The government of a tiny archipelago nation in the central Mediterranean has embarked on a journey to be the first to fully regulate blockchain-based digital currencies such as Bitcoin. In February 2017, Maltese Prime Minister Joseph Muscat first laid out the idea that Europe should become the “bitcoin continent” at the Centre for European Policy Studies (CEPS) Ideas Lab conference in Brussels.
The Malta Gaming Authority (MGA formerly LGA) commissioned a report that was conducted by London-based PricewaterhouseCoopers (PwC) and a virtual currency task force established in September 2017 began looking at a way to test a ‘mock’ digital currency in a totally controlled environment, sometimes known in testing circles as a ‘sandbox’. A spokesman for the PM said: “We would like to be the first country to regulate crypto-currency and blockchain,” according to a report in the Malta Times.
According to plans at the time, the ‘test’ virtual currency was to be integrated into but insulated from the economy of Malta.
Although Malta was not the first to use the sandbox concept it is most likely to be the first to actually regulate blockchains and digital currencies.
In March 2016, the UK launched the SFC – Securities and Futures Commission’s Fintech Contact Point and Fintech Advisory Group and introduced a regulatory sandbox in late September 2017.
Last month, the U.S. Treasury’s Office of Terrorism and Financial Intelligence told attendees at the Securities Industry and Financial Markets Association Anti-Money Laundering and Financial Crimes Conference in New York: “The lack of AML/CFT regulation of virtual currency providers worldwide greatly exacerbates virtual currency’s illicit financing risks. Currently, we are one of the only major countries in the world, along with Japan and Australia, that regulate these activities for AML/CFT purposes. But we need many more countries to follow suit, and have made this a priority in our international outreach.”
Cryptocurrencies like Bitcoin, Litecoin, and Ethereum – along with some 1,500 other “altcoins” have shown that they are capable of capturing huge sums of capital no longer attached to fiat, or government printed currencies. While the value of Bitcoin (BTC) and other heavily traded decentralized digital currencies is often gauged by market capitalization and individual coin price in euros or US Dollars, they actually operate in an environment all their own. It could even be argued that crypto-currencies have the potential to “flip” the formula and not only influence but dictate the value of traditional money markets.
Malta is an important world player in the online gambling regulatory scheme with over 500 licenses under their jurisdiction. While the Gambling Commission in the UK (UKGC) provides direction and oversight within the UK, even pre-Brexit vote, players in more than 20 other European countries rely on the MGA to look out for their best interests. In the footer of many European-facing online casino websites, you will find three licenses. Gambling Commission (UK), MGA (the rest of Europe) and Curacao (everywhere else).
Those familiar with regulatory matters will notice that the efficacy of each of those jurisdictions declines from the robust and mature UKGC to the evolving MGA, and finally to the Caribbean where scarcely more than KYC/AML are actually regulated.
The MGA has finally introduced a comprehensive framework for gambling regulation and has presented it to Parliament, according to Maltese iGaming law specialists the E&S Group. The new gaming bill would put Malta on par with the UK and includes some sweeteners for white labels and other B2B (business to business) activities that could be exempted from taxation.
In parallel developments, three bills were introduced to the public comment process, which concluded March 9, and once compiled the bills will be presented to parliament. Depending on the final outcome, these bills will set the framework for Malta to execute the PM’s vision and create the world’s first regulated digital economy.
The process is seen as occurring in three steps: The Digital Innovation Authority (MDIA Bill), the Technology Arrangement and Technology Service Providers (TAS Bill), and the Bill Regulating Virtual Currencies and ICOs (VC Bill), according to Maltese corporate law firm, Camilleri Preziosi Advocates.
The MDIA Bill would create the Malta Digital Innovation Authority which would offer the oversight of all other related agencies as well as serve as the central regulatory authority. It would also be tasked with promoting the framework to attract businesses involved in blockchain technology and cryptocurrencies.
The TAS Bill would be far-reaching to eventually include the regulation of artificial intelligence and IoT, but initially would oversee distributed ledger technology (DLT) and smart contracts. Registration under these provisions would be voluntary, at least initially.
The virtual currency or VC bill would see the regulation of all services in virtual currencies such as exchanges, brokers, asset managers, and wallet providers. The overarching purpose of the bill would be the regulation of initial coin offerings or ICOs.
As mentioned, the public comment period has ended. However, the Consultation Document offers advanced insights and paints a complete picture of the tremendous and important development potential. The CD can be read in its entirety here (PDF).