At EU level, ESMA has issued a number of statements, consolations and guidance over the past few years regarding virtual assets too.”
Ms Barrass added that “this is a time when regulators really need to take a step back, understand the reason and objectives of regulation – and ensure they can respond proportionately and effectively, always bearing in mind our regulatory objectives. And I think, perhaps better than in previous times of impactful innovation, regulators are doing this.”
Highlighting the need for regulation in a market economy and the DLT space, Ms Barrass said “by and large, global, regional and local economies are market economies. One of the reasons the market economy has such a grip is because it is the most efficient and effective way to deploy and invest capital to meet the needs of the nearly 8 billion people alive on the planet. However, market forces do not always, for example, deliver in the best interests of consumers, particularly when they are exposed to risks from which they can’t protect themselves. This is one of the key reasons why regulation exists - we seek to protect consumers from harm.”
In order to deliver the best outcomes for consumers and the market, Ms Barrass explained that the GFSC’s DLT regulatory framework is “outcomes-focused, principles-based approach to regulating this space has been designed to allow businesses sufficient flexibility to explore the applications of this evolving technology, whilst maintaining the protection of consumers and the jurisdiction’s reputation at the forefront. This regulatory approach allows us to constantly adapt our regulatory response, depending on the nature of the activity which we are seeking to regulate.
“It’s important to remember that when we or any other regulator licences a financial services business, these businesses do not only obtain authorisation to undertake a regulated activity, they also gain our reputation. That’s something that has value. Value for those and the systems we need to protect and value for licenced business as well. It has to mean something to the authorised and regulated. It’s not just a process of taking names and addresses.
“Regulation will bring reputation, which will fuel adoption in the virtual asset space.”
Gibraltar’s DLT regulatory framework has been in place for over 18 months, the GFSC is committed to applying “the 9 regulatory principles in a way which is proportionate and balanced. We will engage in dialogue with firms and ensure that their key individuals are fit and proper, are competent, have the right attitude to run a regulated financial services entity and treat these individuals to the same standard as other entities which we regulate. We will require that these entities have sufficient capital to ensure that they run the business in a sound and prudent manner. We will consider the adequacy of their private key management. We will ensure that they have policies in place to ensure that private keys could be recovered under stressed scenarios or in the case that business continuity or disaster recovery plans need to be invoked.”
Good regulation needs to be supported by good supervision and Ms Barrass noted that “regulation is also a partnership. In such early stages of an industry, we need to work very closely with our licencees, hear what the concerns are and work with all of you in this room to achieve the best regulatory outcome possible. Our DLT team at the GFSC engages with our firms on almost a weekly basis. It is this level of engagement which allows us to really appreciate what new business models are being adopted, and how to best respond.”
Ms Barrass concluded that “regulators at national, regional and international level recognise that they need to do proactive thinking, and are gearing themselves up.”