Today, 26th June 2018, the Maltese Parliament shall enter the second reading of the three bills regulating ICOs, cryptocurrency exchanges, blockchain technology firms and service providers. The Second Reading is the second step out of four which are required for a bill to become law in Malta. The date when these bills are enacted into law will cement Malta’s reputation as the Blockchain Island and providing much needed guidance to businesses seeking to set up in a reputable EU jurisdiction which allows them to carry out business flexibly, while remaining fully compliant.
Update: Later in the evening it was announced by Parliamentary Secretary for Digital Innovation Silvio Schembri that the Maltese Parliament has unanimously approved the three bills on DLT/blockchain technology which is a first globally. The Parliamentary Secretary also announced that Mr Stephen McCarthy will be the CEO of the new Malta Digital Innovation Authority. Parliament's full approval was warmly welcomed by practitioners as a consolidation of Malta's efforts and a true attestation of the island's goal to become a Blockchain hub.
How will the Bills become Law?
During the Second Reading, the Parliament shall have the opportunity to discuss the principles of the bills. Once the bills pass the second reading stage, they will move on to Committee Stage where each clause is delved into in detail and amendments will be proposed. Finally, the bills shall move to Third Reading where a majority vote will determine whether they have been approved by Parliament or not. Once approved, the bills shall pass on to the President of Malta who shall give her assent, and once published in the Government Gazette, they shall become an Act of Parliament.
‘Another major milestone for the Blockchain Island’
This crucial development was announced by Parliamentary Secretary Silvio Schembri in his opening speech at the Malta Institute of Management Conference called ‘Cryptocurrency Considerations for Management’, and has been confirmed in the agenda published today on the website of the Parliament of Malta.
As the hype grows for blockchain-based businesses and businesses investing in or exchanging cryptocurrencies, entrepreneurs and technical service providers have found themselves at a loss as to how these businesses will be regulated or licensed. In the past year, Malta has worked tirelessly to be one of the first jurisdictions which offers a fully comprehensive legal framework for such businesses, thus putting an end to a troubling legal vacuum which has led to considerable confusion in the industry.
The three bills are as follows:
- The MDIA Bill - the bill shall provide for the creation of the Malta Digital Innovation Authority (‘MDIA’), the Authority which shall be responsible for the certification of technology arrangements and the registration of Technology Service Providers.
- The ITAS Bill - this bill shall set out the regime for the registration of Technology Service Providers and the certification of Technology Arrangements.
- The Virtual Financial Assets Bill – this bill shall set out the framework for ICOs, cryptocurrency exchanges, and the regulatory regime on to the provision of certain services in relation to virtual currencies. This bill would regulate intermediaries such as brokers, exchanges, wallet providers, asset managers investment advisors and market makers dealing in virtual currencies.
Most notably, the Virtual Financial Assets Bill has created a Financial Instruments Test (the ‘‘Test’’) which determines which law shall regulate DLT assets seeking recognition in Malta. The Test will be mandatory for: 1) companies seeking to set up an ICO in or from within Malta; (2) companies which issued DLT assets overseas but wish to carry out a related activity in or from Malta; and (3) all other entities which shall be dealing with DLT-assets.
Essentially, the Test will determine firstly whether the DLT asset can be considered a Virtual Financial Asset (‘VFA’) under the Virtual Financial Assets Bill. If it can be considered as a VFA, the applicable regulation is the new Virtual Financial Assets Bill once it becomes law, and a whitepaper would be required. If it does not fulfil this description, the Test will then inquire whether the DLT asset falls under the definition of a financial instrument as set out in MiFID and the Maltese Investment Services Act. A ‘security token’ will often fall under this category.
If however, the DLT-asset cannot be classified as a VFA or as a financial instrument, the DLT asset shall be considered a ‘virtual token’. Essentially, a ‘virtual token’ only has value on its respective platform and cannot be exchanged outside such a platform.
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Our Fintech Practice
Our lawyers and financial services specialists at Chetcuti Cauchi Advocates provide bespoke solutions to clients by combining the traditional legal fabric with new technologies. Our Fintech Practice strives to assist clients in this burgeoning and evolving sector of law, which is set to reshape the financial services sector as we know it.
If you would like more information as to how the Financial Instruments Test may impact your business once you set up in Malta, or are interested in the setting up of a DLT company, an ICO, a cryptocurrency exchange, or alternatively, would like to set up a Crypto Fund in Malta, we welcome you to get in touch with our specialists.
