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O<\/span><\/span>n the southern Mediterranean coast, nestled in the shadow of the Rock\u2019s sheer limestone cliffs and its tangle of wild olive trees, the Gibraltar<\/a> Stock Exchange (GSX) is quietly preparing for a corporate takeover that could have global consequences for the former naval garrison.<\/span><\/p>\n Less than half a mile away, next to the blue waters of Gibraltar\u2019s mid-harbour marina, the peninsula\u2019s regulators are reviewing a proposal that would prompt blockchain firm Valereum to buy the exchange in the new year \u2013 meaning the British overseas territory could soon host the world\u2019s first integrated bourse, where conventional bonds can be traded alongside major cryptocurrencies such as bitcoin and dogecoin. <\/p>\n It is a bold move for a territory of just 33,000 people, where the financial sector \u2013 which accounts for roughly a third of Gibraltar\u2019s \u00a32.4bn economy – is overseen by a regulator staffed by 82 employees<\/a>. If all goes to plan, the enclave could become a global cryptocurrency hub; if the controls set by the small team of regulators fail, it risks reputational damage and ultimately diplomatic sanctions that could threaten its economy.<\/p>\n While countries including China and the UK have either banned or openly warned against investments in crypto assets, Gibraltar has bucked the trend, having committed to formally regulating cryptocurrencies in an attempt to future-proof the territory\u2019s status as a financial hub.<\/p>\n It comes as Gibraltar struggles to shake off a reputation as a global tax haven, with the government having sued a Spanish newspaper<\/a> in an attempt to restore its global standing.<\/p>\n Albert Isola, Gibraltar\u2019s minister for digital, financial services and public utilities, says that while Gibraltar was a tax haven 20 years ago, the territory has now overhauled its tax and information sharing policies. The introduction of crypto regulation is having a similar effect: rooting out bad actors and providing assurance to investors, he says.<\/p>\n \u201cIf you wanted to do naughty things in crypto, you wouldn\u2019t be in Gibraltar, because the firms are licensed and regulated, and they aren\u2019t anywhere else in the world,\u201d Isola says.<\/p>\n Gibraltar\u2019s regulator has so far approved 14 cryptocurrency and blockchain firms for its licensing scheme, attracting the attention of ex-Sirius Minerals chairman Richard Poulden, who chose Gibraltar for Valereum\u2019s crypto-exchange project. Valereum, he says, is trying to harness a cryptocurrency sector that is worth roughly $3.5tn (\u00a32.6tn) \u2013 roughly the combined value of all companies listed on the London Stock Exchange.<\/p>\n Poulden is the chairman of Valereum, which is based in Gibraltar and focuses on providing technology for linking mainstream conventional currencies such as the pound and the dollar with crypto assets.<\/p>\n It will be a major task to overhaul an exchange that is currently staffed by only three employees, and will require a change in Gibraltar\u2019s regulations to govern how crypto is going to be traded on the GSX. But Poulden says his firm is leaning on technology, rather than people, to weed out any bad actors.<\/p>\n He says running anti-money laundering checks on cryptocurrencies is \u201cnot vastly different from running it on currency from any any other source. And indeed, in some cases, because you can trace back through the blockchain and see exactly where that money has come from, it can actually be substantially easier than trying to find where a block of funds in a bank has come from.\u201d<\/p>\n Other countries will be watching closely. Neil Williams, London-based <\/strong>deputy head of complex crime at Reeds Solicitors, ssays: \u201cIf it\u2019s a success, you\u2019d certainly think that other jurisdictions would look to follow, because it\u2019s an ever increasing valuable commodity.\u201d <\/p>\n However, experts have warned that Gibraltar could face sanctions by countries such as the US if its regulators end up giving legal approval to crypto firms that \u2013 even inadvertently \u2013 give a pass to money launderers,<\/a> black market criminals or kleptocrats who prefer the anonymity of crypto assets.<\/p>\n It comes amid concern at major global financial regulators, including the Bank of England<\/a>, over the rapid development of crypto assets and the potential consequences for consumer and investor protection, market integrity, money laundering and the financing of terror groups.<\/p>\n \u201cIt could enable or facilitate money laundering, sanctions evasion, terrorist financing, so everyone\u2019s wary of that as well,\u201d says Charlie Steele, a partner at forensic accounting firm and consultancy Forensic Risk Alliance and a former US justice department official.<\/p>\n \u201cRegulators worldwide, almost all of them really, are approaching it from a position of deep scepticism \u2026 so it\u2019s a little outside that strain of thinking for a country to welcome them in to buy a stock exchange.\u201d .<\/p>\n A month before Valereum announced its bid for the GSX in October, the head of the US Securities and Exchange Commission, Gary Gensler, declared that as an asset class, crypto was \u201cmore like the wild west<\/a>\u2026rife with fraud, scams, and abuse in certain applications\u201d, raising further concerns over the possibility of criminal funds seeping into the mainstream financial system.<\/p>\n Lax anti-money laundering (AML) controls have resulted in jurisdictions such as Malta<\/a> being grey-listed by the world\u2019s money laundering and terrorist financing watchdog (FATF), for lacking basic financial safeguards. It could seriously damage Malta\u2019s economy and has been a stark warning for other countries and territories that might be tempted to let regulations slip.<\/p>\n