EU’s crypto regulation ‘a moment of vindication for Malta’ – experts have their say

Last week, the European Parliament formally approved a comprehensive legislative framework for crypto assets, heralding a new era for the technology and the markets it created.

Although the Markets in Crypto-Assets (MiCA) regulation still needs to pass through the European Council, that step is considered to largely be a formality at this point.

Ernest Urtasun, a Green MEP from Spain who is co-rapporteur for the Economic and Monetary Affairs Committee on crypto-asset transfers within the European Parliament, said: “Currently illicit flows in crypto-assets are moved swiftly across the world, with a high chance of never being detected. The [new legislation] will oblige crypto-asset service providers to detect and stop criminal crypto flows and also ensure that all categories of crypto companies are subject to the full set of anti-money laundering obligations. This will close a major loophole in our AML framework and implement in the EU the most ambitious travel rule legislation in the world so far, in full compliance with international standards.”

BusinessNow.mt reached out to three key stakeholders in Malta’s crypto sector to see what they think of the new rules.

Professor Joshua Ellul –  Director of the Centre for Distributed Ledger Technologies at the University of Malta and former chairman of the Malta Digital Innovation Authority

MiCA definitely has similarities to Malta’s VFA framework with respect to (1) how it classifies crypto/tokens, and how it makes primary reference to existing financial instruments and money classification (e.g. if a token should fall under MiFID); (2) the focus on regulating crypto service providers and their requirements to follow AML rules; and (3) in being a tailor-made comprehensive regime specifically for crypto-assets.

Many say that Malta’s VFA framework is ‘MiCA-ready’, given that it has an existing and operational comprehensive regime in place, that only requires minor adjustments to be aligned with MiCA, whilst other countries still have to put in place all requirements from scratch.

There are however some notable differences in the frameworks:

1. Malta’s use of authorised VFA agents: I believe this will in future be seen as a good option when the EU tries to regulate more decentralised services (DAOs, DeFi, etc).
2. Higher requirements: Malta’s VFA framework required higher amounts of share capital and other financial assurances, whilst MiCA has indicated lower amounts. I believe this shows that Malta did indeed take a cautious approach to regulating the sector, and that crypto is today seen as less risky than it was just five years ago. It is also important to note that Malta did not see an FTX-like debacle occur within its regulatory framework.
3. Malta put extensive effort in place to provide technology assurances for the more decentralised services (those that depend more on smart contracts). MiCA has not yet ventured in this direction since it focused on centralised service providers. Currently this is a large gap in MiCA and EU’s framework if it wants to really provide consumer and market protection for the more decentralised services. In the meantime, Malta’s ITAS framework provides a solution to this.

A comment about MiCA and all the other proposed regulatory frameworks: most of the regulation is not innovative, in the sense that it focuses on typical centralised regulation for centralised entities. As the EU and the world look into the how to regulate the more decentralised services (DeFi and DAOs), new types of regulatory solutions will need to be investigated to handle regulation of decentralised organisations – something which the world has never done before.

It is for this reason I focused on putting in place a sandbox environment at the MDIA as I was finishing my term, since regulatory sandboxes allow for flexible and evidence based regulation. Since we are dealing with a new type of unchartered regulation the world does not know what will work, regulatory sandboxes are well-suited for this.

The EU has since put in similar directions for the regulation of AI (through the definition of AI regulatory sandboxes in the AI Act); and also launched an EU-wide DLT sandbox ( https://digital-strategy.ec.europa.eu/en/news/launch-european-blockchain-regulatory-sandbox ).

Ultimately, MiCA drew extensive inspiration from the VFA, and this puts Malta at a good position to attract such business in the short-term.

Anyone interested in finding out more about this subject, the Centre for Distributed Ledger Technologies will be organising a webinar titled ‘From Blockchain Island to MiCA’ on Thursday 4th May. Follow our Facebook Page for more information.

Wesley Ellul – Serial founder and entrepreneur specialising in tech, blockchain, social gaming and entertainment consultancy

It’s really simple – some forms of regulation are an amazing thing for crypto.

Why? Because it builds trust.

And now that the European Union are doing this on a Europe-wide scale – it means there are more opportunities for businesses to utilise these amazing emerging technologies for their own businesses.

MiCA will also give confidence to individuals who may have been afraid. It will allow institutional investors to start experimenting in this new asset class – because without regulation, they just simply cannot legally participate no matter how amazing they thought the space was.

The new MiCA regulation is also a testament to what a solid and strong regulatory framework Malta proposed back in 2018, with the new MiCA regulations almost being identical to our own (maybe slightly more startup friendly).

In fact. Malta, as one of the few regulatory frameworks that will be leave holders next to no work to get their MiCA license – those who opted to continue down the route for the Malta licence are going to see their investment pay off very fast, while those who went for some of the more ‘enient’ licences will face a lot of legwork to try to come in line with MiCA

With these checks and measures now in place at European level, we should see this industry flourish, because founders now know the playing area they can work within, and also what is at stake should they not keep their end of the bargain.

Overall, this is a huge step forward in the trust factor for the industry.

Dr Jonathan Galea – CEO of BCAS and executive committee member of The Malta Chamber’s VFA Business Sector

Last week marked a monumental moment in the history of crypto’s regulation, as the European Parliament formally approved the most extensive regulatory framework to date in relation to crypto-asset issuers and service providers.

While the speed at which the Markets in Crypto Assets Regulation (MiCA) was developed was initially spurred by Facebook’s proposed own stablecoin and payments system, the growth of the crypto market in general as well as the FTX incident further underlined the need for a holistic approach across the EU in terms of the treatment of crypto-assets and centralised players within such ecosystem.

Incidentally, last week was also a moment of vindication for the Maltese legislators and regulators alike, with MiCA being very similar in substance and nature to Malta’s Virtual Financial Assets (VFA) framework; so much so, in fact, that the VFA framework remains the closest national regulatory framework to MiCA, out of all those enacted by other EU Member States.

This is impressive especially considering that Malta was also the first EU Member State to roll out a comprehensive legislative regime on crypto back in 2018, five years before MiCA’s formal approval.

With five years’ worth of experience under the regulatory authorities’ belt, as well as the fact that Malta is the only jurisdiction so far able to securely grant an additional 18 months of grace period to its nationally regulated VFA Service Providers so to continue operating seamlessly under a VFA licence following MiCA’s applicability, Malta once again has a clear chance of driving back to pole position and continue trailblazing in this sector.

The only thing that is left is for the Government to realise the potential that Malta has to become a clear leader in a field that that represents the future of the financial system, and grant its full support to the industry once again.