Malta’s work in regulating its crypto assets industry over the past five years makes it a “pioneering member state in the industry” despite the many “crucibles” faced, according to Malta Financial Services Authority CEO Kenneth Farrugia.

Farrugia was speaking at a conference organised by the authority on the introduction of new regulations aiming to harmonise the regulation of crypto assets across Europe.

The regulations, known as Markets in Crypto-Assets Regulation (MiCA), will force all industry operators in Europe to follow the same rules. Although they were introduced earlier this year, industry players say it will take until the end of 2024 for authorities across the continent to adapt to them.

Insiders say that many of the provisions in these new regulations are already in place in Malta, meaning that relatively little is expected to change within the local crypto assets industry.

The crypto assets market has frequently come under fire, often being accused of serving as a vehicle for financial crime through lax regulatory oversight. Some €60 billion in crypto assets are believed to have moved through Malta in the industry’s early days before regulations were beefed up.

Verena Ross, chair of the European Securities and Markets Authority speaking at the conference. Photo: MFSA

No more ‘wild west’

Speakers at the conference were keen to insist that the industry’s “wild west” days are over.

Admitting that regulation of the market across the EU has been “patchy and light”, Verena Ross, the chair of the European Securities and Markets Authority told conference delegates that while MiCA will go a long way to addressing this, it is “not a silver bullet”.

Ross pointed to Malta as one of the countries that led the way in regulating its crypto assets market, saying that MFSA’s work can serve as a model for other countries trying to adapt to the new rules.

The rules, Ross said, will strengthen supervision of operators within the industry and introduce stringent enforcement whenever there is wrongdoing.

“We often hear that crypto assets are borderless. That may be true of the technology, but not the legislative structure,” she warned.

“As EU authorities we favour a clear commitment to the EU’s regulatory frameworks”.

85% of potential agents left the country

MFSA’s efforts to regulate the fledgling industry were highlighted in a wide-ranging speech by MFSA Chief Officer Supervision Christopher Buttigieg.

Buttigieg admitted that regulation in the sector was initially “weak”, with several concerns within the authority over potential instances of money laundering, scams and cyber risk.

This led the authority to develop a virtual financial assets framework, a test for agents looking to act as agents in the field of crypto assets in Malta.

“We initially had 180 companies registered. After they realised that we were taking it seriously, 85% moved out of the country,” he said.

Ultimately, according to Buttigieg, some 23 companies applied for a licence, with roughly half of them being approved.

“In the end, we had a small industry, but one that can comply with regulations”, he said.