The Guernsey Financial Services Commission (
GFSC) today launched the Digital Finance Consultation Paper (
Consultation) which proposes regulatory changes to support blockchain, tokenisation, stablecoins, digital asset custody and other emerging financial technologies.
The Consultation runs until 6 March 2026 and is the result of open industry-wide discussions that have been taking place with the GFSC under the Digital Finance Initiative.
We summarise the key proposals below. The GFSC is engaging further with industry to develop the proposals, and so businesses wanting to participate should provide feedback.
We will be producing further detailed briefings on features of the Consultation and matters as they develop. Included in the Consultation are proposed amendments to Guernsey legislation and associated GFSC rules, and we will cover these in future briefings.
Stablecoins
A new regulatory framework will be introduced for stablecoins, which will no longer be regulated as virtual assets. Recognising the growth of stablecoins as a viable means of payment, stablecoins are to be treated as a new, separate class of asset. Stablecoin issuers and platforms are to be regulated as a 'financial firm business'.
There is a new set of stablecoin rules, which combine elements of US and Singapore stablecoin regulation. Stablecoins will need to be 100% backed by high quality liquid assets owned by the issuer in the currency that is 'pegged' to the coin. The GFSC will consider yield-bearing stablecoins that pay interest or other rewards.
There are also requirements around the reserve assets backing the coin, a prohibition on the assets backing the coin from being used as collateral or otherwise encumbered, a 3 month maximum redemption period for the underlying debt instruments (typically government bonds, treasuries and money-market instruments), capital requirements, reporting, disclosure, audit and attestation requirements and a requirement that the stablecoin is redeemable on no more than five calendar days’ notice.
The Consultation discusses various risks that an issuer needs to address. Akin to a securitisation vehicle, the stablecoin issuer should carry on no other activities.
There is no restriction as to the currency underlying a particular coin, although currencies outside the G10 currencies will be considered on a case-by-case basis. The GFSC will also consider commodity backed coins.
Tokenisation
Real world asset tokenisation is on the increase, and the global market has doubled within the last year. The proposals clarify the Guernsey regulatory treatment of real-world asset tokenisation with guidance confirming that a tokenised security, bond, derivative or other 'Category 2 controlled investment' is regulated under Guernsey’s investment law in the same way as the underlying asset, and not under its virtual assets service provider (
VASP) legislation. Direct tokenisation of a non-security, such as a piece of art or real estate, will still fall within Guernsey’s VASP licensing regime.
The proposals also permit the tokenisation of Guernsey funds on public blockchains, rather than limiting them to private blockchains (subject to appropriate controls, including the use a smart contracts to restrict transfer of units only to eligible investors who have cleared CDD).
Digital asset custody
A custodian servicing traditional assets, tokenised assets and crypto assets can service all asset classes under a single investment licence (previously doing so required an investment licence and a VASP licence).
The Consultation also clarifies that a custodian holding the real-world assets or government treasuries/bonds underlying a tokenisation or stablecoin, does so under its investment licence.
VASPs
The regulatory definition of VASP is to be updated to more closely align with the FATF definition, providing welcome clarity as to what is within VASP regulation. The current VASP licensing requirements are being simplified, including a removal of the need for dual licensing where an existing licensee carries out VASP activities and removal of the requirement to publish an environmental impact assessment.
Crucially, the blanket restriction on VASPs that involve retail users is being removed. Retail VASPs will now be considered on a case-by-case basis and must adopt appropriate safeguards.
Insurance
The Consultation proposes guidance supporting the use of blockchain technology for insurance contracts and also that tokenised Insurance Linked Securities do not fall within the VASP regime.
Enhancing financial crime compliance through technology
The Consultation also explores how businesses can use technology to enhance financial crime compliance. Previously the GFSC’s Financial Crime Handbook was technology neutral, but the Consultation recognises the importance of technology in compliance - e.g. the use of centralised CDD and digital ID - and encourages businesses to embrace technology.
Our thoughts
With the Consultation and the already announced lowering of VASP licensing fees, the GFSC is clearly supporting growth and is looking for Guernsey to become one of the most desirable jurisdictions for digital finance. The proposals open up Guernsey to tokenisation structures, stablecoins, and innovative VASP products, together with the associated custodian activities, by building on Guernsey’s existing financial regulatory framework.
The proposals will develop as the GFSC receives feedback on the Consultation and engages further with innovative digital asset businesses looking to benefit from the Innovation Sandbox. Engagement with potential applicants in parallel with the Consultation allows the final rules to be shaped by test cases and to balance an appropriate amount of regulation whilst supporting future sustainable growth.
About our Regulatory & Risk Advisory group
Our Regulatory & Risk Advisory team has been involved in the industry engagement from the beginning and will continue to provide input as the Consultation progresses. We have a global team of regulatory lawyers who are highly experienced in digital assets and their regulation. We can assist with digital asset regulatory advice, licensing applications and the sandbox process, together with all other regulatory aspects relating to digital asset structures, such as AML/CFT, data protection, consumer protection, competition, corporate tax (including Pillar 2), economic substance, FATCA, CRS and the new crypto-asset reporting framework.
