Malta has lately garnered an even faster momentum in pushing forward its status as Blockchain Island. Effectively quenching start-ups’ craving for regulation, the Maltese Parliament is currently running through the second reading of three proposed bills, setting the stage for a robust and comprehensive principles-based regime. The ultimate objective is to foster a favourable environment for distributed ledger technology (DLT) platforms and related service providers, by filling the legislative gaps in what currently is a legal vacuum rife with a felt desired of legal certainty. The trident of proposed laws is namely made up of the:
a) Malta Digital Innovation Authority Bill (the “MDIA Bill”) which crystallises the establishment of a new authority, to be known as the Malta Digital Innovation Authority. It also outlines the guiding principles for this new public body in supporting the development of Malta as a centre of excellence for innovative technology arrangements. One of the main roles of the newly formed public authority will primarily revolve around the certification and supervision of voluntary applications by (i) innovative technology service providers or (ii) the technical administrators or any other persons involved in any innovative technology arrangements. The MDIA Bill aims to nurture a culture of collaboration between the new regulator and other national competent authorities in Malta, by providing for a principle of mutual recognition, inter alia, in the context of qualifications and competencies of persons and organisations which review and audit the innovative technology arrangements. To this effect, the bill caters for the formation of a Joint Regulatory Efficiency Board to ensure and facilitate effective cooperation between the relevant authorities in matters impacting the use of technology, innovation and the development of Malta.
b) Innovative Technology Arrangements and Service Bill (the “TAS Bill”), which provides for the regulatory framework of designated innovative technology arrangements and services as defined in the first two schedules to the bill and also caters for the exercise by the MDIA of regulatory functions with regards thereto. It is being proposed that any person will be able, on a voluntary basis, to request MDIA to certify eligible arrangements or services. Recognition or certification of an arrangement shall be awarded on the basis of a number of conditions, including that
- the arrangement is fit and proper for the purposes for which it was set up,
- its underlying software has been reviewed by a registered systems auditor, and
- it has a registered technical administrator in office at all times to, inter alia, ensure the arrangement is in compliance with registered technical administrator in office.
The TAS Bill further states that MDIA may also accept to register persons providing different innovative technology services while giving regard a number of matters, including qualifications, experience, sufficient technical resources or third-party support and whether the relevant service provider is fit and proper for the provision of the services it declares he intends to provide.
c) the Virtual Financial Assets bill (the “VFA Bill”), which primarily regulates the offering of virtual financial assets (or “initial coin offerings” or “ICOs”) as well as service providers in the virtual financial assets space. The proposed legislation imposes licensing requirements and on-going obligations to be complied with by (i) ICO-issuers or (ii) by those who intend to provide services ancillary to an ICO, if the issue or the service in question is provided in or from Malta. The issuer of an ICO must appoint an approved agent, who must be approved by the Malta Financial Services Authority. The VFA Bill also spearheads the implementation of a bespoke ‘financial instrument test’ by bestowing the competent authority the power to introduce such a novel test, applicable to issuers, agents and licence-holders, for the purpose of determining whether a DLT asset qualifies as electronic money, a financial instrument, virtual financial asset or virtual token. The new regime safeguards investors’ rights by providing a blueprint for the minimum disclosure requirements (in terms of content and format) applicable to ICO whitepapers, and by outlining the manner in which advertisements and marketing relating to virtual financial assets are to be carried out.
The trifecta of bills proposed by the Maltese Government suggests a three-pronged strategy featuring merit regulation, affiliation strategies and mandatory disclosure requirements. The comprehensive framework for DLT technology is an example of regulatory competition at work which promotes a ‘race to the top’ and competition in quality between businesses operating in this unregulated space. Ultimately, all this will translate into a much-needed convergence to higher standards. The voluntary certification system as set forth in the bills, will give rise to an effective tailored form of financial regulation, whereby market participants would themselves be able to choose a regime according to their business profile, which best caters for their needs and vision.