The Malta Advantage

How will the EU regulatory framework for digital assets impact Malta’s offer in the space?

The introduction of a proposed level playing field across the EU through the Markets in Crypto-assets Regulation (“MiCA”), will undoubtedly test Malta’s competitive advantage among promoters and service providers seeking a regulated forum for the issuance and establishment of digital assets. This, however, is a challenge which should be met with optimism rather than scepticism. Malta’s regulatory bodies and industry professionals have gained industry know-how by actively being on the ground and working with such business models for the past years. This is an invaluable asset which should be showcased. Also, it is to be noted that the introduction of a harmonised framework will not spell the end of the local regime. Rather, it will ‘refine’ it to ensure that the framework meets the minimum standards which will be set out at a supranational level. When you consolidate the aforementioned two notions together, it is safe to say that with the correct optimistic mindset, Malta can retain its competitive offering despite facing increased competition.

What do you foresee will be the most significant changes to the island’s proposition?

In large parts, the MiCA, as proposed, runs parallel to the standards currently set out in the local regime. However, when considering the detail of the proposed EU framework, it is expected that, on the digital issuance part, Malta’s pre-approval approach to issuers of digital assets is transformed into a more attractive notification process. Moreover, it is expected that the way in which technology audits are performed and the level of information disclosed to investors, on the technical infrastructure of an offer, are aligned across the EU. On the digital asset service provider front, it is expected that heightened consideration is afforded to the concept of market abuse and that the authorisation and supervision of such providers is subject to pre-imposed deadlines and benchmarks. One can also expect that the high standards imposed by the local regime in the fields of AML/CFT, conduct of business and investor/consumer protection are retained, even though, Malta has already made the necessary amendments to its AML/CFT framework to cater for virtual financial assets.

How can Malta differentiate itself when European law may seek to harmonise the landscape?

Malta’s experience is key here. Being such a disruptive and fast paced industry, the lessons learnt through Malta’s regulation of digital assets and distributed ledger technology, ahead of most jurisdictions at a global level, is an invaluable tool. This can ensure Malta remains and becomes an even more attractive proposition for promoters of digital asset-related ventures. The adoption of digital asset regulation and rules, and the fact they have already been tested within the market, in a number of fields (for example, AML/CFT, remote gaming, system audit and certification of platforms) also provides Malta based professionals and service providers with a ‘boost’ of sorts when it comes to interpretation and application of laws and regulations in practice. On the operations side, it should be noted that despite the onerous requirements associated with this regulation, financial and credit institutions based in Malta are already in an industry know-how position and the labour market is composed of individuals who have gained invaluable experience in this field. This is bound to make the process of setting up shop in Malta smoother.

What are the primary benefits for digital asset managers setting up in Malta?

As a service provider for virtual financial assets (VFA), a digital asset manager benefits from in-depth guidance on conduct and ongoing obligations pertaining to their day-to-day operations. This guidance has been refined since inception to cater for practical obstacles and the realities within the industry. Additionally, in the form of the Malta Digital Innovation Authority (MDIA), a Malta based digital asset manager has the ability to audit and certify any innovative technology arrangement which it avails of, adding a layer of legitimacy in due course. The growth in number of licensed VFA service providers is also providing asset managers with fully authorised execution and trading venues where such providers may conduct their management activity accordingly in an ambience of similarly applied rules and standards. This minimises risks and impracticalities brought about by varying regulatory regimes. It is also interesting to note that the EU framework has not included ‘portfolio management’ as a service subject to authorisation. Accordingly, should this remain the case, and should Malta retain portfolio management as a ‘VFA service’, then the island will be in a position to offer such service providers an authorisation seal of approval.

This article was originally published on Hedgeweeks' "Digital Assets in Focus 2021" on 2nd March 2021.

About the Kyle

This interview Features Kyle Scerri, CSB Group Regulated Industries and Compliance Advisor. For any additional information or support required please contact us on [email protected].