March 2021 Changes to POCA Gibraltar

NEW Proceeds of Crime Update - Gibraltar

On Monday the 22 March 2021 the Government of Gibraltar introduced some changes to the Proceeds of Crime Act 2015 (“POCA”). POCA is Gibraltar’s central and core piece of legislation to curtail money laundering and various activity concerning proceeds of crime. The changes on Monday are particularly relevant for distributed ledger technology (‘DLT’) /Blockchain firms, those carrying out token sales as well as accountants and tax advisors. A summary of these changes are as follows. These changes were also followed by the National Coordinator for AML's March 2021 newsletter.

Introducing, the FATF Travel Rule for VASPS

The Proceeds of Crime Act 2015 (Transfer of Virtual Assets) Regulations 2021 (“Travel Rule Regulations”) were gazetted on the 22 March 2021. These regulations introduce a number of new definitions in line with the Financial Action Task Force’s (“FATF”) recommendation to what is described as the travel rule. The most recent draft guidance on virtual assets and virtual asset service providers can be found here dated March 2021.

The new regulations will require virtual asset service providers including digital asset (cryptocurrency) exchanges, over the counter (OTC) desks, digital wallet or custody providers to obtain, immediately and securely, particular information on their customers when there is a transaction value equal or in excess of one thousand euros.

The implementation and enforcement of these provisions may likely be unclear for the coming months given that the FATF draft guidance has itself identified that some jurisdictions will require compliance with the travel rule prior to other jurisdictions and there are a number of other jurisdictions who do not yet have this requirement. So far only some jurisdictions such as Switzerland, Japan, the USA and South Korea have considered or taken steps to implement travel rule requirements. As a result it would be difficult for affected firms to fully or even partially comply at this stage as a large number of jurisdictions are yet to take any steps in this regard.

The Proceeds of Crime Act 2015 (Amendment) Regulations 2021 also introduced definitions of virtual asset to POCA that has explicitly excluded ‘digital representations of fiat currencies’.

General Observation

Currently, under Gibraltar law, there are different definitions for different purposes of DLT or virtual asset businesses and activity. In part this has been the result of Gibraltar’s early approach to regulating such activity as early as 2017 and the first iteration of this came in what was originally known as the DLT regulations that now form part of Gibraltar’s Financial Services Act 2019 that effectively require persons who transmit or store value belonging to others using distributed ledger technology, to be authorised by the Gibraltar Financial Services Commission (“GFSC”) and go through the required application process. This authorisation regime has been successful for many businesses and will continue to be for various DLT providers.

Following this introduction, POCA next introduced a definition under section 9(1)(p) of the said act and most recently we have seen different wording around virtual asset businesses and the activity be used in relation to the Travel Rule Regulations. We have also at the same time seen definitions of virtual asset activity in relation to relevant financial businesses as set out below.

As a result, whilst there are different definitions and terms for different activities, Gibraltar may continue to appropriately legislate . Gibraltar has been a leading jurisdiction in the regulation and oversight of DLT and virtual asset in recent years, including in respect of monitoring and eradicating financial crime, terrorist financing and proliferation financing.

Relevant Financial Business Registration

Separate to the above, there are now also requirements for particular businesses to ‘register’ with the Gibraltar Financial Services Commission when they are carrying out a particular type of activity under the Proceeds of Crime Act 2015 (Relevant Financial Business) (Registration) Regulations 2021 (“the RFB Regulations”). The following activities are now considered to be relevant financial businesses for the purposes of POCA and are required to be registered with the GFSC: external accountants, tax advisors, undertakings that receive whether on their own account or on behalf of another person, proceeds in any form from the sale of tokensied digital assets involving the use of DLT or a similar means of recording a digital representation of an asset (effectively token sales); or persons, who by way of business, use DLT to exchange units of value, or arrange, or make arrangements, with a view to, the exchange of units of value using DLT.

A tax advisor means any person that undertakes to provide, directly or through a third party, material aid, assistance or advice in connection with the tax affairs of other persons.

Requirement to Register

The RFB Regulations introduce a requirement that the said businesses must not carry on business unless they are included in the register or they are subject to supervision by a relevant supervisory authority (set out in Schedule 2 to POCA). Effectively this means that if you are already regulated as a relevant financial business and are providing any of these activities, it would appear that you may not need to apply for a separate registration.

Other Requirements

The businesses that are required to be registered must have an appointed Money Laundering Reporting Officer, who must be a fit and proper person (RFB Regulation 7).

The application to be registered will require forms that will be provided by the GFSC and payment of the applicable fee that will be released in the coming weeks.

Transitional Provisions

There are transitional arrangements that provide that a relevant financial business who immediately before the 22 March 2021 was carrying on business as a relevant financial business and who intends to continue carrying on business as such, must apply for registration within 3 months of the 22 March 2021.

Supervisory & Enforcement

In addition to the offences and penalties created under POCA for non-compliance as a relevant financial business, the RFB Regulations provide that the GFSC may suspend or cancel a registration if they are satisfied that the MLRO is no longer a fit and proper person or other requirements have not been complied with.

Appeals against suspension or cancelling of their registration may be made to the Supreme Court against the decision of the GFSC and must be made within 28 days of the date of the decision notice provided.

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This information sheet was produced on the 26 March 2021 and is intended as general guidance on your rights and responsibilities. Nothing in this information sheet constitutes legal advice or gives rise to a solicitor/client relationship. Specialist legal advice should be taken in relation to specific circumstances.

In the circumstances no warranty, express or implied, is given as to the accuracy of this information sheet and we do not accept any liability for error or omission.