Malta has declared its aim to be a global trailblazer in the regulation of Distributed Ledger Technology (DLT) – often known as ‘blockchain’ – and become a jurisdiction of quality and choice for world-class FinTech and RegTech companies.
In the race to become the go-to destination for blockchain-based businesses that are looking for shelter from regulatory uncertainty in the US, EU and Asia, the Maltese government introduced three laws on 4 July – the Virtual Financial Assets (VFA) Act, the Innovative Technology Arrangements & Services Act (ITAS) and the Malta Digital Investment Authority Act (MDIA).
Together these new laws establish a solid regulatory framework for DLT technology and crypto-currencies that is built on the three pillars of effective consumer protection, financial market integrity and financial stability.
Malta is the first country to regulate DLT and crypto assets in such a holistic manner, covering both the technological as well as the financial services components. This approach is designed to give legal certainty to such an embryonic sector until such time that an international consensus is reached on a more harmonised regime.
The VFA Act applies a principles-based approach to regulation that is supplemented by the Malta Financial Services Authority (MFSA) guidance, rather than detailed rules that would possibly stifle technological innovation. Its provisions reflect the high-level principles enshrined in the existing EU financial services legislation in relation to the provision of investment services, financial markets and market abuse.
The approach adopted in the VFA Act vis-à-vis the classification of DLT assets, namely into (1) financial instruments, (2) electronic money, (3) virtual tokens and (4) virtual financial assets, caters for the entire DLT ecosystem, including hybrid models, and ensures utmost technology neutrality in an ever-evolving sector.
Companies seeking to provide services such as an exchange or conduct offerings can operate under clearly defined rules and regulations that will add credibility to their operation. The participants wanting to utilise such services or partake in ‘offerings’ from Malta licensed firms will be comforted knowing they have undergone a comprehensive onboarding process with the regulator to attain a licence to protect users.
The MDIA Act establishes a new Malta Digital Innovation Authority, which will operate as an independent body and will be responsible to certify technology arrangements and to register technology service providers as the competent authority in accordance with the ITAS Act. The Act also establishes the Joint Regulatory Efficiency Board to ensure adequate cooperation between the relevant authorities in Malta with respect to the use of innovative technology arrangements.
The first and second schedules of the ITAS Act establish the definitional criteria for innovative technology arrangements (ITA) and innovative technology services (ITS) respectively. Arrangements or services that have the characteristics of an ITA or ITS are eligible to be recognised by the MDIA.
The ITAS Act provides for the registration of ITS providers in respect of any ITAs. Once registered, the service provider will be granted a certificate of registration that will contain information that will include identification details and the classes of services that the applicant has been registered to provide. This certificate will be accessible to all users of the ITA since it is intended to increase transparency, certainty and confidence with regards to certified ITAs. Prior to registration, applicants who are not ordinarily resident in Malta must appoint a resident agent in Malta.
The MDIA will maintain an electronic register containing details of the different types of recognition granted to applicants, as well as the necessary information required to identify applicants and the activities they are authorised to carry out. The MDIA may also certify an ITA for one or more specified purposes if it is satisfied that the relative requirements have been fulfilled.
Most interestingly, registered ITS providers will be considered professionals who act as fiduciaries in relation to the information submitted to them by any customers and bound by the provisions of the Professional Secrecy Act. These obligations will strengthen the legislative framework within which ITAs and ITSs operate by increasing accountability and confidentiality and will be appreciated by potential investors. The Act also introduces a number of guiding principles regarding the behaviour of ITS providers in the course of their operations.
Malta’s Progressive attitude towards crypto currencies and distributed ledger technology has already attracted some of the world’s largest exchanges to relocate to Malta. Malta will also be hosting The Delta Summit, the leading conference event for the global blockchain and crypto community, at the InterContinental Malta from 3 to 5 October. Ravi Viroomal, Director of Sovereign Trust (Malta), and Ian Le Breton, Corporate Services Director from Sovereign’s London office, will both be in attendance.
For further details contact Ravi Viroomal.