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ICO & Crypto Regulation in Malta

Blockchain Services > The Crypto Regulation

Malta’s Approach To The Regulation

Malta had seen the economic value of the crypto sector right when the blockchain technology was still in its infancy. Just before the technology rolled out in various areas of the economy, Malta realised that its only way to grow a vibrant blockchain backed economy was to have a clear regulatory framework in place. Therefore, it set a specialised unit within the purpose of researching these technologies. It was also supposed to find ways in which Malta could become the standard for transparent laws on ICO regulation.

Malta was successful in becoming a Blockchain Island when its parliament passed the following bills unanimously:

  • Innovative Technological Arrangement and Services Act
  • Malta Digital Innovation Authority Act
  • Virtual Financial Asset Act

The Malta Digital Innovation Authority (MDIA) Act

The MIDA Act provides for the constitution of Malta Digital Innovation Authority (MIDA). The act further outlines the sole mission of the Authority, which is to enhance the development of blockchain technology in the country. According to the law, the work of MDIA is to certify the developed DLT platform software and how the software will be managed. In turn, the certification offers some certainty to the users of the DLT platforms based in Malta in the areas of technical, legal and token-economics (tokenomic). The current CEO of MDIA, Stephen McCarthy is given the responsibility of ensuring that the businesses have passed the regulations and certified as Technology Service Providers. He is also supposed to ensure that these companies offer services honestly and transparently.

The Innovative Technology Arrangements and Services Act (the ITAS Act)

The ITAS Act puts in place the framework in which the Innovative Technology Arrangements and Services (ITAS) can run. The act further establishes criteria for defining these innovative technological arrangements and drafting registration requirements for Innovative technological Services (ITS) and Innovative Technology Arrangements (ITA). It also registers entities that provide the Innovative Technology Services (the ITS providers). All these sectors are regulated by the MIDA (The Authority established above).

The ITAS Act has also made provisions on ways to certify and audit architectures and software that has been utilised in the design and delivery of DLT, token exchanges, smart contracts, as wells as the decentralised autonomous entities. It can also check other innovative technologies as may be found fit by the minister after getting a recommendation from the Authority. The Act has deliberately used broad definitions to make this legislation adaptive to future innovations.

The Virtual Financial Assets Act (also called the VFAA)

The VFAA legislation was put in place to create a framework in which the regulatory bodies can work either directly or indirectly with various financial assets that include the ICOs, custodian wallet providers, token exchanges, brokerages, nominee service providers, portfolio managers and different investment advisers. The VFAA Act also came up with guidelines and requirements for an STO (Security Token Offering and the ICO (Initial Token Offering). This includes the whitepapers that are to be presented to the Malta Financial Services Authority. One of the rules requires that the token issuer appoint a VFA agent who then goes through approvals by the MFSA and acts as a competent authority for monitoring and reporting on any token offerings.
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Malta Has a Technology First Outlook When Formulation the ICO Regulation

These three blockchain and cryptocurrency Acts discussed above were intricately designed in a way that they would work with each other seamlessly to create a triad that provides a comprehensive platform which the industry uses to ascertain the integrity of all Distributed Ledger Technology(DLT) software solutions and put together all the necessary safeguards for buyers.

Unlike many jurisdictions that just approve the whitepapers based on use case and other tokenomic assumptions, Malta looks as technology and software behind the white paper and its strong potential for implementation.

A Strong Focus On Technology

Malta is the first in the world to go into details when regulating the blockchain technologies. According to the Malta Parliamentary committee on Financial services, when the technology used is flawed, it cannot deliver what it states on the whitepaper. Therefore, the committee looks at technologies that Blockchain companies are using and not just the whitepaper.

Here is how Malta’s ICO crypto regulation is different from others. It takes a technology first approach when evaluating technologies whose providers submit the whitepaper. Its financial authority, the MFSA, then uses a technologically competent body, the MDIA, to determine if the crypto-business qualifies for licensing.

Many countries consider cryptocurrencies as assets or forms of investment but not legal tender or currencies. However, The Virtual Financial Assets Act has the Maltese Financial Instruments Test, which is used to determine the category of the DLT asset. Any company that would like to issue DLT assets in Malta or use Malta as the base to issue such assets overseas must take the Test. According to the Test, all tokens and cryptocurrencies are considered as DLT assets.

The passage of the bill effective makes Malta the first jurisdiction to provide some form of legal certainty in the blockchain space. Certainty is required by the serious operators to operate effectively. This assures the operators that the government would not draft a regulation that tells them that they are not within the law. These laws change this uncertainty.

The Commitment To A Safe & Competitive Crypto Jurisdiction

These three bills have cemented the government’s desire to create laws that guide cryptocurrency organisations and their operations based on principles of consumer and industry protection, as well as market integrity. These are the first laws around the world that offer comprehensive coverage of the ICOs, cryptocurrencies and the way assets offered to the investors are treated. They also cover service providers and their blockchain services, as well as the set up of a blockchain exchange. Today, Malta boasts of the world’s most robust framework that monitors and regulates the country’s ever-growing crypto-currency sector in a way that spurs innovation.

Malta has built on its experience as an innovator in the gaming and financial services sectors and positioned itself world-over as able to meet the crypto-challenge by providing a comprehensive framework that is the first world over. Speaking after the passage of the three acts of parliament, Malta’s Prime Minister, Joseph Muscat, said that he thought the innovation is currently happening in the DLT, blockchain technology and cryptocurrency sectors. He added that he was glad that Malta was the first country in the world to offer jurisdiction on regulating the sector. He finalised to say that the country is excited about the developments it would bring in future.

A Future Outlook To Boost Innovation

With the passage of these bills, Malta leads all the countries that are striving to become crypto-currency hubs such as Switzerland (where Zug has already been branded as Crypto-Valley) HongKong, Singapore, Estonia, Isle of Man, Lithuania, Bermuda and Liechtenstein. These countries fall back because they view the crypto-economy from the old financial paradigms’ vantage point. To them, the short-term financial gains from the sector are more important than the usage of smart software that gives strength and guarantees security to underling crypto-technology and all other tokenomic ecosystems built around it. In fact, these new crypto-laws not only work with cryptocurrencies, exchanges and the ICOs but are also applied to other blockchain technologies that may not be considered financial systems due to their nature.

This has provided a robust regulatory platform where Malta can guarantee the safety of the investors and consumers, as well as allowing for transparency. The strong technical approach on ICO crypto regulation offers the country some legal flexibility that is based on principle. This approach will aid in tailoring effective laws as the technology evolves.

All the regulatory entities, as well as the laws that come with the passage of the three crypto-laws, give some form of legal certainty. Therefore, it is expected that many new crypto-projects will set base in Malta thereby, energising the already flourishing crypto sector. Moreover, the clarity of the laws has pulled the biggest players in this sector to launch projects from Malta.

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