Malta - The Blockchain Island
In a move that further consolidates Malta's drive to become The Blockchain Island, three Bills have been tabled in the Maltese Parliament with the objective of facilitating and regulating Distributed Ledger Technologies (DLT) including Blockchain and Cryptocurrencies.
These Bills have been tabled for the first reading with the objective of having them approved expediently in order to ensure that, in the words of the Hon. Silvio Schembri Parliamentary Secretary for the Digital Economy, "Malta becomes the first Blockchain Island with a holistic regulatory framework".
These three Bills cover three key pillars of regulation required to holistically enable this industry in Malta:
- The TAS Bill (Technology Arrangements and Services)- which sets out the regime for the registration of Technology service providers and the certification of Technology Arrangements. The Bill lists the relevant requirements for the certification of ITAs, including a requirement of fitness and properness, review of the ITA software by an independent registered system auditor, having a registered technical administrator, and other safeguards with regard to Anti-Money Laundering (AML) laws, laws Combating the Financing of Terrorism (CFT), the protection of personal data, consumers rights protection, and other mandatory laws. Furthermore, the ITAS Bill also sets out the requirements for the recognition of Innovative Technology Service Providers (ITSPs), including the requirements of fitness and properness, qualifications and/or experience in the particular class applied for, and sufficient technical resources, amongst others.
- The MDIA Bill (Malta Digital Innovation Authority)- provides for the setup of the Malta Digital Innovation Authority that seeks to work closely with the Financial Services regulator (MFSA) to ensure that DLT companies are assisted, enabled, guided and regulated into setting up and operating. The aim of the MDIA is to cultivate the ideal ecosystem for digital innovation to grow and flourish, mainly because the Authority is tasked with the responsibility of developing and promoting the innovative technology sector in Malta while ensuring that technological innovation and the efforts of potential start-ups are not hindered, truly transforming Malta into the Blockchain Island.
- The Virtual Financial Assets Bill – this shall set out the framework for ICOs 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. The Bill also provides for a Financial Instruments Test which determines the applicable law (if any) to regulate the relevant DLT asset.
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The Future Legislative Instruments - Malta Blockchain Island
Hon. Silvio Schembri noted that once enacted, this legislation will be “unique, one of its kind in the world”. He also notes that a practical approach was taken by the drafters who founded these future legislative instruments on three principles:
- market integrity
- consumer protection
- financial stability
As the World’s first Blockchain Island, Malta has expressed its interest in transforming certain sectors within the country to become more dependent on ledger technologies in the future, particularly the transportation and education system. Acknowledging the promising future Malta has as being the Blockchain Island, the three aforementioned bills have been made future-proof.
Malta’s innovative and business-friendly approach towards this industry will allow it to establish itself as a hub for innovative technology start-ups, with the hope of attracting foreign financial tech companies to base themselves in Malta. The Blockchain Island has also been praised for its principle-based approach rather than a rule-based approach, providing flexibility within this relatively new industry. The relocation and start-up possibilities Malta is providing have been labelled as one of the best, with impressive tax benefits being offered.
Dr. Christopher P. Buttigieg, Director of the Securities and Markets Supervision Unit of the Malta Financial Services Authority, commented on how supervision shall be carried out under the new Bills:
“We will not only be looking at the traditional way financial supervision is undertaken, governance, conduct and prudential, but through the MDIA we will also be looking at the technological aspect, so we will be ensuring that what the virtual token will be doing in terms of the smart contract is actually what it should be doing in terms of its whitepaper. This additional layer of regulation which would ensure a higher degree of investor protection and also market integrity.”
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Chetcuti Cauchi Advocates - Malta Blockchain
News of this historic milestone was warmly welcomed by our financial services specialists at Chetcuti Cauchi Advocates. Our specialists noted that:
“We welcome the legislator’s holistic approach when regulating this area. The industry will benefit from regulation on cryptocurrencies which so far remains largely unregulated globally, as well as DLT platforms and their service providers. This will grant legal certainty not only to the many DLT-based businesses such as cryptocurrency exchanges which are already setting up or showing considerable interest in Malta but also to clients dealing with businesses which have been licensed in Malta. This approach ensures that the Maltese license will become synonymous with the highest degree of investor protection whilst still allowing the flexibility required in this ever-changing industry. These are the constituent elements which enable Malta to become the Blockchain Island.”
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. For more information please do not hesitate to contact us.
