Parliamentary Secretary for the Digital Economy Silvio Schembri "strongly believes" once new laws surrounding Blockchain technology and cryptocurrency are enacted in Malta, banks would be less reluctant to welcome companies working in the industry, presumably due to the legal certainty it would provide.
Last year, Malta's largest bank, Bank of Valletta, banned its clients from purchasing cryptocurrencies such as Bitcoin.
Cabinet yesterday approved three bills which were also presented to Parliament for its first reading : Malta Digital Innovation Authority Bill, the Technology Arrangements and Services Bill and the Virtual Financial Assets Bill will be presented to Parliament for its first reading this evening in Parliament (Tuesday).
The Bills are to provide legal certainty for both businesses and individuals looking to plug into the world of Distributed Ledger Technology such as Blockchain as well as cryptocurrencies in a currently unregulated market.
Many professionals have remarked that since the EU implemented the fourth anti-money laundering directive and more stringent due diligence and Know Your Client (KWC) procedures, non-EU traditional companies and businesses looking to set up in the EU are finding it extremely difficult to have bank accounts set up and financial transactions approved. This has raised concerns for financial practitioners within the EU who say that their work has significantly slowed under the new rules.
In view of this environment, The Malta Independent asked Schembri about whether DLT and cryptocurrency companies looking to set up in Malta due to the government's commitment to propel the island forward in this sphere are finding difficulty or fearing that banks will not allow them to set up bank accounts which are essential.
In response, Schembri said:
"I understand that nowadays we are operating within an environment that is not regulated [referring to Blockchain and cryptocurrencies]. I can understand the reluctance of banks not to open up accounts in this type of industry. I strongly believe that once these laws will be enacted, this will answer a lot of questions especially when it comes to Anti Money-Laundering and KYC issues.
"I can understand today's situation, without these Bills we have these questions unanswered, but I think these bills will answer those questions."
What is a Distributed Ledger Technology (DLT)?
DLT technology is an ever-growing list of records, called blocks, which are linked and secured using something called ‘cryptography’. Each record has a link with the previous record, or block, and contains a timestamp as well as transaction data. Massive amounts of data can be crypted onto a single block in just 256 characters, creating massive possibilities when considering the space and processing power it takes to store massive amounts of data such as in national hospitals.
Once the record is issued with a timestamp, it is not possible to alter or tamper with that information. While the majority of people find this new technology difficult to grasp, in practice it could potentially bypass lengthy procedures in day-to-day life.
What are the three Bills all about?
The role of a Malta Digital Innovation Authority, which would be created through the first Bill presented, will take various forms, however one of the key functions would be to certify DLT platforms which provides legal certainty for companies or people who wish to make use of them.
Currently, if a company wants to make use of a DLT platform to effect cross-border payments in order to cut out central authorities and make the process less expensive and more efficient, it would have to make use of a platform that is not certified in any way.
Through the creation of the authority, this government agency would certify a particular platform, for example blockchain, and certified surveyors within the authority would verify that the information being logged on the platform, for example that X amount of money needs to go to Y company, is genuine information. Companies benefit from the peace of mind that the DLT platform they have engaged in is genuine, providing legal certainty and trust, while also making its operations more efficient by cutting out middle-men such as banks.
The Bill regulating the authority focuses on internal governance arrangements such as the composition of the Board of Governors, the employees and officers, conduct of its affairs, relevant financial provisions, joint co-ordination board and a national ethics committee.
Its goal is to promote governmental policies that favour the development of Malta as a centre of excellence for innovative technology, including the adoption of such innovative technology in public administration by the government. It is also tasked to promote education on ethical standards and legitimate exploitation, as well as to foster, promote and facilitate the advancement and utilisation of innovative technology and its design and uses.
The second Bill deals with setting up a regime for the registration of Technology Service Providers and the certification of Technology Arrangements through the system administrators and system auditors. Lastly, step three will launch a Bill that will set out the framework for Initial Coin Offerings (ICOs) and the regulatory regime on to the provision of certain services in relation to virtual currencies.
ICOs are ways for new digital currencies to create financing, by offering investors the new currency in exchange for other established ones such as Bitcoin and Ehterium.
The intermediaries subject to the virtual currency Bill include brokers, exchanges, wallet providers, asset managers, investment advisors and market makers dealing in virtual currencies (to be issued by the MFSA).
Speaking at a press conference this afternoon, Schembri noted the overwhelming response by interested companies and international regulators from all over the world leading to constructive and practical feedback.
After the Bills are presented to Parliament for the first reading, a debate will ensue between both sides of the House before it is passed into law.