Revolutionary Gibraltar embraces blockchain

The subject of blockchain and distributed ledger technology (DLT) has filled plenty of column inches in the insurance press, with the industry beginning to get to grips with the emerging technology and the benefits for insurers.

But in Gibraltar, plans are well under way for building a regulatory environment under which DLT and blockchain can thrive and provide a boost to the territory’s insurance industry.

“There is an accelerating movement in Gibraltar within the distributed ledger technology space, and the introduction of new regulations in 2018 has helped with that,” says Peninsula Underwriting head of underwriting James Andlaw.

“In any jurisdiction there is a lot of competition [in this space], but in a small jurisdiction like Gibraltar, competition is particularly fierce.”

Businesses seeking regulation 

Mike Ashton, senior executive at government body Gibraltar Finance, says the Gibraltar Financial Services Commission (GFSC) has been instrumental in laying down the building blocks for a flourishing DLT industry in the territory, spurred on by engagement from businesses looking to establish themselves there.

“Businesses were coming to us and saying DLT is not regulated at the moment, but we want to be regulated – it is good for business, it is good for shareholders and it is good for our future clients,” he says.

“It is important for us as a jurisdiction to be seen to be robust in the way we regulate and with the people we allow to come in to the market – it is all about how these DLT providers operate as a business, and ensuring they are properly capitalised and run, just as with any other business.

“Gibraltar wants to project itself as somewhere that is innovative and can deliver on speed to market, but also as a place where good, strong and robust regulation is absolutely paramount.”

The framework introduced by the GFSC off the back of initial engagement with the industry took the principles-based approach, which Andlaw says is vital given the fast-moving nature of the market that is being overseen.

“The principles-based framework was chosen because setting something firmly in stone makes any amendments more cumbersome,” he says.

“Things in this space move very quickly, on a weekly or even daily basis, but having a principles-based approach doesn’t reduce standards, it just creates a bit more flexibility in how they are approached and delivered.”

To get to grips with the speed of the DLT market, the GFSC has engaged closely with the industry, and Andlaw says that as a result of this support and openness, the blockchain and DLT space in Gibraltar is able to fill a gap avoided by other, more traditional marketplaces.

“A lot of this DLT business was coming in to Lloyd’s, but there was reticence to write it, which goes completely against the grain, in my opinion, of what Lloyd’s represents as the centre of the insurance centre across the world,” he says.

“What excited me about Gibraltar is that it represents a properly regulated jurisdiction.

”And if you can understand the regulatory framework and the processes and procedures of how that regulator scrutinises businesses, as well as the due diligence needed, then Gibraltar becomes an exciting opportunity for insurers and underwriters to dip their toes into DLT, but in a market that is better understood [and more accepting of the risk].”

Peninsula has been one of the insurance industry’s pioneers in Gibraltarian blockchain and DLT, and Andlaw says the regulator’s openness was one factor that drove his team to explore the opportunity.

“In Gibraltar, underwriters get a really privileged and unique opportunity to meet with government, regulators and leading law firms to get a proper understanding of that due diligence process at every level,” he says. “From an underwriting perspective that is unique and not only important, but required.

“If you are going to ask underwriters to deploy capacity into a risk that is largely not understood, even if it is becoming more so, then understanding the framework in which these entities are going to operate in and be legislated under is crucial.”

High entry barriers are a benefit

But despite this support from government and the regulator, there are still issues for the emerging DLT marketplace in Gibraltar, although Andlaw says these barriers can actually benefit insurers operating in this space over the longer-term.

“The barriers to entry for DLT businesses in Gibraltar is high, but there are businesses who want that level of regulation, and those are the types of businesses we want to attract to Gibraltar,” he says.

“Knowing that a business has gone through the process of registering in Gibraltar gives people a relative element of comfort.

“The Gibraltarian blockchain market is not trying to be all things to all people.

”The entry levels are high, but the market wanted to take a similar approach to what has been achieved in the gaming industry, which is not about attracting the masses but attracting the top names, and they are now trying to replicate that success in the blockchain and DLT space.”

Regulator works with industry

“This is exciting for the insurance industry,” Andlaw adds. “It is new for everyone, and I am a big believer in collaboration and that is what is exciting about Gibraltar.

The regulator is being very innovative with the regulations, but it is also working closely with the businesses that approach them.

“From an insurer’s perspective, having that access to the regulator makes it an exciting space to work in.”

And what does the future hold for blockchain and DLT in Gibraltar?

Andlaw points again at the success of online gaming. 

”We are at the front-end of seeing a lot of these well-regarded businesses in this emerging space that have been around for a number of years and are seeking a more regulated jurisdiction.

Gibraltar has a wide-ranging definition for blockchain and DLT technology and as such covers the full spectrum of businesses. “If you look at the number of gaming businesses here, it is relatively small, but we have all the big names, and I certainly see that being emulated in the blockchain and DLT space.”