On the 30th of January 2023, the Malta Gaming Authority (‘MGA’) published its policy (‘Policy’) on the use of distributed ledger technology (‘DLT’) by authorised persons. Subject to transitory provisions, the Policy is considered effective from the date of publication and shall replace the MGA’s Guidance on the use of Innovative Technology Arrangements (‘ITA’) and the acceptance of Virtual Financial Assets and Virtual Tokens (‘VFA’) through the Implementation of a Sandbox Environment (the ‘Sandbox Framework’).
DLT assets as a means of payment
Prior to the MGA issuing the approval for an applicant to use a DLT asset, the former is to be provided a list of such DLT assets and their classification in terms of the VFA act and/or any other binding instrument.
In case of a DLT asset classified as a VFA, the authorised person shall ensure to adhere to any relevant guidelines and laws. VFAs having inbuilt anonymisation and able to obscure and disguise details pertaining to the sender and/or the receiver or any essential details relating to transactions such as the amount being transferred are prohibited and shall be immediately disapproved by the MGA. DLT assets classified as financial instruments or electronic money may only be accepted as means of payment if specifically approved by the MGA on a case-by-case basis.
A virtual token is a token which is acquired by a registered player from the authorised person’s platform. Registered players may be allowed to convert FIAT currency or VFA into a virtual token. The latter would then be used on the authorised person’s platform according to the platform’s mechanism. Any valid withdrawal request shall be effected in the same currency used to obtain the virtual token.
Approval requirements
An operator is required to obtain prior approval from the MGA in the following instances to cater for instances whereby:
(i) a deposit is initiated by the player in VFA and received by the operator in VFA;
(ii) a deposit is initiated by the player in VFA and received by the operator in fiat;
(iii) a deposit is initiated by the player in fiat and received by the operator in VFA.
With respect to virtual tokens, the MGA shall conduct its case-by-case evaluation by assessing
- Technology;
- Where applicable, the engagement of third-party service providers;
- Company structure;
- Market applications;
- Player protection considerations;
- Security.
A wallet storing VFAs for gaming shall have the following set of basic features:
- A wallet has an address;
- VFAs can be deposited into the wallet; and,
- VFAs can be withdrawn from the wallet as long as there is sufficient balance to allow it.
An application submitted to the MGA for the use of a VFA storage Wallet shall include policies and procedures relating to wallet management and shall, at a minimum, address the following:
- The wallet structure/s, including payment system/s;
- Permissions relating to wallets holding player funds, outlining the persons and/or entities that may have access to them, and where applicable, other permissions, relating to such wallets;
- If the authorised person holds player funds through its own wallet structure/s, the security measures being used to prevent misappropriation and/or unauthorised access to wallets holding player funds.
An authorised person shall keep a record of the transactions pertaining to each respective player including details of any wallets used. Such information shall be made available to the MGA if and when requested.
Limits
Due to the high volatility that VFAs’ value go through when compared to fiat currencies, limits are to be set even when deposits are made in VFA directly. Hence, an authorised person shall provide a player the option to set limits for both fiat and VFA deposits, either collectively or separately.
A deposit may initially be less than the limit however, due to the abovementioned high volatility, such deposit may then exceed the limit set by the authorised person. In cases where registered players wish to deposit an amount which exceeds the limit set, such deposits shall only be accepted after a case-by-case evaluation by the authorised person after taking into consideration the rate at which funds reached the relevant platform/authorised person’s account.
Platform Use Limitations & Control
Platforms accepting both payments in fiat currency and VFAs shall treat both type of payments distinctly. Any acquisitions, exchanges and/or sale of VFAs on such platform shall only be permitted if it is executed solely for virtual tokens.
Deposits or withdrawals executed by a player shall be recorded and registered accordingly by the platform. Any applicable transaction fees shall also be made known to the registered player prior to the execution of any deposit or withdrawal.
The rate of exchange of VFAs shall be that of the VFA exchange elected by the authorised person when seeking an approval from the MGA. In cases where third parties are engaged to provide custodial wallet services may make use of an average of multiple exchange rates..
Innovative Technology Arrangements
An authorised person who intends to make use of an ITA requires the prior approval of the MGA. Furthermore, on a case-by-case basis, the MGA would require that an ITA is audited by auditors and registered accordingly with the MDIA in accordance with the ITAS Act. MGA will only accept an ITA the authorised person adheres to the relevant rules and regulations.
Smart Contracts
For smart contracts to be validly used in a technical setup which is partly or wholly based on DLT, the essential precautions stemming from the gaming law framework, including player protection rules and regulations are to be safeguarded and adhered to. Moreover, a smart contract and its repercussions must be able to be revoked and put to status quo. Should a smart contract not be able to be revoked as mentioned above, the authorised person shall be solely responsible and liable to compensate the player for any loss due to the smart contract’s ‘malfunction’.
About the Author
This article has been authored by Dr Bjorn Camilleri, Regulatory & Business Advisor. For any additional information or support required please contact us on [email protected].
