Not a single cryptocurrency exchange has yet been licensed to operate in Malta, the financial regulator has confirmed.

In 2018, at the height of the ‘blockchain island’ hype, several big names in the cryptocurrency exchange world announced they would be migrating to Malta in anticipation of new laws regulating the industry.

Many of those companies started operating right away without a licence, as a generous “transitory period” of up to one year was allowed by the government.

One industry source likened the transitory period to the “wild west”, as the authorities were faced with an explosion of high-risk transactions carried out by cryptocurrency exchanges in an unlicensed environment.

Some surveys had even put Malta at the top of cryptocurrency trade volumes during this regulatory vacuum.

The legal framework paving the way for what are known as virtual financial asset (VFA) service providers was published in July 2018 and bought into force the following November.

Replying to questions by Times of Malta, a spokesperson for the MFSA said it started receiving application packs for licences during December 2019, following the end of the transitory period which expired on October 31.

Anyone who wanted to continue operating after October was expected to submit a letter of intent to the MFSA and file a licence application.

Times of Malta understands that Binance, considered as the world’s largest cryptocurrency exchange, had failed to submit a letter of intent.

Efforts require effective anti-money laundering enforcement

A spokeswoman for Binance declined to comment when contacted.

The MFSA recently distanced itself from the cryptocurrency exchange, whose move to Malta was announced by former prime minister Joseph Muscat in March 2018 as part of the blockchain island rollout.

According to statements by both the regulator and Binance in February, the cryptocurrency exchange is neither licensed nor based in Malta.

The MFSA said the first licence for VFA operators like cryptocurrency exchanges were expected to be issued in the second quarter of 2020.

Asked why no companies had been licensed as operators yet, the MFSA said it was applying high standards in the on-boarding process to ensure only operators who have the required levels of governance to ensure proper business conduct and the highest standards of anti-money laundering controls enter the financial services sector.

The MFSA said 18 applications have been received so far, 13 of which were for VFA exchanges.

Since last April, the MFSA has licensed 20 VFA agents, whose role it is to act as intermediaries between the operators and the regulator.

Malta’s dive into the risky cryptocurrency has drawn a warning from the European Commission about the need for proper regulatory and law enforcement controls.

“In particular, the size of the financial and the gaming sector, the efforts to attract crypto-currency operators require an effective anti-money laundering enforcement,” the Commission said.

Questioned if the regulator was still keen to promote Malta as the ‘blockchain island’ given the inherent risks on the cryptocurrency side, the MFSA spokesperson said it did not take on a promotional role.

“The authority’s role is to ensure that whoever enters and operates in the financial sector in Malta is fit, proper and conducts business to the highest standards of compliance and governance”.

Apart from the hurdle of obtaining a licence, businesses involved in the cryptocurrency industry have struggled to find local banks willing to take on the risk of opening accounts for them.

The MFSA has received at least two applications from prospective banks that could dabble in the cryptocurrency industry.

The Founders Limited has applied for a licence with the stated aim of servicing the tech industry, including blockchain and other emerging technologies.

Laskaris Finance, which has also put in a banking licence application, is part owned by the investment arm of a cryptocurrency exchange based in the British Virgin Islands.

The prospective bank has denied its main focus will be cryptocurrencies.

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