According to Nathan Catania, a partner at Gibraltar-based XReg Consulting. A group of former regulators and insurance professionals specialising in the regulation of crypto assets. More quality regulation, such as Gibraltar ‘s updated guidance on crypto companies. Is beneficial for those companies, end users, and the entire crypto space, leading to increased adoption.
In some way , the people in this team of consultants were all involved in setting up the distributed ledger technology ( DLT) structure in Gibraltar, Catania told Cryptonews.com. He previously worked at the Financial Services Commission of Gibraltar (GFSC). Where he played the role of Technical Specialist-DLT, assisting in the formation of guidance.
As it calls the crypto firms there, the GFSC has recently updated its guidance notes for DLT providers. In fact, more regulation could lead to more, not less adoption, Catania recalled, as they will create confidence in these types of businesses, whereas some individuals, businesses might otherwise be too scared to engage with the crypto space.
“I think that jurisdictions will eventually start adopting these types of frameworks. But if anything, it’s only going to help crypto become more mainstream. It is going to get people more comfortable with crypto, and I think that everyone’s going to benefit from crypto being regulated globally,” Catania said.
He added that with more regulation, higher costs come, which is challenging for a smaller player, noting that “it seems that regulation always favours organisations that have the ability to bear the costs.” However, he continued, the advantage is more compliance, leading to more customers and users, which usually means more profit.
This is directly linked to the benefits of any prospective, new and existing user, as they enjoy a high standard in terms of everything, from corporate governance to consumer protection, as well as the assurance that DLT providers operate at the level of any other regulated financial services company. This, in turn, inspires a sense of security and confidence in the provider. Speaking of these firms, Catania said:
“They’re going to be held to high standards, they’re going to have to do things that no other regime really asks for right now.”
Issues with privacy
And there are quite a lot of issues with privacy, “he added.” Whereas crypto started off as very private, “it’s moving to what is a bit more like traditional financial services product , ” where one might expect know-your-customer (KYC) procedures, or an exchange asking questions about an unusual transaction. Once a provider is licenced, more information may also be requested by existing users. This may prove to be difficult for some users.
On the other hand, if you need to make claims, for example, “where you will see benefits as a user”. The suppliers have had to separate customers from company funds into separate crypto wallets for the past two years. If, let’s say, a regulated company goes bankrupt, there may already be protections in place that would allow users to claim their money back, or the company would already have the crypto in a reserve segregated from the fund of the company.
“So I think definitely you will see changes even as existing users. As we move into crypto companies getting more and more regulated, you will see a lot of changes,” Catania said.
The Partner at XReg Consulting added that the regulator had set up a specialised DLT team, initially working with crypto industry experts, which meant that the GFSC let the industry “ shape ”some of the standards that were being set,“ at least in the beginning.
The framework itself is principles-based, with detailed guidance accompanying each principle, followed by supervision upon receipt of the licence. It is not a prescriptive set of rules that apply to all financial services and businesses in the same way. Making the approach of Gibraltar flexible for both the regulator and the DLT provider (especially in comparison with rules-based guidance. Such as the incoming EU MiCA). Therefore, crypto companies can work within the framework. Instead of having “to completely change their model to fit into the regulation.”
This, Catania argued, further allows businesses to remain innovative and the regulator, especially given the fast-changing crypto space, to adapt the guidance when needed. “I personally think [the framework] fits very well with these more innovative models, such as Decentralized Finance (DeFi), where I think it will be very difficult to make it work if you try and fit [it] into a rules-based regime.”
Catania stressed that the British Overseas Territory has very high standards. And it is difficult to obtain a licence from a crypto-knowledgeable regulator. But, “a new manual has now been effectively produced by the Gibraltar regulator,” and if this guidance is followed, the chances of obtaining the licence are “very good.”
Catania said Gibraltar has 13 licenced companies and ‘quite a few’ more in the pipeline. “The regulator has been very busy processing applications.” This number will increase, he added, but “I don’t think they’re going to attract hundreds of businesses […] Gibraltar will have maybe 20, 30, 50 quality businesses rather than letting in hundreds” because of the high standards.
“Gibraltar is considering elements that I think very few regulators are even thinking. About right now such as stablecoins, airdrops, and decentralized finance (DeFi),” he said.
In addition, Gibraltar has a draught token issuance regime. That “will only make investors more comfortable participating in these token offers,” Catania concluded.