Malta conducts public consultation on Tokenisation

The Malta Financial Services Authority (MFSA) launched a public consultation on 18 May on the potential tokenisation of financial instruments and real-world assets, which would represent a significant step forward in integrating distributed ledger technology (DLT) within Malta’s financial services framework.

Tokenisation refers to the digital representation of ownership rights in financial instruments or real-world assets, which can enable activities such as trading, settlements and record-keeping of investments to take place through digital platforms.

It can also improve transparency and auditability through the maintenance of a shared, time-stamped transaction records that are accessible to authorised participants within a controlled network environment, subject to appropriate governance and data protection.

The Malta initiative reflects growing international momentum, including the EU’s 2023 DLT Pilot Regime, which effectively introduced a regulatory sandbox for the trading and settlement of financial instruments within the Markets in Financial Instruments Directive (MiFID) II framework using DLT, as well as broader global adoption trends across capital markets.

To inform future policy direction, the MFSA is seeking feedback from industry stakeholders and the public to better understand market readiness, identify priority asset classes and evaluate the infrastructure, legal, and regulatory considerations required to support tokenised markets in Malta.

The MFSA said it recognised that tokenisation could offer potential benefits such as enhanced efficiency, transparency, automation, and improved access to investment opportunities, but emphasised that such developments would need to be carefully aligned with existing regulatory objectives, including investor protection, market integrity and financial stability.

The consultation aims to assess whether tokenised financial instruments can be accommodated within existing EU legislative frameworks, or whether additional interpretative guidance, national measures or future EU regulatory developments might be required. The key areas of focus include:

• Market appetite and strategic positioning, including the identification of asset classes most suitable for tokenisation in Malta.
• Legal and regulatory considerations, such as ownership rights, settlement finality and the enforceability of smart contracts.
• Market infrastructure requirements, including token registries, interoperability between DLT systems and custody arrangements.
• Investor protection and risk management, covering emerging technological, operational and financial risks.
• Domestic market development, including the role of investment firms, crypto-asset service providers (CASPs) and other market participants.

The MFSA is also seeking views on whether tokenisation can be effectively implemented within existing regulatory frameworks or whether targeted updates will be necessary to facilitate scalable adoption.

In particular, it is seeking to identify operational challenges, regulatory gaps, infrastructure needs, and potential use cases that could support the responsible development of tokenised financial markets in Malta.

“Tokenisation enhances efficiency across the issuance, trading, and post-trade processing. The use of permissioned DLT can support near real-time processing and facilitating the role of transfer agents, thereby reducing operational risk,” said Ian Meli, MFSA Head of Investment Services Supervision.

“By complementing existing regulatory frameworks, including those under MiFID and Alternative Investment Fund Managers Directive (AIFMD), and taking into account the broader EU digital finance framework, including the Markets in Crypto-Assets Regulation (MiCA) where relevant, tokenisation can reinforce Malta’s positioning as a forward-looking financial centre that remains responsive to technological developments.”

The structured approach being taken by the MFSA is aimed at developing a better understanding the implications of tokenisation across different areas, while ensuring that any developments take place within a controlled framework that preserves legal certainty.

“The MFSA wants to ensure that any new framework will be robust from a customer-protection and market integrity perspective, which requires that the right infrastructure, legal and regulatory considerations are in place before it starts to operate,” said Stephen Griffiths, Managing Director of Sovereign Trust (Malta).

“It must also ensure that any regulatory framework remains proportionate and aligned with existing requirements. This includes ongoing engagement with stakeholders through consultation process, as well as continued assessment of emerging developments and practical implementation considerations.”