The FTX collapse has impacted the entire crypto industry, which is currently dominated by fear and shock. For one of the world’s largest cryptocurrency exchanges, trusted by over a million users to collapse, will go down as one of the darkest days in the industry’s evolution. The collapse has shaken the industry and businesses will have to work on winning back public and institutional trust.
The collapse was not a fault of the technology, which is proven and safe, but rather a complete failure of oversight, proving the need for increased scrutiny and due diligence. It was a comprehensive failure of internal corporate controls and no risk management, to a large extent missed until it was too late. While it could be thought that the crash being caused by human error will make it difficult to rebuild customer trust, the reality is that embracing its technology-enabled decentralised heritage and ramping up investor protections will, in time, allow that trust to rebuild. Crypto was conceived as a way to democratise currencies, putting control of trades and ownership with users. It would be hard to see an FTX-like scenario in this landscape.
Robust regulation has shown itself as a useful tool in many asset classes as they develop – bringing a recognised rule book to industries that otherwise may seem unfamiliar. As the industry looks to rebuild sentiment – companies should begin work to expand their regulatory footprints. By embracing multi-jurisdictional regulation, companies voluntarily put themselves up for enhanced scrutiny, improving trust in the integrity of their processes. This multi-jurisdictional approach can also reduce the risk of missed warning signs, helping to protect a business, its investors and leadership, and customers, especially as cryptocurrency usage continues to rapidly increase.
Gibraltar is strategically placed to serve as a cornerstone jurisdiction for entities exploring regulatory approvals in different territories. The jurisdictions ‘right touch, not light touch’ regime, coupled with the 10 core principles, including corporate governance requirements, segregation of client assets and more recently setting the standards for market integrity, makes The Rock a robust and dynamic regulatory choice.
A crucial principle Gibraltar has in place requires Distributed Technology Providers to have robust systems to ensure the protection of client assets and ensure strong corporate governance. These systems can also be used to prevent, detect, and disclose financial crime risks such as money laundering and terrorist financing. These principles protect customers and helps prevent situations similar to FTX.
In 2018 Gibraltar became the first jurisdiction in the world to provide a purpose-built regulatory framework for businesses that use blockchain or distributed ledger technology, allowing firms to operate in or from the Rock with confidence.
Gibraltar is a leading jurisdiction for strong regulations in the cryptocurrency industry and continues to develop rules to protect consumers and encourage innovation.
As the industry evolves, I have already seen some of my clients look to pursue licenses in Gibraltar as well as the other territories in which they hold licenses, and it seems a welcome trend. Choosing a multi-jurisdictional regulatory footprint looks set to be a prudent approach, and we here in Gibraltar are ready to play our part in serving the growing global industry.