Malta: Lovely Sanctuary for Crypto Firms
Malta, an island country located in the Mediterranean between Sicily and the North African coast, is positioning itself as a safe haven for cryptocurrency exchanges with its arguably the “most forward-thinking regulatory agenda.”
The European state has managed to attract numerous blockchain businesses including cryptocurrency exchange Binance and equity fundraising platform Neufund, according to Marlene Ronstedt, who used to work as a writer and journalist.
This made Malta the top ‘tourist destination’ for crypto trading based on a recent study by Morgan Stanley, Ronstedt said in her article published on CoinDesk.
“Malta has achieved this in part by removing regulatory uncertainty. Also, in contrast to other jurisdictions, Maltese legislators understand that blockchain is much more than just cryptocurrencies. And Malta is not simply being lenient to attract business, which could be said of Zug, Switzerland – whose loose interpretation of what constitutes a non-profit attracted many crypto companies, which fundraised in the name of the social good to skirt U.S. securities law,” Ronstedt said.
In the early part of 2018, the country released its legal framework defining decentralized autonomous organizations (DAOs) as a new type of legal entity dubbed as technology arrangements. It also enacted a legislation called the Technology Arrangement Bill and the Virtual Currencies Bill. The government would also create a new regulatory body known as the Digital Innovation Authority (MDIA).
MDIA will be responsible for auditing the code of smart contracts instead of issuing licenses, as well as determining whether a certain entity has met all the requirements for securing a licenses from them. It will also audit the code of DAOs and confer the classification of a “technology arrangement,” which is akin to a limited company. This title is a legal architecture giving a DAO rights similar to a registered firm. However, DAO doesn’t need any managerial oversight.
The process is done through the “financial service test” to find out whether a particular financial product or business falls under the existing European MIFID framework. If that product fails the test, the MDIA is handling the licensing of a business and auditing code being examined by third parties to avert any form of ‘bottlenecks’ since a lot of companies are expected to line up to get their licenses.
This legal arrangement, which never existed in most parts of the world, may open the box for questions.
“The task wasn’t just limited to creating an artificial legal personality, we also had to analyse how the technology has come about and predict how it might evolve,” Abdalla Kablan, a Maltese fintech entrepreneur and blockchain expert, explained. He has been advising the government and wrote parts of the legislation.
“The idea was to get the public to become aware and understand that it may be beneficial to society as a whole to recognize that a technology arrangement could indeed operate better and more safely if it had a legal personality allowing it to take into consideration all the rights and remedies in case of financial or even ‘physical’ harm, to all those around it,” Kablan said.
Whilst Malta is ensuring its future though laws, it has presented some implications for the crypto community wherein autonomous robots can possibly run operations as “legal personas.”
“Consider this: A DAO can do the same things a corporation can, but instead of shareholder resolutions or management actions, the decisions are made and executed by artificial intelligence and smart contracts,” Ronstedt said.
Ronstedt explained that like any other legal person, a Maltese DAO incorporated as a ‘technology arrangement’ entity could purchase a real estate property in another European country.
“The moment the law was be enacted in June, a Maltese DAO could legally acquire land in all other 27 EU member states. Due to an EU treaty, member states are obliged to acknowledge the existence of legal entities or legal personas from other member states,” she said.
This means Germany, France, and other European Union nations cannot prohibit robots, artificial intelligence, or software from acquiring lands or sealing a deal. Moreover, they cannot simply erase legal personalities from its member countries.
At present, the EU has no legal framework governing activities driven by the blockchain technology even though European authorities are considering to institute such a regulation.
In the event a blockchain-related law has been enacted, Ronstedt raised the question of whether Malta would be able to maintain its status as the blockchain capital.
“Definitely, we think. Beyond the law, the country is working on creating an entire blockchain ecosystem. This includes new programs and departments at universities, as well as co-working spaces aimed at blockchain companies,” she said.
“Even the bravest projects, tech-related or not, require the right environment to grow bigger and stronger and we are determined to offer that environment in Malta,” Silvio Schembri, Malta’s Junior Minister for Financial Services, Digital Economy and Innovation, said.