GIBRALTAR Law and Practice Contributed by: Aaron Payas, Jeremy Requena, Jerome Compson and Reece Atkinson, Hassans
5. Decentralised Finance 5.1 Ability to Use DeFi
operations, the activity may be brought into the DLT regulatory framework’s scope. The protocol has to be considered purely decentralised to fall out of scope. While there is limited operational activity to date, Gibral- tar’s legal framework does accommodate structures that may support DeFi operations. Private Foundations established under the Gibraltar Private Foundations Act 2017 have been used in practice to support crypto protocols, including those underpinning Decentralised Autonomous Organisations. These structures provide a legal wrapper through which assets and governance rights can be managed, with the requirement for a pro- fessional licensed trustee on the Foundation Council providing an additional layer of accountability. Compa- nies limited by guarantee and limited partnerships are also available options, depending on the governance and liability requirements of the protocol. 5.3 Liability Based upon the authors’ understanding, there has been no case law on the concepts of accountability and liability in relation to DeFi, nor anything released, such as guidance, from the regulators. Payments in crypto-assets are permitted in Gibraltar. There is no prohibition on using crypto-assets as a medium of exchange, and businesses and individu- als are free to accept them as payment for goods and services. Where a firm facilitates crypto-asset pay- ments on behalf of others using DLT, the activity is likely to fall within the scope of the DLT Framework and require authorisation from the GFSC. Additionally, where a payment arrangement involves fiat currency conversion or the holding of client funds, the firm may also need to consider whether it requires authorisation as a payment service provider or electronic money institution under the FSA. The regulatory treatment will depend on the specific characteristics of the service and the flow of funds involved. 6. Payments and Stablecoins 6.1 Payments
Where a Decentralised Application (DApp) does not have an identifiable administrator or single authority responsible for making changes to data or for mod- erating, intermediating, or validating transactions car- ried out within the DApp, it is unlikely to fall within scope of the DLT Framework. However, DApps may not be fully decentralised and may retain aspects of centralisation that bring them within scope. Therefore, it remains for the GFSC to assess whether any identifiable owners, operators, or administrators exercise control or sufficient influence to render the DApp in scope. In making this assess- ment, the GFSC will adopt the approach and consider the factors set out in the Relevant Factors sections in the DLT Framework Guidance Note. Ultimately, its aim is to assess whether the level of control or influence that the individual or firms has over the storage or transmission of value belonging to others. Concerning CeFi firms that wish to utilise DeFi, there are no specific restrictions in Gibraltar. Nevertheless, CeFi firms utilising DeFi protocols must continue to comply with all applicable regulatory obligations, including AML/CFT requirements, client asset protec- tion, and the ten DLT regulatory principles. The use of DeFi by a licensed firm does not diminish its regula- tory responsibilities, and the GFSC would expect such firms to conduct appropriate due diligence on the pro- tocols and smart contracts with which they interact. 5.2 DeFi Structures Gibraltar has no specific-DeFi legislation. Instead, the DLT Guidance Notes provide guidance on how the framework may apply. In essence, as there is no DeFi-specific legislation, operating DeFi is indirectly permitted in Gibraltar to the extent that they do not constitute a regulated or prohibited activity. Conse- quently, are no associated set-up requirements for the DeFi structure. However, where the DeFi protocol has an identifiable administrator or single authority responsible for its
285 CHAMBERS.COM
Powered by FlippingBook