The Gibraltar Financial Services Commission (GFSC) notes increased activity with respect to Experienced Investor Funds (EIFs) which are seeking to invest in digital assets such as cryptocurrencies and similar DLT-based tokens.
The GFSC is currently considering with HM Government of Gibraltar whether any legislative changes are required to the existing EIF regime specifically catering for EIF firms investing in digital assets.
As with any asset class, provided the EIF regulations are complied with, the GFSC has no objection to EIFs investing in digital assets.
There is an expectation that the unique characteristics and inherent risks associated with investing in digital assets are considered in detail by a fund’s directors. In particular, the GFSC expects the following matters to be considered:
- Are the risks associated with investing in digital assets appropriately disclosed in a fund’s offer document? Are the risks of loss of some or all digital assets held by the fund prominently disclosed to a prospective or current investor?
- Are security arrangements with respect to digital assets explained in sufficient detail to allow an investor to understand how assets will be protected? In particular, how are private keys safeguarded? Will a fund rely on a custodian, exchange, or internal storage to safeguard the assets?
- What safeguards are in place to protect an EIF from cyber threat?
- Do the directors and investment manager have sufficient knowledge and expertise of digital assets to undertake their function appropriately?
- Have the directors considered if there is a requirement or potential future need for a depository under AIFMD?
- Has the valuation policy been considered and explained to potential investors in sufficient detail to ensure that assets are appropriately stated when preparing the NAV?
- Is the valuation policy disclosed and explained to potential and current investors in sufficient detail?
- Is a fund accepting subscriptions in digital assets? If so, how will it comply with the relevant anti-money laundering legislation?
- Has a fund implemented appropriate procedures and controls in order to identify ultimate beneficial owners of any subscribing entities?
In order to address some of the particular risks associated with EIFs that invest in digital assets, the GFSC expects EIFs to comply with the guidance notes that deal with Protection of Client Assets, Systems and Securities Access and Resilience which apply to DLT providers. Although developed to address the requirements of the DLT framework, the GFSC expects that they are also applied to funds investing in digital assets.
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