Malta’s recent conference to discuss Blockchain and Cryptocurrency Regulation
The conference was opened by Parliamentary Secretary, Silvio Schembri who expressed the opinion that the Maltese Government was planning to launch a new Digital Innovation Authority Bill (DIA) which will operate as the only regulator for ‘Innovative Digital Technology’. The Technology Arrangements and Services Bill (referred to henceforth as TAS) was also mentioned by Dr Schembri, as was the keenly anticipated Virtual Currency Act. The triumvirate of bills will form the foundation of the Maltese Blockchain and Cryptocurrency Regulation.
Wyoming’s innovative approach to Blockchain regulations
The US State of Wyoming’s proposed Blockchain regulation was referred to repeatedly throughout the conference. Wyoming intends to regulate Blockchain technology by focusing on corporate income and franchise taxes whilst making sure that there are robust privacy laws in place governing LLCs created in Wyoming. The proposed ‘blockchain tokens exemptions bill’ would make the state the first to permit initial coin offerings (ICOs). ICOs enables companies to offer virtual coins o raise equity funds instead of traditional stock. As soon as the company reaches its projected potential, investors who have bought coins can trade them for other forms of currency.
Setting up a Digital Innovation Authority.
The main speakers commented on the fact that establishing a Digital Innovation Authority (DIA) would mean that it would still need to be overseen by various over agencies and authorities to comply with the principles of good governance. The panel also expressed the opinion that the point of such an authority is for companies to establish registration and certification rather than heavy-handed governmental regulation. In these circumstances, prospective international companies will not apply for any certification when coming to Malta.
However, companies intending to relocate to the island with the aim of operating a Distributed Ledger Technology (DLT) platform in a comprehensible and transparent manner will need to seek the approval of this fledgling authority. The ability to maintain a high degree of flexibility is, therefore, vital if Malta wants to attract a variety of international entrepreneurs, investors and companies with many different types of business plans.
Discussing the DLT and its ‘legal personality’
One of the most fascinating debates that took place during the conference was concerning the ‘legal personality of technology arrangements’. DLT (Distributed Ledger Technology) is a type of Software Platform with numerous users. As there are many types of contractual relationships emerging from the DLT Platform – and numerous potential stakeholders, such as Insurance, Risk, Compliance … is it actually plausible to describe the DLT in the terms of a legal personality?
Dr. Max Ganado’s view is that DLTs should be treated as software arrangements – an atypical type of asset which can be construed as the basis of a new type of legal person. A few keynote speakers argued the DLT Platform itself did not merit such scrutiny and that the focus should instead be on smart contracts. They opined that DLT is ultimately a technology that allows decentralised activity to flourish with the implication that it cannot and should not, therefore, be regulated or have any other type of legal personality.
Dr Ian Gauci, on the other hand, argued that a similar comparison can be witnessed in Company Law and that it is possible to distinguish between the technology arrangement of the smart contract and the legal responsibility of the members. Such a distinction could result in the lifting of this segregation and denote legal personality to a technology arrangement. This is similar in some respects to legal persons under Company Law, which are also obliged to appoint administrators and directors under the terms of Company Law.
Of course, it is important to note a couple of relatively straightforward points – and they are the need to establish who is the owner of the liability and at what stage of the process does liability start?
Do virtual currencies count as financial instruments?
Lastly, the MFSA’s Consultation Paper on Virtual Currencies was discussed. The focal point of the debate was whether a Virtual Currency qualifies as a ‘financial instrument’ in the context of MiFID Regulations? If so, it would then be subject to regulation after passing the Financial Instrument’s test.
How should blockchain regulation proceed?
To conclude, the heart of the matter is the following: should Malta choose heavy regulation to encompass all areas relating to Blockchain and Cryptocurrencies or does there need to be a certain level of flexibility? And should regulation be conditional on ‘off-chain’ regulations? How can Malta try to regulate Blockchain technology if it is equally de-centralised and global?
In this context, any Blockchain Regulation should be considered as already being at a high level. The Maltese Government needs to make a major decision – whether to opt to introduce strict regulations or not. Investors have always been attracted to the country because of its flexible legislation and it would seem wise to ensure that there are high levels of transparency, surrounding ICOS in particular, to offer protection to investors.
One thing is for sure, the future seems to be dynamic and interesting for investors and Malta steps into the brave new world of cryptocurrency regulation.