Malta, the tiny European island situated in the central Mediterranean Sea between Sicily and the North African coast, has become a leading innovator in the blockchain, cryptocurrency and DLT (distributed ledger technology) space. On July 4th, the Maltese Parliament passed 3 bills into law, establishing the first regulatory framework for blockchain, cryptocurrency and DLT.
According to Malta’s Junior Minister for Financial Services, Digital Economy and Innovation, Silvio Schembri, the passing of the recent laws makes Malta the first country to offer a holistic regulatory framework for DLT operations. In other words, these laws not only deal with digital currencies, ICOs, exchanges, etc. but also focus heavily on other DLT technologies that are not necessarily financially focused.
Rachel Wolfson had the opportunity to sit down with Schembri to learn more about what the Maltese government is doing to regulate the cryptocurrency and blockchain sector, and how Malta is welcoming leading crypto players, like Binance and OKEx, to operate from their tiny island.
Rachel Wolfson: Why is it that Malta has earned the title as being “The World’s Blockchain Island?”
Silvio Schembri: We were given the title as being the world’s blockchain island due to the way the Maltese government views blockchain technology as a whole. While other countries are typically looking at crypto and blockchain for short-term gains, we understand what blockchain technology can offer in the long run.
For example, if a company wants to issue an ICO, a white paper is usually presented with all of the details. Presently, other jurisdictions are looking at what is written in the white paper to see if it is a certified document. However, it is the technology behind the white paper that matters the most and tends to be overlooked. If the technology is flawed, the product won’t deliver what is started in the white paper. We are looking heavily at the technology behind these blockchain-focused companies.
Additionally, we apply high-level principles that reflect the European Union (EU) laws onto our laws. For instance, there are 3 basic core principles that we abide to - market integrity, consumer protection and industry protection. We have based all of our recent laws on these principles, with the aim to bring legal certainty to an environment that is highly unregulated. This also allows our bills to flourish, since we take a principles-based approach, rather than a rules-based approach. That is why Malta is in a situation today where the biggest players in the industry are looking to launch an ICO and come here.
Wolfson: What should companies know if they are interested in launching an ICO in Malta?
Schembri: First and foremost, the message that we want to deliver to the blockchain community is that they are more than welcomed in Malta. If a company would like to issue an ICO here, that company would be allowed a total of 6 months to get in line with the bills we have passed. This will be extended to one year for crypto exchanges. This allows operators time to get in line with what we are proposing.
The bills will take effect this October, as Malta is hosting the DELTA summit from October 3-5, which is the first government backed blockchain conference to take place here. Key players in the blockchain industry will be present, including Bianance, OKEx, Neufund, and others that are announcing they will be operating from Malta. It will also be the first opportunity where Malta’s new government authority will be present to mingle and process incoming applications.
Wolfson: What benefits do blockchain companies and startups receive for being based in Malta?
Schembri: The major benefit is the attitude of the government. The Maltese government has a “can do approach,” meaning if there is an operator that comes up with an idea that the government agrees with, we focus on how we can implement that. There is a strong political will here to change and disrupt.
The ecosystem that we are building here is also unique. For instance, Malta is part of the EU, English is a second mother tongue here and we have highly skilled people, along with the financial service and gaming industries. Recent studies conducted here show that 70% of the skills required from these industries are also common in DLT industries. This means that if someone is working in financial services, they already have 70% of the skills required for the DLT space.
Another point to mention is that Malta has a competitive tax regime that attracts companies. However, we are more interested in having an ecosystem as a whole package that offers more than one reason for operators to be based in Malta. And in terms of geographical positions, Malta is located in the center of the Mediterranean Sea, which is close to Africa and Europe.
Wolfson: What are your thoughts on regulations in this space?
Schembri: Operators are looking for this action to be enacted, which says something. As a government official, I have the intention to say that regulation here is good. However, it is also noteworthy to mention that Malta did not have to amend our present legislation to fit these DLT regulations. For example, other counties and legislatures are modifying their present legislations to fit these products. This approach isn’t future proof though, since the industry is so dynamic. Today we are talking about blockchain, but tomorrow we are talking about new disruptive technologies. That being said, governments have to apply a legislation that is future proof. For example, the Malta Digital Innovation Authority is also looking at AI, IoT, Big Data, etc. We also have an ethics authority in place, as ethical issues with AI, blockchain and DLT can occur.
Silvio Schembri (third from right) at the first reading of the three different bills that regulate DLT
Wolfson: Does it concern you that many ICOs out there are fraudulent/bound to fail?
Schembri: Well yes, and this is one of the main reasons Malta has opted for legislation. When certain countries say that cryptocurrencies are being used for money laundering or for terrorism (and the bad things associated with the black economy), I state the argument that money laundering is already being done with fiat. Furthermore, fiat is not traceable, while cryptocurrency is. Having said that, if the connectors and people behind a specific cryptocurrency have bad intentions, then yes, crypto can be used for harmful purposes.
Having proper regulation that will not stifle innovation will address these issues. For instance, it’s similar to what we did with the gaming industry. Proceeds from gambling can be used for money laundering, if not operated in a regulated framework such as ours - the same can be said for cryptocurrency and DLT activities. This is the argument we used with our European peers, and I must say that the direction from about 10 months ago has shifted more from banning cryptocurrencies towards regulating them. Now, other major countries are speaking about offering a regulatory framework so these activities can operate.
Wolfson: What should cryptocurrency investors and traders know about operating in Malta?
Schembri: The ultimate message we want to convey to investors who operate in the DLT sphere is that they are welcomed in Malta. We think that we have the best legislative framework a country has to offer. Apart from that, the government here has a can do approach and is very business friendly. We believe in this industry. Blockchain is the future and the future is digital.
Photo Credits: Clifton Fenech