On July 4th 2018 Malta took further steps to becoming "the world's first blockchain island" when the Maltese Parliament passed three new bills into law, creating the world's first regulatory framework for blockchain, cryptocurrencies and Distributed Ledger Technology (DLT).
In doing so Malta has put itself forward as one of the lead innovators in the financial technology sector and developed a new niche for its economy.
At first glance, the imposition of regulation on a sector which is otherwise largely unregulated may seem off-putting to operators in the blockchain and cryptocurrency space. However, as was noted by Malta's Junior Minister for Financial Services, Digital Economy and Innovation, Silvio Schembri, what the major operators in the blockchain industry really want is legal certainty, and the passing of these laws allows for that.
In theory, this could see a migration of blockchain and cryptocurrency operators to Malta and some companies, including Binance, BitBay and OKEx, have already set up there. In fact, on 19 July 2018 it was announced that OKEx has signed a memorandum of understanding with the Malta Stock Exchange to create a security token trading platform, which it is anticipated will go live in Q1 of 2019.
Otherwise, if companies stay in other jurisdictions where blockchain legislation is yet to be established, they face the risk of suddenly being caught by any legislation which is introduced further down the line. The prospect of governments introducing blockchain legislation which acts retrospectively cannot be ignored either, and so the certainty and security offered by the Maltese legislation will surely be highly attractive.
In considering and drafting this new legislation, Malta has taken a different approach to others in that its primary concern has been the technology behind blockchain, whilst others have been more focussed on analysing the White Papers produced and any financial gain involved.
The three laws passed by Maltese Parliament have been drafted with three main principles in mind: market integrity, consumer protection and industry protection. The laws which have been passed are as follows:
1. Malta Digital Innovation Authority Act (MDIA Act)
This deals with the establishment of an industry-specific body called the Malta Digital Innovation Authority (MDIA).
MDIA will develop and implement the guiding principles set out in the MDIA Act and will have regulatory functions as well. The first CEO of MDIA will be Stephen McCarthy, the former CEO of the Housing Authority.
MDIA will be responsible for certifying DLT platforms, allowing for more certainty and security from a consumer perspective.
2. Innovative Technology Arrangements and Services Act (ITAS Act)
This Act establishes the definitions of what constitutes a blockchain related business.
It also legislates for the registration and operation of innovative technology arrangements and services, and is therefore primarily focussed on the setting up of exchanges and companies in the blockchain and cryptocurrency markets.
3. Virtual Financial Assets Act (VFA Act)
The VFA Act creates the regulatory regime under which ICOs, cryptocurrency exchanges and wallet providers (amongst others) will be governed.
The regulation with regard to ICOs will determine the steps each project will have to take in order to be compliant.
Examples of these measures include having to publish detailed White Papers that meet various different requirements, and issuers of tokens having to make their financial history publicly available.
Dr Abdalla Khan, an expert in the sector who has been advising the Maltese government on the legislation, believes that the framework developed will "protect consumers, safeguard investors and allow for more transparency and visibility", and all "without stifling innovation". Whilst other countries have embraced blockchain and cryptocurrencies in other ways, Malta is certainly ahead of the rest of the field in developing a regulatory framework for the sector. If the Maltese approach proves to be successful, then surely it will not be long before other jurisdictions begin to follow suit.