Malta Financial Regulator Considers Digital Currency Regulatory Framework

During the last couple of months, numerous countries throughout the world have been stating their opinions on digital currencies, Initial Coin Offerings (ICOs) and blockchain technology. Now, recent reports indicate that Malta is also joining the race, after the Malta Financial Services Authority, also known as the MFSA has issued a couple of statements.

With this in mind, the paper comes as a result of the efforts being made by the regulator to develop a legislative framework meant for these new technologies. According to the MFSA, the framework is meant to encourage innovation of digital currency and blockchain services, but also wishes to help protect investors, ensure financial stability and overall market integrity on this array of services.

Based on this aspect, the guidelines outlined in the paper published by the MFSA, are similar to the general principles behind statements made in the past by the European Securities and Market Authority (ESMA). Therefore, the paper mentions that firms that are either involved in, or holding ICOs alongside with other activities relating to digital currencies, should consider whether at this time, their activities come under the regulation of national or EU legislation.

The MFSA mentioned that: “The MFSA is proposing that, in order to achieve the objectives of financial regulation, certain VCs and activities pertaining to them would be licenced and regulated under a new legislative framework to be drafted by the MFSA and adopted by the Maltese Parliament, the Malta ‘Virtual Currencies Act’.

Additionally, the paper also talks about an act that would impose guidance, rather than affect technological innovation in this domain. Based on this, the paper also states that: “The Virtual Currencies Act and any relevant subsidiary legislation would regulate the carrying on of business associated with VCs falling outside the scope of the existing EU and national financial services legislation and make provision for matters ancillary thereto or connected therewith. The Act would apply a principles-based approach to regulation supplemented by MFSA guidance, rather than detailed rules which would possibly stifle technological innovation.”

It is important to mention that in the past, the MFSA proposed a test whose purpose would be to determine whether cryptocurrencies alongside company-issued tokens can be regarded to as financial instruments under the country’s and/or the EU’s current legislation.

Before the detailed proposals for the legislative framework are made, the MFSA is also actively seeking feedback from industry members.

Many believe that all countries should consider a similar, open-minded approach, in order to help protect the market in case things go wrong, but also to continue encouraging innovation.