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Malta – A Progressive Regulatory Approach to DLT, AI and Cryptocurrencies

Malta’s progressive attitude towards DLTs and Artificial Intelligence has led to a world first legislation which governs those entities providing services to the crypto and digital asset space including crypto custodians and crypto exchanges. Through the Virtual Financial Assets Act (VFAA), the Malta Digital Innovation Authority Act (MDIAA) and the Innovative Technology Arrangements and Services Act (ITASA), Malta has laid down a robust platform for operators in this field.

Under the VFAA, no person (individual or legal) can provide a VFA service in or from within Malta unless it is licenced by the Malta Financial Services Authority (MFSA) prior to commencing operations.

Whilst the MFSA is the lead regulator innovative technology arrangements, including DLTs and smart contracts may be referred to the MDIA for further certification. In fact, in tandem with the MFSA the MDIA requires entities within such space to follow its guidelines and requirements and stress the need of having a blue print of how the innovative technology arrangement will work. Entities can on a voluntary basis, also apply with the MDIA to have their innovative technology arrangements certified.

A Systems Auditor, i.e. an entity which has sufficient knowledge and experience within the DLT and innovative arrangements also needs to be appointed in order to certify that the technology arrangement being set up does not go against the spirit and application of the laws, whilst also providing assurances to clients of such exchanges and custodians that such operators are acting with the principles of consumer protection, market integrity and stability of the local financial markets.

In order to be able to establish a Virtual Financial Asset Exchange, Crypto Custodian or other related service provider in the crypto space, an applicant must be able to undertake and pass the fitness and properness test, have a physical operation on the Island and appoint a VFA Agent, who shall represent the client at all stages with the MFSA. The applicant must also satisfy and have sufficient capital resources on an ongoing basis and also undertake the financial instrument test.

The benefits of establishing in Malta are many. The most prominent is that there is an established legal framework, which shall give applicants stability in terms of regulatory requirements.  Another important factor is the backing to the industry being given by both sides of the house of parliament, the regulatory bodies knowledge and understanding as well as willingness to meet with potential applicants and a robust tax framework which is in line with international standards and requirements.

About the Author

This article has been authored by Nicholas Warren –  Senior Manager Financial Services and Blockchain. He holds over 16 years of consultancy experience to international clients on the various possibilities presented by Malta as a Financial Services Centre.

Should you require any assistance in relation to setting up a Fintech business, please get in touch with our team on [email protected].

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