Today the Malta Gaming Authority (the "MGA" or the "Authority") has finally published a new Policy on the use of Distributed Ledger Technology ("DLT") by Authorised Persons (the "Policy"), which takes immediate effect and replaces previously applicable MGA Sandbox Framework regulating the acceptance of Virtual Financial Assets ("VFA"s) and the use of Innovative Technology Arrangements ("ITA"s) within the gaming industry.
The Policy follows extensive consultation with relevant stakeholders and combined with the regulatory experience gained by the MGA during the period of the Sandbox Framework it provides a comprehensive and updated outline of the Authority's position with respect to DLT applications.
During this time there was a cautious yet optimistic approach to the use of virtual assets in the gaming industry with significant limitations on making use of the ITAs and a lack of supporting infrastructure on the island which led to a negligible uptake of the Sandbox Framework.
Fast forward and we now find ourselves with a forward-thinking regulator fully embracing the use of virtual assets and a matured market of service providers catering for the increased demand. The Policy balances leveraging innovation with player protection and considers the high-risk nature virtual assets pose including their susceptibility for use by bad actors.
Operators accepting VFAs
Operators under the Policy are permitted to accept VFA deposits using their own wallets without any intermediary or alternatively utilise a 3rd party licenced service provider to process the transactions and have custody of the assets.
Any MGA licensee that wishes to accept VFAs needs to request prior approval from the MGA and will need to provide documents such as updated policies on wallet management and verification, the list of virtual assets and their classification and updated Terms and Conditions.
VFAs that fall under the classification as financial instruments or as electronic money may only be accepted on a case-by-case basis by the MGA. Privacy coins are strictly prohibited. VFAs cannot be sold, acquired, or exchanged on the operators' site directly with specific exemptions for virtual tokens.
FIAT-to-FIAT transactions which utilise a virtual asset as a bridge do not fall within the scope of the Policy and are treated as traditional payment service providers.
Virtual tokens are confined within a closed-loop ecosystem on the operator's site and have no ability of exchangeability outside such ecosystem. These tokens can be acquired on the operator's site directly using FIAT or VFA. The MGA will decide whether to accept or reject the use of such tokens on a case-by-case basis and will carry out an evaluation to assess various qualifying criteria such as the technology, structure, and security.
Operators launching their own token
Under the new Policy, operators can launch their own VFA or virtual token and have it as the predominant or exclusive currency of the site with all transactions being denominated in this currency. This can serve as the foundation for an innovative reward system with increased brand recognition and loyalty.
Outsourcing and service providers
Operators can make use of third-party providers duly authorised in terms of the VFA Act or any other law and/or binding instrument that may be in applicable in Malta from time to time that provide custodial services and accept VFAs from players, thereby allowing the operator to deal solely in FIAT currency.
ITAs and Smart Contracts
Operators are permitted to utilise DLT for all or part of their technical setup including the use of smart contracts within the key technical setup. This in itself requires specific approval from the MGA.
Approval is granted on a case-by-case basis with an audit taking place in line with the updated System Audit Checklist specific to DLT platforms.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.