Malta has moved with impressive agility to develop a framework that embraces progressive fintech and crypto technologies. Malta has recognised the revolutionary potential of blockchain very early on and is busy implementing regulatory and legislative structures that address key legal issues that ensure investor protection, market integrity and the financial soundness of crypto activity.

It is doing so with the collaboration of a number of important regulatory institutions, including the Malta Gaming Authority (MGA), the Malta Information Technology Agency (MITA) and the Malta Financial Services Authority (MFSA).

Malta’s Prime Minister Joseph Muscat said Malta aims to be “the global trailblazer in the regulation of blockchain-based businesses and the jurisdiction of quality and choice for world class fintech companies”.

The result is that Malta is well on its way to becoming a global pioneer in fintech and now has a significant edge over other countries, not just in Europe but in the world. This has made both local and foreign businesses and entrepreneurs excited and the country has seen a recent flurry of investment activity in this regard.

Cryptocurrencies and crypto funds in Malta: The world’s biggest crypto currency exchange – Binance – has chosen Malta for its base and is in talks with Maltese banks to create a fiat-to-crypto exchange on the island, providing its eight million users with an easy way to deposit and withdraw funds from the platform.

This could only happen because Malta is at the forefront in the world to regulate the operation of virtual currencies. In April, Malta’s Parliament approved a cryptocurrency and digital ledger technology Bill, providing legal security for entrepreneurs wishing to do business in this area.  The legislation will ensure technology service providers are registered and DLT platforms certified.

In the meantime, the MFSA has extended the professional investor fund (PIF) regime to allow investment in virtual currencies. The regulator is also proposing a new Virtual Currencies Act to regulate those virtual currencies that are not yet covered by existing legislation.

Malta has upped its game, from a strong and reputable financial services hub to a prime digital economy

Cryptocurrency investment funds are the next generation of collective investment schemes. Businesses can consider a number of fund options, with the peace of mind that in Malta their operations are fully regulated. The fund could be structured to achieve different targets: for example, to gain direct exposure to virtual currencies or to obtain capital for mining equipment, or a combination of both.

Applications for the creation and licensing of crypto funds lodged at the MFSA come with a number of important requirements.

Payment services providers in Malta: If one looks at Malta’s thriving iGaming industry, a sector that by its nature requires payment services and e-wallet solutions, it is no wonder that Malta has become the jurisdiction of choice for PSPs. Apart from the demand for services, businesses benefit from a pro-business eco-system of attractive tax incentives, passporting rights and a value for money proposition.

The number of licensed PSPs grew exponentially for the last few years, making Malta a jurisdiction of choice for this business sector. Activities include the execution of payment transactions, issuing and acquiring payment instruments, and money remittance.

Like other financial institutions, PSPs are not allowed to receive deposits or other repayable funds from the public and must use funds exclusively to provide payment services. Some of the benefits of setting up a PSP in Malta include a highly-skilled English-speaking workforce, a value for money proposition and less stringent regulatory and supervisory requirements than other credit and financial institutions.

Electronic money institutions: A robust IT and telecoms infrastructure has also helped to drive the growth of Malta into one of the best jurisdictions for e-commerce activities. The country has already attracted a number of Electronic Money Institutions (EMIs), which have set up in Malta or passported from other EU states. The country’s EMI licence offers the opportunity to start operations with a lower capital requirement when compared to a full banking licence.

Initial coin offerings (ICOs) in Malta: Malta is the first jurisdiction to set up a framework to regulate ICOs, addressing the financial soundness of collective investment schemes and protecting investors in virtual currencies. Malta already has a highly- regulated and reputable financial services sector. Now it is seeking to repeat this success with new and innovative industries. The new legal framework addresses three key issues: consumer protection, market integrity and financial stability. Consequently, issuers can promise investors peace of mind.

In light of the new legislation that is about to come into force, a significant number of foreign companies have set up offices in Malta, or even relocated entirely, a move that enables them to seek finance for their businesses through ICOs. ICOs are becoming increasingly popular as a way to raise capital, however, they are challenged by the small number of countries that regulate the business. In Malta, businesses will enjoy an environment of technological innovation balanced with consumer protection.

Malta – the home for fintech business: Malta has upped its game, from a strong and reputable financial services hub to a prime digital economy marking firsts in innovative regulated fintech. Interest from foreign investors is at an all-time high as many set up base in Malta and others eye the country and keep tabs on the rapid developments happening in the sector that could offer lucrative business opportunities.

Nicholas Warren is a senior manager in the Financial Services Practice Group at Chetcuti Cauchi Advocates.

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