Malta inches closer to being first country with blockchain legislation

A regulatory authority to oversee innovative technologies that provide for decentralised electronic record-keeping will soon be set up as part of government's drive to capture a nascent market.

Electronic record-keeping, of which blockchain is an example, is set to transform the way entities and governments do business. These technologies are collectively known as distributed ledger technologies (DLT).

This will allow Malta to become a world leader in economic innovation, Financial Services Parliamentary Secretary Silvio Schembri said on Friday. He was speaking at the launch of a public consultation on the three proposed laws.

Schembri said this drive would give rise to an industry that could be bigger than the existing igaming industry within five years.

The technology, which is still in its infancy, currently operates in an unregulated market, Schembri said, adding that there was great interest from across the globe in the government’s plans. 

He explained that such systems could be used for cross border payments, such as in the oil and gas industry, where operators wanted to have “immediate and transparent transactions”.

Similarly, he said there were applications in the music industry, related to the collection of royalties, as well as smart contracts, allowing individuals in one country to purchase property in another, without the need for middle-men.   

The proposed laws

Schembri said that once a three-week public consultation was concluded, the government would be presenting parliament with three bills. One bill, the MDIA bill, will provide for the establishment of the Malta Digital Innovation Authority, which will act as a central regulator and “will promote government policy that favours the development of Malta as a hub for new and innovative technologies”.

Cryptocurrencies like Bitcoin use blockchain technology to function

The authority would work to foster an ecosystem that will turn Malta into a technology hub, promoting the implementation of new technologies, and incentivising operators to work out of Malta. 

A second bill, the TAS bill, will set out the regime for the registration of Technology service providers and the certification of “technology arrangements”. This framework will allow for the registration of auditors and administrators of DLT platforms and their certification. 

Finally, the VC bill will be setting out a framework for initial coin offerings (ICOs) and the regulatory regime on the provision of services related to virtual currencies. 

The intermediaries subject to the VC bill will include brokers, exchanges, wallet providers, asset managers, investment advisors and market makers dealing in VC.

“The purpose of these laws will be to provide legal certainty to a space that is currently unregulated,” said Schembri. “It will provide an environment condusive to this technology, and it will make Malta the natural destination for businesses working in this field.”

Under the new legislation, three different DLT platforms will be regulated:

1. Private platforms designed for private consumption, like financial institutions interested in creating DLT platforms for paying their employees. 

2. Private platforms, that will be extended to third parties, including firms wishing to create platforms for their clients. 

3. Totally public platforms with a “share consensus mechanism”, such Ethereum and Bitcoin. 

Consultation and international interest

The junior minister said the government had undertaken an extensive consultation process with all regulatory authorities including, MITA, the Malta Communications Authority, the Malta Financial Services Authority, the Malta Gaming Authority, and the Central bank. 

Moreover, he said that government had also consulted with other interested parties that would be affected directly or indirectly including the Police and the Financial Intelligence Analysis Unit. 

He said there was “huge interest” from the global industry, adding that meetings had also been held with operators in the United States, Europe and Asia.

The proposed laws, he said would protect Malta’s reputation abroad, while also taking into account its international commitments. 

Furthermore, he said the new authority would have the necessary expertise to advise other authorities, and would act as a consultative body to operators in the field.  

Schembri stressed that the new authority would in the future, also have its remit extended to Artificial Intelligence and Internet of Things platforms.

He went on to explain that the new authority would also be creating a new niche market by registering system auditors to certify the technology used by different service providers.  

‘Why we are doing this’ 

Schembri said that the government was driven by the need to offer “market integrity, market stability and investor protection”.

Through the legal framework, he said the government would be “answering a lot of questions surrounding these services and this economy”. 

“We would like to be leaders,” said Schembri. “What are presenting here is serious work. We are ready to start.”