On the 24th March 2018, 3 Bills relating to the establishment of a Digital Innovation Authority, the regulation and licensing of innovation technology arrangements and services, and virtual financial assets (hereinafter together referred to as “Bills”) were tabled for their first reading in Parliament. This initiative has been welcomed by the industry, particularly since Malta has witnessed a wave of interest in the cryptocurrency and the distributed ledger technology (hereinafter referred to as “DLT”) industry, as evidenced by the relocation of Binance, the world’s largest cryptocurrency exchange, and OKEx, the world’s second largest cryptocurrency exchange, to Malta. Malta expects a growth in the number of VC companies relocating to its jurisdiction in the next year.
The Malta Digital Innovation Authority Act, 2018 (hereinafter referred to as the “MDIA Act”) shall provide for the establishment of an Authority to be known as the Malta Digital Innovation Authority (hereinafter referred to as the “Authority”). This MDIA Act shall outline the duties and responsibilities of the Authority, particularly the regulation, monitoring and supervision of entities providing innovative technology arrangements and innovative technology services in Malta.
The wide use of innovative technology arrangements may in some instances bring about an overlap between the role of the MDIA and other authorities. In view of this, the MDIA Act shall constitute a Joint Regulatory Efficiency Board (hereinafter referred to as the “JREB”) whose responsibility shall be the fostering of effective cooperation between the MDIA and other competent authorities in innovative technology uses. The JREB shall have the function to facilitate cooperation between the relevant authorities in matters impacting on the use of technology, innovation and the development of Malta as an innovative technologies arrangements hub as well as the implementation of other guiding principles underlying this MDIA Act.
A second Bill entitled the Innovative Technology Arrangements and Services Act, 2018 (hereinafter referred to as the “ITAS Act”), provides for the regulation of designated innovative technology arrangements and services, and for the exercise by or on behalf of the Authority of regulatory functions with regard thereto. Pursuant to the ITAS Act, the Authority shall maintain an electronic register (hereinafter referred to as the “Register”) of all recognitions issued or obtained, a list of all holders of innovative technology authorisations, and which Register shall be available to the public. The Authority shall have the power to certify different innovative technology arrangements, falling within the definition found in the First Schedule of the ITAS Act, for 1 or more specified purposes in accordance with the ITAS Act. The Authority may certify any innovative technology arrangement when it is satisfied that the general and the specific requirements of Article 8 therein have been satisfied. The Authority shall also have the power to accept to register persons providing different innovative technology services as shall be stated in the registration
The third and last Bill that shall be known as the Virtual Financial Assets Act, 2018 (hereinafter referred to as the “VFA Act”), shall regulate the field of initial virtual financial asset offerings and virtual financial assets and to make provision for matters ancillary or incidental thereto or connected therewith. The VFA Act requires any issuer offering a virtual financial asset to the public in or from Malta or applying for virtual financial asset’s admission to trading on a DLT exchange to draw up a whitepaper prior to doing so. Upon being satisfied that the requirements of the said Article have been complied with, the competent authority shall register the whitepaper. An issuer shall also be required to appoint and have at all times in place, a virtual financial asset agent who shall be registered with the competent authority under the VFA Act. An application for a license in terms of the VFA Act shall be made solely through the agent. The competent authority shall establish a public register of all license holders, inclusive of an indication of the virtual financial asset service in relation to which each license was issued.
A license holder shall also be required to appoint an auditor who shall have the duty to:
- Immediately report to the competent authority any fact or decision of which he becomes aware in his capacity as auditor of such license holder which:
- Is likely to lead to a serious qualification or refusal of the auditor’s report on the accounts of such license holder; or
- Constitutes or is likely to constitute a material breach of the legal or regulatory requirements applicable to the license holders in or under the VFA Act; or
- Gravely impairs the license holder’s ability to continue as a going concern; or
- Relates to any other matter which may be prescribed.
- Report to the competent authority any facts or decision as specified in paragraph a. above of any person having close links with such license holder within the meaning in Article 17 of the VFA Act, of which he becomes aware in his capacity as auditor of the license holder or of the person having such close links.
- Simultaneously report the above to the board of administration of the license holder; and
- Report annually to the competent authority on the license holder’s systems and security access protocols in the manner and format required by the said competent authority.
The VFA Act deals with the question as to whom shall be held responsible should any person buying virtual financial assets sustain damages – a question that has haunted the international community since the introduction of such digital products. The VFA Act states that it shall be the issuer who shall be held liable for damages sustained by a person as a direct consequence of such person having bought virtual financial assets, either as part of an initial virtual financial asset offering by such issuer or on a DLT exchange, based on information contained in the whitepaper, website or advertisement by reason of any untrue statement therein.
The 3 Bills have been tabled to Parliament for their second reading on the 23rd May 2018. The industry expects these Bills to be implemented as laws in Malta in the coming months.