Forkast News spoke with Gibraltarian Minister of Financial Services and Gaming Albert Isola about how his small jurisdiction became a global leader in blockchain regulation. Our chat covered a range of topics, including the possible effect, or lack thereof, of Brexit on Gibraltarian regulation of cryptocurrencies, the growing importance of Asia in the world of blockchain, and how the industry has brought together experts in finance and experts in technology to create an entirely new space for discussion.
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Key Highlights
- “A sandbox has limitations on businesses that want to engage in that particular sector. And that is why as a government, we decided to actually put a legislative framework in place to enable firms to have the certainty that they weren’t just in a sandbox, they were fully regulated, fully licensed, and we had gone through those businesses with a tooth-comb to ensure that we were comfortable with what those businesses were doing, how they were going to do it, and what standards they were going to meet,:
- “The ability to have a set of standards and core principles that businesses will have to comply with will be the future for blockchain and will also similarly be the future for tokens and how those are treated or regulated in the future years as well.”
- “The philosophy that we’ve always had in whatever we do is that we want quality firms fully regulated and licensed in Gibraltar and with their mind and management here in Gibraltar. And it’s that exact philosophy that we’ve transposed into the blockchain space.”
- “We’re not interested in having 100 or 200 firms. We’re interested in having a manageable number of firms, we’re interested in having a manageable number of businesses that we can regulate properly that care about their reputation as much as we do and enables us to drive forward in our support for the sector.”
- “There is business for everyone, and I don’t believe that any one of those jurisdictions is going to be the best. Yes, we were the first. Yes, we’re learning. We are watching what other jurisdictions are doing, and quite bluntly, if they’re doing something better than we are, we will change. We want to keep at the forefront of the regulatory framework to make sure that what we’ve got is fit for purpose and works well for our stakeholders. So I welcome other jurisdictions getting involved; I welcome other jurisdictions looking at what we’re doing and criticizing it constructively and saying that we can all make the space a better regulatory framework.”
- “We’ve never put an advert out in 25 years; we’ve never had to. Our best advert was being ruthless in compliance – being high in the bar of quality that we demand from our operators. So for every one application that we’ve allowed through, we’ve said no to 10. That gives you the kind of badge that people get when they set up their businesses in Gibraltar.”
- “Our leaders in Asia, they will continue to want to be associated with jurisdictions like us that put ourselves forward as being the quality jurisdiction for that industry. And I think that’s why we will continue to work with Asian firms. We see these firms as our stakeholders, as our partners. So we work with them to help them grow. The more they grow, the more tax we collect, the more tax we collect, the more we can do for our people. So it’s a very friendly circle of life which we all fully get and fully understand. It’s a commercial approach to government; I think that’s the answer.”
Angie Lau, Editor-in-Chief of Forkast.News, spoke with Gibraltarian Minister of Financial Services and Gaming, Albert Isola, about how his small jurisdiction became a global leader in blockchain regulation. The conversation covered a range of topics, including the possible effect, or lack thereof, of Brexit on Gibraltarian regulation of cryptocurrencies, the growing importance of Asia in the world of blockchain, and how the industry has brought together experts in finance and experts in technology to create an entirely new space for discussion.
Isola is enthusiastic about Asia, having had much experience in the region, he projects that the unique work ethic and technological innovation coming out of the continent will cement its place as a leader in blockchain. He also expects that the influence and impact of blockchain on people’s everyday lives will be so gradual but so pervasive that in a number of years, everybody will be using the technology in some way or another without even realizing it.
See related article: In Conversation with Da Hongfei, Neo: China-Born Digital Asset Protocol
In order to expedite this future, Gibraltar has made itself one of the more trusted, compliant jurisdictions for blockchain applications. Its adaptiveness and passion for global dialogue are, Isola states, part of what has brought it such acclaim, and its unrelenting emphasis on quality only ensures that this respect remains going forward.
Full Transcript
Angie Lau: Welcome to In Conversation With, the podcast that sits down for in-depth conversations with top newsmakers and leaders in this emerging technology called Blockchain. I’m Forkast News Editor-in-Chief, Angie Lau. Now, in 2018, Gibraltar launched the world’s first DLT legislation: regulations that were designed to provide a purpose-led framework for businesses using blockchain or DLT. And since then, it has become an integral conversation on a global scale, providing a platform for open dialogue between regulators and industry figures and really ensuring the kind of flexibility that is critical for projects to thrive. It’s my pleasure right now to welcome to the show, from Gibraltar, Minister for Digital and Financial Services, Albert Isola. Minister, thank you so much for joining us.
Albert Isola: Pleasure. Nice to be there with you.
Angie Lau: All right, I understand that you were a frequent visitor to Hong Kong since you were 18. Fast forward to today. Did you think of Hong Kong and certainly emerging technology, and certainly your place in it as a frequent visitor, how does this all combine into this wonderful adventure that we call blockchain right now?
Albert Isola: I think blockchain represents everything that I remember and feel about Hong Kong, which is that it’s a place that is full of innovation, full of energy, full of new and fresh ideas and different ways of doing things, particularly in the financial services space. And when I look at blockchain and what we’re really looking at is the impact of technology in finance, I think Hong Kong has been a world leader in that, not just in Asia, but across the whole planet. And it surprises me not at all now going back there in my new capacity as a minister, that I should be engaging with firms at the cutting edge of blockchain technology and leading Asia’s drive into this exciting new space. So I’m not surprised by what I’m seeing in Hong Kong. And that’s the reason why as a government, we want to work with the businesses in Hong Kong to see what we can do for them in providing a legislative framework enabling them to work and prosper.
Angie Lau: SFC, a year ago, created a sandbox policy where they would be reviewing the practices and then at some point issuing licenses. What do you think of that a year on – your assessment from afar – and how Hong Kong has really kind of taken steps forward? Are they enough?
Albert Isola: Look, my personal opinion is that a sandbox has limitations on businesses that want to engage in that particular sector. And that is why as a government, we decided to actually put a legislative framework in place to enable firms to have the certainty that they weren’t just in a sandbox, they were fully regulated, fully licensed, and we had gone through those businesses with a tooth-comb to ensure that we were comfortable with what those businesses were doing, how they were going to do it, and what standards they were going to meet. It’s difficult to have a vertical line business in the sandbox, for obvious reasons. And so sandboxes, I think are very, very useful in terms of pedaling carefully through a new area like blockchain. My own feeling and the feeling of our jurisdiction is that we started looking at blockchain five years ago with free consultation documents, working groups with private businesses to understand then what people are looking at now. So that’s why people look at Gibraltar and say, well, crikey, you’ve been at the front end of the regulatory framework, which we have. And I think the ability to have a set of standards and core principles that businesses will have to comply with will be the future for blockchain and will also similarly be the future for tokens and how those are treated or regulated in the future years as well.
Angie Lau: You’re among the first, really, to regulate crypto exchanges. What lessons have Gibraltar authorities learned from that and what are the best practices that you can share with other jurisdictions?
Albert Isola: I think the most important lesson we’ve learnt is that blockchain has brought together experts in technology and experts in financial services. And at times it’s not a good match, and by that I mean that you often get firms coming to be licensed who are extremely good at technology, but have no idea of the basic principles of financial services, like corporate governance, you know, the AML procedures and minimum standards, capital requirements, business plans… all the obvious things to people in financial services, technologists are not very familiar with. And likewise, you get X, for example bankers who understand the financial services regulatory aspects very well, but don’t have such a good grip on the technology. So I think seeing those businesses evolve through a regulatory process has been very interesting because obviously our regulator, the Financial Services Commission, has helped those groups to come to terms with the new regulatory framework by ensuring that they are strong on both sides. And if they’re not, they’re not licensed. So I think the lesson must have been that the speed with which this technology has moved is quite incredible. Its applications are very, very diverse. Not just crypto exchanges, there are users across the entire business community. And seeing how technology and finance come together has also been a very interesting thing to watch from the distance that I see things at.
Angie Lau: And do you feel that, I mean, we’ve seen so much movement since 2018, since you really kind of set the framework. Other nations, other jurisdictions have really taken to what Gibraltar did and took it to some would argue the next level. And we’re seeing that in some spaces in Asia and across Asia. What are the most dynamic nations right now, in your opinion, in your view, that is most exciting beyond even Hong Kong?
Albert Isola: If you look at the largest three exchanges, I think you’ll see they’re all from Asia. You know, if you look at China, Hong Kong, Singapore, Korea, Japan, all those countries are the leaders in the space. And I see Hong Kong as one of the engines in that ship driving forward the blockchain experience and the blockchain world. In Europe, it’s harder to see where that is coming – obviously, the United States is strong. And then again, if you look at its application, the use of, if you go to Latin America, you’ll see, you know, Argentina, Uruguay, Chile, these are all countries where for other reasons, probably pressures related to their currencies, the crypto world has also had significant application by people. Then you’ve got the Facebook Libra initiative. Well, that’s got many challenges, of course it does. But just imagine in a year or two years’ time, were they to be licensed, and you have a firm that has over 2 billion users being able to transfer money across, in effect, social media like they can, you know, it’s a powerful package. But I think that Asia is predominantly the main driver today.
Angie Lau: How are you working with Asian firms, Asian nations, Asian policymakers, and what are the kind of inroads and partnerships that you’re hoping to establish here?.
Albert Isola: Our first memorandum of understanding in the blockchain space was signed in Hong Kong, with the Hong Kong Insurance Authority because there were common, if I can call them customers, clients, of the regulators in Hong Kong and clients of the regulator in Gibraltar that were working together to be licensed in Gibraltar. So we asked for an MOU to enable our regulator to engage with yours, to make sure that the people we were licensing were fit for purpose and the right quality. And that was very helpful. Since then, we signed him to use with other countries and we’re also engaged with other regulators across the world, not just in the smaller territories, but in some of the larger ones, exploring how we can come to a set of international standards that will become the normal standard for the space. And although we’re a very small and tiny jurisdiction, the work that we’ve done on this has been respected across the world in terms of governments and regulators, and they’ve been very receptive to the message we’ve been delivering. I mean, Hong Kong were the regulators, they were one of the first to see our draft legislation and our consultation documents, and they were very excited by it. They thought it was very fresh, innovative and sensible in the sense that we were approaching regulating technology in a way that financial services regulators were comfortable and familiar with. And I think that’s the way forward. So, yes, we engage with regulators across the world, more and more so, and we look forward to continuing to do so to hit that level of international standards that we’re talking about.
Angie Lau: Well, one of the biggest drivers of late has been Xi Jinping’s remarks really supporting blockchain, the innovation, and also the investment into blockchain in China. How does that kickstart or accelerate what we’re seeing in blockchain industry today?
Albert Isola: It is an enormous push. If someone of that stature endorses it in the way that he has and encouraged more research, more investment, then I think that’s very, very positive. You know, we have one of the major Chinese exchanges licensed here in Gibraltar. We work very closely with them. Our university in Gibraltar has entered into a memorandum of understanding with that firm, they’ve set up an academy. And the thinking behind that is to do some academic research into blockchain, into its uses, its applications, and also its challenges and its risks. So I think any endorsement from somebody as senior as the President of China is very welcome for anybody who wishes to see its application being used more or more. And so I think it’s hugely significant. And we are frequent visitors to Beijing, we’ll be going to Hainan, which is one of the areas that they wish to see further interest in, they talk about the Greater Bay Area, which includes, of course, Hong Kong, and I think that’s all very positive, and I will continue to work as closely as we can with them to see how blockchain can become a bigger part of ordinary people’s lives.
Angie Lau: What are the kinds of verticals or industries that you’re hoping to help trigger conversations with? You mentioned going to China. What exactly are they looking for and seeking expertise in?
Albert Isola: I think they have a lot of the technological expertise and they are, as you know, seeking to work way beyond their borders. And as a consequence, jurisdictions like Gibralter can help to meet those needs outside China in terms of providing a framework like we do, but the extent of our framework is not limited solely to financial services. So we have firms, for example, that are working in mental health, that are working in logistics, that are working in using the power of blockchain across all sorts of different businesses and really building an ecosystem that enables other businesses to benefit from the software. At the end of the day, blockchain has significant applications and also as a government, we are considering different ways in which we ourselves can use blockchain as part of our digital program. So I think there’s huge scope not just in China or in Asia, but across the world to have a greater use of this technology, and I think we will see more and more of that happening, and as I said before, really without people even noticing that they’re using it because it’s going to be seamless, it’s going to be on applications that they use every day.
Angie Lau: Well, it’s almost two years, right, since you launched the DLT regulatory framework in Gibraltar. And I’m curious, how many projects have you attracted to Gibraltar? Has it been an easy road? What kind of challenges were expected and what else wasn’t expected that you had to overcome?
Albert Isola: We are regarded as the world’s online premier gaming jurisdiction. Online gaming companies came to Gibraltar 25 years ago, and we account for some 75 percent of bets placed in the United Kingdom from Gibraltar. So the total number of bets placed in the UK, some 75 percent of them are written here in Gibraltar. And that’s with 15 companies, one-five. Other jurisdictions have many, many hundreds of firms. So the philosophy that we’ve always had in whatever we do is that we want quality firms fully regulated and licensed in Gibraltar and with their mind and management here in Gibraltar. And it’s that exact philosophy that we’ve transposed into the blockchain space. And today, as you say, almost two years on, we have surpassed those fifteen firms that we have in gaming, and we’ve had, I’d say around 30 applications, 13 had been licensed in full, the other 4 or 5 licenses in principle, with more coming through that process. The process takes close to a year. We intended it should take four to five months for the licensing process; it’s taken much longer because it is new. We want to get it right, we’re very careful and cautious and we’re a conservative bunch. And so at the end of the day, our biggest concern is to make sure we get it right. We make no apology for the time that we’ve taken, we’re not getting much quicker, but we’ve now got some 15, 17 firms based in Gibraltar, some of the largest in the world, doing extremely well. And we want to grow with them. So we’re not interested in having 100 or 200 firms. We’re interested in having a manageable number of firms, we’re interested in having a manageable number of businesses that we can regulate properly that care about their reputation as much as we do and enables us to drive forward in our support for the sector. So we’re really pleased. We’re really excited by what we’re doing. We can see the new ones coming through. And as I say, they come from Latin America. They come from Asia. They come from Europe. They’re from all over the world, from the key points that we mentioned earlier as to where the growth of this space is coming from. And so we will continue to work with them in meeting the needs and requirements as we begin to now turn our focus a little bit to tokens and how they should be regulated, because that’s another challenge, that the explosion of ICOs 2 years ago was not good. And it’s no surprise that it burned it up in early last year. And I believe that token sales and ICOs, are a very valuable method of raising capital for businesses, but they’ve got to be regulated. If they’re not regulated, they will crash and burn just like what happened early last year. So we’re now looking at how we can work on that and improve that space too.
Angie Lau: There’s certainly other jurisdictions that are competing with you. One could argue that you created a very successful template and others are jumping aboard. And so now other parts of Europe, including Switzerland, Malta, Estonia, Isle of Man, etc. etc., are also establishing their own policies very specific to blockchain and cryptocurrency and tokenization and the like. How are you dealing with that so-called competition? And is this kind of a maturing aspect of the blockchain industry?
Albert Isola: I think it is. And I think that’s the perspective… we don’t want everything. We want other countries to succeed because if you are genuinely interested in blockchain, you want blockchain to succeed, not the jurisdiction in which you are working. And so from my perspective, the more countries that adopt a sensible and pragmatic regulatory framework, the better. There is business for everyone, and I don’t believe that any one of those jurisdictions is going to be the best. Yes, we were the first. Yes, we’re learning. We are watching what other jurisdictions are doing, and quite bluntly, if they’re doing something better than we are, we will change. We want to keep at the forefront of the regulatory framework to make sure that what we’ve got is fit for purpose and works well for our stakeholders. So I welcome other jurisdictions getting involved; I welcome other jurisdictions looking at what we’re doing and criticizing it constructively and saying that we can all make the space a better regulatory framework. I think that’s very positive. It’s what’s happened in every other sector, whether it’s financial services or others, so I don’t see why we shouldn’t learn those lessons in this place too.
Angie Lau: And certainly that’s the kind of experience that we had at OECD with policymakers around the world discussing how to really collectively, collaboratively talk about regulating and implementing, for example, FATF recommendations, developing appropriate regimes for tokens, things like that. How do you see the DLT scene developing that way, and what is Gibraltar’s role in it? And how is the political scene of Brexit and also what’s happening in Europe shaping almost this regulatory conversation when it comes to blockchain?
Albert Isola: If I can start with the regulatory landscape in FATF in particular, we are a compliant jurisdiction. We comply with every single EU directive in financial services. So OECD global forum, harmful tax practices, AML/CFT, we comply with absolutely everything. There isn’t a single exchange of information or compliance procedural protocol that we have not adopted and complied with. So when FATF come along as they do with a travel rule and suggest that for exchanges transferring from one to another, this amount of data information requires to be passed with it, we will comply and we are currently working on how we can provide a technical solution to the trouble to put forward the FATF recommendations, and we will come up with one and we will implement one, and we will require all our firms to comply with them, because we are a compliant reception full stop. There’s nothing to discuss in terms of those areas when it comes to compliance with the standards. In terms of Brexit, I think that the UK yesterday called the election for the twelfth of December, we’ll see what happens there. It’s been three years of uncertainty, which is not good business. But the blockchain world hasn’t been affected by it. And consequently, it’s one that’s been able to continue to grow irrespective of Brexit. And I don’t see too many challenges a Brexit may present to the blockchain space. I think Gibraltar: 92 percent of our business in financial services is with the United Kingdom.
Albert Isola: And the effect of Brexit is that Gibraltar will continue to have access and passporting rights to the United Kingdom whatever happens with Brexit. So before Brexit, after Brexit, we will potentially end up being the only jurisdiction in the world that has passported rights through the United Kingdom. We see that as an advantage. And consequently, there is room for growth and to recapture that 8 percent of business that we lose through the European Union. We want to be a part of the European Union. We voted 96 percent to stay with the European Union. But hey, we’re with the United Kingdom and whatever happens and whatever decision the UK makes, we are with them. And so it’s a decision that really for us doesn’t have to be made. We have worked hard with the UK to ensure that we are ready for the exit and ready we are. So when you look at Brexit, I think we’re in the best place possible to be able to deal with a general agreement or a hard Brexit. We’ve made provision in the last three years by our very close relationship with the UK to be able to do that. And in terms of blockchain, we’ve carried on our work irrespective of Brexit. And I think that the bigger issues for the blockchain space are OECD, FATF, those are the forums that I think will dictate the pace of regulatory engagement to the blockchain world.
Angie Lau: Let me ask you about this. You yourself went through an election process in Gibraltar very recently. What is the sentiment really amongst the electorate when it comes to digital and financial services, when it comes to Gibraltar? How is it recognising that positioning itself in emerging technologies like blockchain is going to help evolve the economy, evolve the nation?
Albert Isola: I think it’s a small territory, you know, with 32,000 people. We survived 300 years of often difficult times by being innovative, by being prepared to take a calculated risk. I mentioned before the experience we have in online gaming. You know, we started online gaming 25 years ago, before there was Internet. Telephone betting firms came to Gibraltar without legislation being in place, so we actually regulated them by contract, and that was subsequently superseded by legislation.
Albert Isola: So territories like ours, and it’s often the smaller territories that are first in these areas because they are niche players, we work in small markets at being good at what we do. And in the last 25 years, we haven’t had a single gaming company that’s gone bust. You know, I challenge you to find any jurisdiction in the world where that’s happened. And it only happens because we are small, we regulate carefully and closely and we set a bar of entry which is higher than most countries can do.
Albert Isola: And so it’s that mixture, that combination of small territories being on their own and having to make lives for themselves that gives us that energy and that ability to innovate and take these calculated risks. We care deeply about our reputation. We can’t afford to have bad press because we’re too small to be able to defend ourselves. The bigger countries have no issue in doing that. It happens to them all the time.
Albert Isola: So our approach and our philosophy is very different and we have a very intelligent electorate and they get it, they understand it. And I think they welcome the fact that governments, successive governments, not just ours, but the ones before, also are prepared to invest this time and energy and innovation in getting out a market in Gibraltar in the way that we do. I mean, how many villages are there on the world of 30,000 people that go to China, go to Hong Kong, go to Singapore to promote their jurisdictions? There aren’t many that do that, but we know that we’ve got no choice but to do that if we want to succeed and we want to grow the community that we have.
Angie Lau: And so if you were to look into the crystal ball and project five years from now, with all of the visits that you continuously make to Asia and signing M0Us, where do you see the partnerships evolving here between Gibraltar and Asia?
Albert Isola: I think primarily in us being a hub for technology and for business from Asia wanting to work in a regulated space, that’s been our experience in the online gaming space. People have come to Gibraltar because they’re regulated, because they do things properly. And so we’ve developed a reputation for doing things properly and for wanting to be totally compliant. And that attracts the quality firms. You know, in gaming, we’ve never put an advert out in 25 years; we’ve never had to. Our best advert was being ruthless in compliance – being high in the bar of quality that we demand from our operators. So for every one application that we’ve allowed through, we’ve said no to 10. That gives you the kind of badge that people get when they set up their businesses in Gibraltar. Everyone knows that if you’re a gaming company, you will only be licensed in Gibraltar if you’re damn good at what you do. And that’s what we seek to do in blockchain. And I think there are many Asian firms. I mean, some of the ones that are already here are licensed. Our leaders in Asia, they will continue to want to be associated with jurisdictions like us that put ourselves forward as being the quality jurisdiction for that industry. And I think that’s why we will continue to work with Asian firms. We see these firms as our stakeholders, as our partners. So we work with them to help them grow. The more they grow, the more tax we collect, the more tax we collect, the more we can do for our people. So it’s a very friendly circle of life which we all fully get and fully understand. It’s a commercial approach to government; I think that’s the answer.
Angie Lau: Well, this commercial approach to government provided the world’s first DLT legislation, which really was innovative in and of itself: true innovators for innovators. And so I just want to thank you so much for this conversation. It really is a deeper understanding as to the vision and the purpose-led policy that really defines Gibraltar. You may be 32,000, but sometimes it is really the smallest that can be the quickest and most flexible, especially when it comes to the innovation space.
Angie Lau: So thank you for that. And thank you, everyone, for joining us on this podcast of In Conversation With. It was my very deep pleasure to sit down with Minister for Digital and Financial Services, Albert Isola. Minister Isola, thank you so much. Until next time, I’m Forkast News’ Editor-in-Chief Angie Lau. Until then.
