A. INTRODUCTION

While jurisdictions and legal systems around the world are expressing concern about cryptocurrencies, Malta is promulgating legislation that should give exchange owners and users certainty about the future. The rules are considered to be a one-stop-shop package that will deal with the establishment of a new authority, regulated exchanges and license Initial Coin Offering (ICO) companies and related business. The main aim is to offer legal certainty to the industry.

Following the plans of crypto-giants to relocate to Malta, many others are following suite, and the tiny Mediterranean island is expecting to see a surge in licensing applications for such related-businesses.

Every other jurisdiction around the world is currently experiencing a lacuna in the regulatory framework, absence of definitions and lack of supervisory expertise on the subject. In fact, all regulators worldwide are applying existing securities and financial market legislation to Initial Coin Offerings (ICOs) and issue guidelines as to the risks involved and the applicability of such laws on ICOs.

Needless to say, this does not work smoothly, and it is more than evident that ad hoc legislation is the only way forward. In fact, the Maltese government is doing precisely this at the moment and has embarked on this pioneering project in 2018 in order to become the first jurisdiction worldwide to regulate ICOs and Blockchain Technology.

B. PROPOSED LEGISLATION

In order to further render Malta a natural jurisdiction of choice for ICOs, the Maltese Government has recently tabled three Bills in Parliament in order to thoroughly regulate the DLT and ICO business.

In essence, the Bills presented in Parliament are the following:

  1. Malta Digital Innovation Authority Act, 2018
  2. Technology Arrangements and Services Act, 2018
  3. Virtual Financial Assets Act, 2018

All Bills revolve around the concept of Distributed Leger Technology or decentralised ledger technology, "DLT", and define this technology as follows:

DLT, "distributed ledger technology", "decentralised ledger technology" means a data base system in which information is recorded, consensually shared, and synchronised across a network of multiple nodes, or any variations thereof.

The Bills describe a "DLT Asset" as:

  • a virtual token;
  • a virtual financial asset;
  • electronic money; or
  • a financial instrument

that is intrinsically dependent on, or utilises, Distributed Ledger Technology.

C. THE BILLS

1. MALTA DIGITAL INNOVATION AUTHORITY ACT, 2018

This Bill sets-up the Malta Digital Innovation Authority ("the Authority") and hence establishes the roles and responsibilities of the Authority vis-à-vis DLT and ICO businesses.

The main duties of the authority shall be to address the development in Malta of all innovative technology arrangements and innovative technology services in order to achieve the principles and objectives of the Act.

It shall be the duty of the Authority to exercise such supervisory and regulatory functions in the field of innovative technology arrangements and innovative technology services as may from time to time be assigned to the Authority by any special law.

The Authority shall, among others:

  • regulate, monitor and supervise the provision of such innovative technology arrangements and innovative technology services;
  • keep under review all practices, operations and activities relating to any matter regulated by or under this Act or any other special law which the Authority is entitled to administer or enforce;
  • provide facilities for the recognition, certification, registration, or otherwise grant or issue of any authorisation for the carrying out of any lawful operation or activity relating to any matter regulated by any special law which the Authority is entitled to administer or enforce;
  • regulate the innovative technology products, operations or activities relating to any matter regulated by any special law which the Authority is entitled to administer or enforce, and ensure high standards of conduct and governance throughout the innovative technology arrangements industry;
  • establish minimum quality, compliance and security standards for any innovative technology arrangements and innovative technology services and regulate such sectors as may be necessary to protect the general public;
  • monitor the working and enforcement of laws that directly or indirectly affect the use and operation of innovative technology arrangements and innovative technology services and undertake or commission such study, research orinvestigation which it may deem necessary in this regard;
  • provide information and issue guidelines relating to any matter regulated by or under the law, or any other special law which the Authority is entitled to administer or enforce;
  • establish the minimum qualifications, if any, to be possessed by any person who is engaged or employed in any activity regulated by the law or by any special law which the Authority is entitled to administer or enforce.

The Authority hence will act as the supervisor of blockchain regulation. It is expected that during the course of time, the Authority shall issue further policies and ad hoc regulation in order to substantiate the laws and keep abreast with the developments of the industry. To continue reading click here