Malta’s cryptocurrency flop: 70% of firms have given up on getting licensed

Malta’s hyped-up ‘Blockchain Island’ dream has come to an end, at least for cryptocurrency companies: around 70% of the firms that once gave notice that they will form part of the island’s pioneering legislation on virtual financial assets, have not requested to be licenced.

In a statement from the Maltese financial regulator, 57 companies which in 2018 set up shop in Malta to enter a transitory period before they could become licensed, did not give formal notice to start official licensing six months after the deadline expired.

Only 26 companies, mainly cryptocurrency exchanges, have proceeded to initiate the application process for a VFA services licence, which are still being vetted by the MFSA – not one company was ever licenced in Malta.

Industry sources had pointed out that MFSA standards for VGA service providers had been high. Even Binance, the cryptocurrency exchange giant which lent its face to Malta’s crypto dream, never requested VFA licensing and only set up back-office activities.

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Instead, the companies which were supposed to either issue a letter of intent to start licensing, or send the MFSA a cessation of activities notice, after the one-year transition, did nothing.

“Following the expiry of the transitory period, the MFSA is aware of a number of entities which have availed themselves of the transitory provisions – providing VFA services – but have failed to submit either the letter of intent to initiate the application process for a VFA services licence or a cessation of activities notification,” the MFSA said in a statement.

The MFSA now said these entities are not licensed, and are not authorised by the MFSA to provide any VFA services or other financial services, nor have they initiated the application process to obtain a VFA services licence.

Included in the list is Palladium Exchange, which is owned by the Global Capital asset management firm. The company had appeared besides Prime Minister Joseph Muscat at the Malta Stock Exchange to launch an initial coin offering (separate to Global Capital).

Palladium had launched what it said was the world’s first-ever initial convertible coin offering (ICCO), to raise €150 million and allow investors to convert their purchased tokens into company shares three years after their issue date. The plan was to invest 50% of proceeds into the acquisition of a controlling interest in a European bank, and another 35% to develop a crypto exchange.

The list of unlicensed VFA service providers published today had been reminded on multiple occasions by of their obligation to notify the MFSA since 1 November, 2019.

“The MFSA would like to remind consumers of financial services not to enter into any financial services transaction unless they have ascertained that the entity with whom the transaction is being made is authorised to provide such services by the MFSA or another reputable financial services regulator.

“Financial regulations oblige licensed entities to comply with strict legal requirements in the interest of investors and the integrity of the market. The activities of unlicensed entities are unregulated, making transactions with such entities risky for investors.”

The Virtual Financial Assets Act establishes the regulatory regime governing ICOs, cryptocurrency exchanges, and wallet providers. Malta has already 21 VFA agents, the corporate service providers that assist VFA service providers.

Apart from that, various companies associated with the Maltese government closed within months of their setting-up.

A Malta-based cryptocurrency exchange shut down less than a year after it was launched by a major South Korean company. Coinone Global Exchange (CGEX) was operated by South Korea’s largest cryptocurrency exchanges.

Blockchain company Omnitude, which partnered with the Maltese government to enhance public transport services, ceased operations after claiming it was misled on funding.

Right of Reply from the MFSA

The MFSA wishes to clarify that, contrary to the impression given in the said article, blockchain refers to the use of distributed ledger technology (DLT), and such technology in its broadest sense and various types of applications, is certified by the Malta Digital Innovation Agency (MDIA). The MFSA authorises the use of Virtual Financial Assets (VFA) for financial services, where such crypto-assets use tokens on underlying DLT frameworks.