Consultation proposes to open new digital asset opportunities for Guernsey

As part of an ongoing initiative to help the development of Guernsey as a "trusted, agile and forward-thinking jurisdiction for digital financial innovation", in December, the Guernsey Financial Services Commission ("the Commission") launched a consultation containing proposals to amend the Bailiwick's regulatory framework to support digital finance growth in key areas including tokenisation, stablecoins, digital custody and insurance.

After engagement with industry and having paid close attention to the experience in other jurisdictions the Commission's stated aims are to keep proposals simple and practical, working with the established regulatory framework, with the aim of providing consistent regulation appropriate to risk.

The consultation is aimed at those working in the digital finance sector in Guernsey, digital innovators in Guernsey, existing regulated financial firms and global innovators and interested parties.

The full consultation document is here, and is open for comment until 6 March.

Specific proposals include the following:

• Revising the virtual asset service provider ("VASP") framework under the  Lending, Credit and Finance Law ("LCF Law") to: mirror definitions in line with FATF definitions; allow some exemptions for custodians licensed under the Protection of Investors (Bailiwick of Guernsey) Law, 2020 (“the PoI Law”) so that they may not need a dual VASP license; and end the blanket restriction on the provision of VASP services to retail investors.
• Introduction of a new licensing framework for Stablecoins (digital assets typically pegged to a specific fiat currency), with a specific licensing category for issuers of Stablecoins, which and would have to be 100% backed by suitably liquid assets in the pegged currency.
• Amending the LCF Law and the POI Law to clarify that tokenised assets are not "Virtual Assets" for the purposes of the LCF but are "general securities and derivatives" for the purposes of the POI Law, i.e. that they fall under the protection of investors regulatory framework and not the Virtual Asset regulatory framework, or both.
• Amending VASP rules so that blockchain technology and smart contracts can be used to effect insurance contracts without requiring VASP licensing.

Partner John Scanlan, who leads the Financial Services Law team for Bedell Cristin in Guernsey, said: "The consultation is a very welcome initiative and an important step in the development of Guernsey's digital asset framework. Bedell Cristin is very experienced in the law and regulation applicable to digital assets across its jurisdictions. With only a couple of weeks to go until the end of the consultation period, we would urge all interested parties to provide their feedback."