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How are the following key technologies in the fintech space regulated and what specific legal issues are associated with each? (a) Internet (e-commerce); (b) Mobile (m-commerce); (c) Big data (mining); (d) Cloud computing; (e) Artificial intelligence; and (f) Distributed ledger technology (Blockchain, cryptocurrencies)

Answer ... (a) Internet (e-commerce)

The Electronic Commerce Act (Cap 426 of the Laws of Malta) was enacted in 2002 and provides high-level regulations on the provision of e-commerce in Malta and the processing of electronic communications. It is generally accepted that transactions and electronic contracts which are wholly or partly conducted through one or more electronic communications shall be deemed to be valid. Nonetheless, certain transactions such as wills, trusts, powers of attorney and disposal or registration of rights over immovable property must be carried out as per the formalities set out at law.

(b) Mobile (m-commerce)

M-commerce will generally be regulated under the Electronic Commerce Act. In 2018 the Malta Communications Authority unveiled the ‘FastTrack to Mobile Initiative’, which is aimed at encouraging m-commerce and mobile marketing. Speaking at the launch of this initiative, Parliamentary Secretary for Financial Services, Digital Economy and Innovation Silvio Schembri emphasised the government’s intent to assist small and medium-sized enterprises seeking to tap into the m-commerce market. Local businesses will be guided on how to take the next steps to mobile and implement m-commerce, website optimisation, mobile search and mobile marketing.

(c) Big data (mining)

Privacy concerns remain the biggest inhibitors to the adoption of big data analytics, most notably within the context of the EU General Data Protection Regulation (2016/679). Ensuring compliance with the cornerstone principle of data limitation, which often runs counter to the spirit behind data mining, will be a challenge for regulators, which may require regulatory intervention in order to reconcile the principle with big data or to redefine the principle of data limitation within the big data age.

(d) Cloud computing

Where a financial services licence holder’s IT infrastructure is located in a cloud environment, it shall be incumbent on the licence holder to ensure that data is replicated real time by virtue of a live replication server located in Malta.

(e) Artificial intelligence

In March 2019 the Parliamentary Secretary for Financial Services, Digital Economy and Innovation unveiled a high-level policy document for public consultation entitled “Malta: Towards an AI strategy”, which sets out the foundations for a national strategy towards artificial intelligence (AI).

This national strategy shall seek to widen Malta’s framework for the certification of innovative technology arrangements (ie, distributed ledger technology (DLT), smart contracts and other technologies as designated by the responsible authority from time to time) in order to include AI technologies. Currently, the government of Malta is communicating with stakeholders in order to refine a future AI national strategy, which will need to be aligned with the strategies which are currently being pursued with respect to DLT and the Internet of Things.

Emphasis is being placed on designing a policy which calls for “ethically aligned, transparent and socially responsible AI”. To this extent, Malta has already established an Ethics Committee within the Malta Digital Innovation Authority, the local authority responsible for the certification of innovative technology arrangements. Simultaneously, Malta will stay true to its reputation as a trailblazer through regulatory and fiscal measures which aim to strengthen its appeal as a hub for foreign investment in this sector. The adoption of AI by the public and private sectors will be promoted through cutting-edge use cases of how AI can be deployed in Malta. The Maltese government will seek to address challenges relating to the infrastructure needed and the availability of a skilled workforce to cater to this sector.

(f) Distributed ledger technology (Blockchain, cryptocurrencies)

In 2018 the Maltese government enacted three laws which holistically regulate blockchain technology, cryptocurrencies and service providers offering various services in relation to cryptocurrencies: the Malta Digital Innovation Authority (MDIA) Act, the Innovative Technology Arrangements and Services Act and the Virtual Financial Assets Act.

The MDIA Act establishes the MDIA, an authority which is responsible for the promotion and regulation of innovative technology arrangements. Blockchain, smart contracts and other technologies as designated by the minister for digital economy fall within the category of innovative technology arrangements as set out in the Innovative Technology Arrangements and Services Act. Innovative technology arrangements must be certified, and innovative technology service providers and technical administrators must be registered with the MDIA when offering their services to fintech firms.

Cryptocurrencies are regulated under the Virtual Financial Assets Act. This act was one of the first pieces of legislation worldwide to regulate cryptocurrencies holistically by assessing the features and rights attached to the ‘coins’ or ‘tokens’ being offered. The act establishes a test known as the ‘financial instruments test’, which ascertains whether the assets being offered are virtual tokens (ie, serve a utility function and are not exchangeable), financial instruments regulated under the Markets in Financial Instruments Directive (2014/65/EU), e-money or virtual financial assets (which are defined by exclusion of the aforementioned three types of assets). Finally, the act also provides that service providers offering designated services within the context of virtual financial assets will also need to be licensed by the Malta Financial Services Authority.

For more information about this answer please contact: Priscilla Mifsud Parker from Chetcuti Cauchi Advocates