2022 was certainly an eventful year for the fintech sector, including for specialist funds. Globally, jurisdictions, including Gibraltar, have felt a shift within the sector – in large part caused by the shockwaves from the FTX collapse. The past year has set the tone for 2023 and forced jurisdictions worldwide to plan long-term solutions to maintain customer trust. It is a dynamic space that can certainly be difficult to keep up with.Â
By Jonathan Garcia, partner, Isolas
2022 was certainly an eventful year for the fintech sector, including for specialist funds. Globally, jurisdictions, including Gibraltar, have felt a shift within the sector – in large part caused by the shockwaves from the FTX collapse. The past year has set the tone for 2023 and forced jurisdictions worldwide to plan long-term solutions to maintain customer trust. It is a dynamic space that can certainly be difficult to keep up with.
Despite the external challenges, Gibraltar will stay focused on developing funds dealing in digital assets. It is committed to supporting the continued growth of fintech in the economy and sees it as the strong pillar for economic growth. It is one of the world’s most welcoming jurisdictions for fintech businesses and attracts world-leading companies. In line with what came about in 2022, it will be important for Gibraltar to keep up the high standards it has always had in the fintech space and being flexible with the way the space adapts is a huge part of this.
Regulators and other bodies in Gibraltar should work hard to maintain the jurisdiction’s strong position in the league table for crypto funds. Last year, the fourth annual research report into the global crypto hedge fund industry, from PwC and Elwood Asset Management, saw Gibraltar maintain its place as the third most popular domicile globally. Gibraltar ranks behind only the Cayman Islands and the British Virgin Islands, and ahead of financial services behemoth, the United States, in attracting crypto funds to domicile.
The current environment can be troublesome for any jurisdiction to navigate. The challenges in Gibraltar are not unique and can be seen in any other mature jurisdiction, but different jurisdictions approach issues in varying ways. The issues we see now in the digital asset space are common all over the world and jurisdictions must learn from each other in how to work through these.
Gibraltar has always approached the digital assets space with a forward-thinking agenda to keep up with the ever-changing space. To rebuild consumer trust and encourage inbound investment into fintech funds, it is essential that the robustness of regulations is maintained while ensuring they continue to adapt to new technology. Consumer trust can be the number one factor in determining the success of a fund. When consumers lose trust, investments can be pulled from a vehicle, putting it under strain. In recent years the sector has seen this in numerous asset classes, including property – and crypto is no different. With strong regulation, the industry will attract more interest, boosting liquidity and with it, consumer trust.
It is right that financial services are among the most heavily regulated sectors in the world. Since first exploding in 2010, regulation in Fintech has been the number one concern for policymakers globally. It has always been a focal point for Gibraltar, looking to build its reputation as a financial services hub by capitalising on new opportunities. This was proven in 2018 when Gibraltar became the first jurisdiction in the world to provide a purpose-built regulatory framework for businesses that use blockchain or distributed ledger technology.
Gibraltar is an attractive choice for fintech entrepreneurs and there are currently over 60 fintech start-ups in Gibraltar. The jurisdiction is increasingly being chosen by clients wishing to get regulated, in addition to the jurisdiction in which they were previously regulated. It is strategically placed to serve as a cornerstone jurisdiction for entities exploring regulatory approvals in different territories – a trend continuing to build for digital asset businesses. 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.
Gibraltar has always been a leader in the fintech space and continues to prove itself even in uncertain times. 2023 serves as an opportunity for Gibraltar to step up to the mark once again and prove itself as a vital jurisdiction in fintech’s global development as the industry continues to mature and increase the number of established investment vehicles such as funds.
Jonathan Garcia, partner, Isolas – Jonathan is a funds specialist, with a wealth of experience across the financial services, regulatory, and DLT sectors. He serves on the Gibraltar Funds & Investment Association’s (GFIA) executive committee and has worked with numerous high-profile clients. Recently, in his capacity as Head of the Technical Committee at GFIA, Jonathan worked with HM Government of Gibraltar to develop the new Limited Partnerships Act and Protected Cell Limited Partnerships Act. He has authored several articles and chapters in respected industry publications, such as for the US Chamber of Digital Commerce.
