University of Malta
As of the 22nd May 2018, the government of Malta published three bills concerning the regulation of blockchain-based technology within the island. These are as follows, enacted on the 1st November 2018 as Chapters 590 – 592 , Laws of Malta: The Innovative Technology Arrangements and Services Act(ITAS), The Virtual Financial Assets Act(VFA), and The Malta Digital Innovation Authority Act(MDIA). Each of the aforesaid aim to legitimise what can be said to be a controversial -albeit game-changing- technology through legal bodies, certification as well as regulatory structures and powers granted to the established bodies within the previously acts.
The first of these (ITA) aims to be the mechanism by which companies implemented blockchain technology will be recognised by law. Taking a step back, it is important to note what is actually considered to be an ‘innovative technology arrangement’, which is defined in the First Schedule as “software and architectures which are used in designing and delivering distributed ledger technology(DLT) which ordinarily..” and goes on to list certain uses for the aforesaid; the most notable of which are the implementation of cryptography, immutability and the decentralised nature of DLT added into the bill. Art. 2 of the First Schedule also extends the definition of ITAs to smart contracts, which is a bold move considering the growth of smart contracts within the maritime sector of the island. Another interesting point is Art. 3 of the same schedule, which while granting the Minister power to include further technologies down the line, he is limited insofar as requiring “the recommendation of the Authority, by notice”.
The ITA also established the procedure for recognition of such establishments, providing for certification of legitimacy and compliance with the MDIA; which is the bill that sets up the main authoritative body regulating ITAs and per se in entwined with the ITA as heavy reference of the MDIA is made in the latter. Firstly, establishments would need to obtain certification of ITAs “for one or more specified purposes which regard certain qualities, features, attributes etc. (ITA, Art. 7 (1)) which would include details on how the ITA is identified, including any brand name which will be alongside a unique identification number. The act also allows for the Media Digital Innovation Authority to create guidelines on certain matters such as qualities, purposes, features, etc. as well as the reviewing process.
The second act enacted is the VFA, which lays down the foundation for virtual finances to be offered to the public through a DLT exchange for trading purposes. With this in mind, Art 3. Of the aforesaid disallows issuers from offering such assets to the public unless he is in possession of a whitepaper which should include information such as the sustainability of the project, any challenges, risks and mitigating measures, the total number of VFA to be issued (and their features), and an entire list of other requirements. Others notable information includes the issuer’s financial track record where is has been established for a period exceeding three years as well as his principal activities. The act also establishes a VFA agent as a person registered with the competent authority to carry on the profession of advocate, accountant or auditor as well as any firms offering the same services as well as any other class of person holding the authorisation required by the aforesaid act. Essentially, these VFAs act as the middle person between clients and the Malta Financial Service Authority (MFSA) and generally advise the client as well as act as the first line of defense for anti-money laundering purposes. The MFSA has also released a consultation paper on rules dictating the operation and scope of such VFAs, including their obligations, approval process, registration etc.
Lastly, one should also take note of the MDIA, which establishes a specific governing body to be tasked with promoting the interest of the industry to the government and enforcing its decisions in such matters as well as “ safeguard the reputation of Malta in the use of ITAs” (Art. 4 (2)(d)). The body established by this act is the Malta Digital Innovation Authority, which is to be composed of a Chairman and between four to eight members, appointed by the Minister upon consideration of relevant qualifications and expertise.
With all this in mind, these acts have not been so readily-met with ease throughout the EU. The European Securities and Markets Authority (ESMA) released a statement, alerting all firms involved with ICOs to meet their obligations under various EU directives such as the Alternative Investment Fund Managers Directive, the Fourth Anti-Monel Laundering Directive amongst others. A certain level of scepticism is healthy however, and should be met as constructive criticism to allow for a better overall end-result when companies eventually establish or move to Malta. That being said, ESMA has already warned investors of the risks of such a volatile market, but nonetheless seem somewhat open to cause insofar as the established legislation is adhered to. While measures are already in place to comply somewhat with the aforesaid, there should be more specific legislation to invoke EU directives, as further assurance of the legitimacy and compliance of such legislation.