Answer ... In 2018 the Maltese Parliament enacted three acts that seek to regulate the provision of technical services, as well as the issue of initial coin offerings, crypto-exchanges and other service providers:
The Innovative Technologies and Arrangements Act (Cap 592) sets out the regime applicable to the registration of technology service providers and the certification of innovative technology arrangements (ITAs). ITAs include software and architecture which are used in designing and delivering distributed ledger technology (DLT), smart contracts and related applications, including decentralised autonomous organisations.
The Malta Digital Innovation Authority Act (Cap 591) establishes the Malta Digital Innovation Authority (MDIA), a new authority which is responsible for the regulation of innovative technology and facilitates communication between national competent authorities.
The Virtual Financial Assets Act (Cap 590) regulates offerings of virtual financial assets, which are generally crypto-assets that do not qualify as virtual tokens (ie, utility tokens which are not placed on exchanges), e-money or financial instruments in terms of the EU Markets in Financial Instruments Directive (‘MiFID II’). The act also regulates service providers in relation to virtual financial assets, including wallets, brokers and crypto exchanges.
In order to supplement the Virtual Financial Assets Act, the Malta Financial Services Authority (MFSA) has also issued a Regulation and a Rulebook with three chapters, regulating virtual financial asset agents, issuers and service providers.
Other noteworthy pieces of legislation in the fintech sphere include:
Changes have also been made to the Second Schedule to the Civil Code (Cap 16), and entities such as foundations have been widened in scope to better cater for the diverse requirements of fintech players.
Answer ... The Virtual Financial Assets Act has created a home-grown classification of crypto-assets and provides for a bespoke regime for assets which cannot be pigeonholed into any one of the existing regimes.
The act captures all blockchain-based assets under the category of DLT assets and identifies four types of DLT assets: virtual tokens, financial instruments, e-money and virtual financial assets. In order to assist issuers, their legal counsel and service providers, the MFSA has introduced the financial instruments test and guidance, which facilitates the processes by which DLT assets are categorised.
Virtual tokens are assets whose value or utility is limited to the acquisition of goods or services and whose utility is limited to the platform or limited platforms on which they are issued, and thus remain unregulated.
If a DLT asset qualifies as e-money, the issuer will require a licence as an e-money institution.
If a DLT asset qualifies as a financial instrument, various EU frameworks will be applicable to the offering, depending on the type of financial instrument being offered.
By way of elimination, if a token does not qualify as any one of the above DLT assets, it will be considered a virtual financial asset and the Virtual Financial Assets Act will apply. Issuers of virtual financial assets are required to appoint a virtual financial asset agent, money-laundering reporting officer, statutory auditors, systems auditors (if required) and custodians.
Service providers including crypto-exchanges must be licensed under the Virtual Financial Assets Act.
Answer ... The MFSA, the sole regulator for financial services in Malta, is the authority in charge of issuers seeking to offer virtual financial assets. White papers issued by issuers must be drafted in conformity with the Virtual Financial Assets Act and registered with the MFSA. The MFSA is also the sole regulator and supervisory authority with respect to service providers licensed in terms of the act.
The MDIA is a newly established authority for digital innovation that shall receive all applications for the registration of systems auditors and technical administrators. It is also responsible for the certification of ITAs, which include software and architecture used in designing and delivering DLT, smart contracts and other related applications such as decentralised autonomous organisations and any other innovative technology arrangement as seen fit by the minister for digital economy upon recommendation of the MDIA.
Answer ... Malta has consistently demonstrated a proactive approach towards the regulation of fintech, particularly blockchain technology and its potential uses which can disrupt traditional market incumbents. Malta is striving to establish itself as the ‘blockchain island’. In January 2019 the MFSA published a consultation document entitled “MFSA FinTech Strategy – harnessing innovation through technology”, which proposes a wide, cross-sectoral approach towards the promotion of the fintech industry. The document sets out six strategic pillars to catalyse innovation, growth and competition in the financial services sector, while ensuring robust investor protection market integrity and financial soundness:
- Regulations: Adopt regulatory and supervisory initiatives to support innovation and improve regulatory efficiency.
- Ecosystem: Foster community, demand and collaboration, and enhance access to finance.
- Architecture: Encourage collaboration through the adoption of open application programming interfaces and shared platforms.
- International links: Build international links across jurisdictions to foster collaboration and trust.
- Knowledge: Cultivate deep talent pools and stimulate research and collaborative ideation.
- Security: Establish an environment that is resilient to cybersecurity threats.
Answer ... The Blockchain Malta Association has been set up by some of the main stakeholders within the industry with the aim of promoting Malta’s digital economy through research and cooperation with governmental authorities, international organisations and taskforces in this field.
In October 2018 the Times of Malta reported that fintech stakeholders are set to form the Capital Markets and Digital Asset Association, in order to promote Malta as a centre of excellence for digital assets and blockchain. The founding members include some of Malta’s largest players within the digital asset sector, such as digital asset exchanges Binance, OKEx, Malta Digital Exchange, Bitbay, ABE and the Malta Stock Exchange. Details on the Capital Markets and Digital Asset Association are yet to be released.
Other trade associations which are interested stakeholders within the fintech industry include: