Blockchain Archives - EMCS

Blockchain – The New Regulatory Framework

sadmin — Tue, 31 Jul 2018 11:58:44 +0000

The Malta Chamber of Commerce, Enterprise and Industry in collaboration with EMCS organised an information session on the new Blockchain legislation which was recently approved by the Maltese parliament.

"Blockchain has the potential to create new foundations for global economic and social systems rather than be a disruptive force towards traditional business models" said Mr Frank V. Farrugia President of the Malta Chamber of Commerce, Enterprise and Industry as he was addressing ‘Blockain – The New Regulatory Framework', an event organised by the Chamber in collaboration with EMCS.

"Blockchains promise to provide corporations with efficiencies in global supply chains, financial transactions, asset ledgers and decentralised social networks" Mr Farrugia said.

The President welcomed the recently approved regulatory framework which he called a first step in the right direction. "Malta is being among the first countries to implement regulatory frameworks to attract new investments as it has done in the past in financial services, aviation, pharmaceutical companies and remote gaming" he concluded.

Addressing the seminar, Parliamentary Secretary for Financial Services, Digital Economy and Innovation the Hon Silvio Schembri said that Malta became the first world jurisdiction to offer a holistic approach to regulate Distributed Ledger Technology.

"The highly anticipated bills are now enacted into law" Hon Schembri said. "The establishment of the Malta Digital Innovation Authority will focus on innovative technology arrangements and their use cases. At initial stage, the Authority will only focus on DLT and related Smart Contracts. At the moment, the Authority is working on the rules and procedures to be issued for public consultation and gather the feedback of the industry. This new technology is expected to impact various industries and thus it is important that there is a framework for cooperation between the MDIA and other authorities."

The Parliamentary Secretary also spoke about the Delta Summit - the Malta Government official Blockchain event that is going to be organised between the 3rd and 5th October. "This will serve as an opportunity to meet the first world regulator and demonstrate how far Malta has gone to become an innovation pioneer" the Parliamentary Secretary concluded.

Dr Gerd Sapiano Analyst, Securities & Markets Supervision Unit, MFSA, explained that the regulatory framework being proposed seeks to ensure investor protection, promote market integrity and safeguard financial stability. Dr Sapiano highlighted that the framework shall: set out the various requirements which operators in the field must adhere to; replicate the high level principles of EU market abuse; and impose requirements which extend beyond the fifth anti-money laundering directive.

Mr Silvan Mifsud, Senior Manager – Advisory Services, EMCS, delivered an overview of the Virtual Financial Assets Act. In a technical presentation he explained the definitions of DLT assets under the Act, licensing process of ICOs and of VFA service providers, the Financial instrument test and the anti-money laundering requirements.

Mr Gordon Micallef Partner, RSM Malta, spoke about the Innovative Arrangement and Services Act, and the Malta Digital Innovation Authority Act. Mr Micallef explained how primarily, the purpose of the ITAS Act is to lay grounds on which authorisation of an arrangement or service shall be granted by the MDIA. "The MDIA Act, on the other hand, outlines guiding principles for the Authority in supporting the development of innovative technology arrangements and services in Malta" Mr Micallef explained.

Mr Kenneth Farrugia Chief Business Development Officer at Bank of Valletta said that from an industry perspective, banks and financial services organisations are following progress in the space of DLT & Fintech more closely. "Banks are conscious of the potential presented by the innovative technology, and are looking at ways and means of how they may tap into the benefits that these solutions offer." Mr Farrugia made reference to specific case studies, and the benefits DLT solutions provided, primarily in terms of customer experience, operational efficiency through automation and cost savings. Mr Farrugia went on to highlight challenges that this space presents. "Banks will always tread carefully as these are new technologies which have to be tried and tested," Mr Farrugia concluded.

In his concluding remarks, Mr Stefano Mallia EESC Vice President – Employers, said that with this a very important step, as with it Malta gained the first mover's advantage on the international stage. He argued that it was important to find the right balance of regulation in the sector. Under-regulation or over-regulation could both be detrimental to a potentially important sector.

While acknowledging that it was going to be a challenge to secure the interest of the banking sector in blockchain, Mr Mallia said that in the long run, he believed they would also see the immense possibilities.

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Blockchain- The new regulatory framework

sadmin — Thu, 12 Jul 2018 11:55:30 +0000

The Malta Chamber of Commerce, Enterprise and Industry in collaboration with EMCS is organising an information session on the Blockchain legislation which was recently approved by the Maltese parliament. The event will be held at the Exchange Building in Valletta on the 26th July in the morning. Malta will be one of the first jurisdictions to have a legal framework regulating this ever evolving sector.

Key note speakers will include experts in the field from a variety of sectors with household names in the business community and local regulators which will include EMCS, RSM Malta, Bank of Valletta plc, AgriBank plc and the MFSA. The Hon. Silvio Schembri, Parliamentary Secretary for Financial Services, Digital Technology and Innovation, who spearheaded the laws in parliament will also be addressing the audience.

Those attending will be able to understand first-hand the implications of the new regulatory framework which will regulate both the blockchain technology and virtual currencies amongst others. Do not miss this unique chance to hear it first hand from the experts.

Please find the programme for this event below:

8:30

Registration

9:00 – 9:05

Welcome Address by Frank V. Farrugia, President Malta Chamber of Commerce, Enterprise and Industry

9:05 – 9:20

Welcome and presentation of the new Distributed Ledger Technology (DLT) legislation/ strategy - the Hon. Silvio Schembri, Parliamentary Secretary for Financial Services, Digital Economy and Innovation

9:20 – 9:50

The Regulator's role on the VFA Bill - Christopher P. Buttigieg, Director, Securities & Markets Supervision Unit, MFSA

9:50 – 10:20

Overview of the Virtual Financial Assets Act– Silvan Mifsud, Senior Manager Advisory Services, EMCS

10:20 – 11:00

Discussion Panel – The interaction of the Banking World with Cryptocurrencies and ICOs – Panel Dr. Chris Buttigieg (Director MFSA) and Mr. Roderick Psaila (CEO AgriBank plc). Moderator: Silvan Mifsud

11:00 – 11:15

Coffee Break

11:15 – 11:35

Overview of the Malta Digital Innovation Authority Act and Innovative Arrangement and Services Act – Gordon Micallef – Partner, RSM Malta

11:35 – 11:55

Distributed Ledger Technologies in Banking - Opportunities and Challenges Mr Kenneth Farrugia, Chief Business Development Officer, Bank of Valletta plc

11:55 – 12:10

Concluding Remarks by Mr Stefano Mallia, EESC Vice President Employers

To register for this event, please contact Ms Cheryl Cardona on email address: cheryl.cardona@maltachamber.org.mt or tel no. 21 233 873.

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Rules for ICO Issuers (MFSA)

sadmin — Sat, 07 Jul 2018 11:59:57 +0000

Following the proposed Regulations and the Chapter 1 of the VFA rulebook for VFA agents, MFSA have now just issued the proposed rules (Chapter 2) for ICO issuers, with the consultation on this rules closing on the 13^th August.

The highlights from the detailed rules for ICO Issuers are mentioned below.

In determining whether a DLT asset qualifies as a Virtual Financial Asset, an Issuer of a DLT asset shall, prior to offering such DLT asset to the public in or from within Malta, or applying for its admission on a DLT exchange, undertake the Financial Instrument Test (as per Guidance Note on FI test) , which shall be signed by its Board of administration, and endorsed by its VFA Agent.

An Issuer shall appoint and have at all times in place: a Systems Auditor; a VFA Agent; an Auditor; a Money Laundering Reporting Officer (‘MLRO');

The Issuer shall require its Systems Auditor to prepare on an annual basis a systems audit report on its Technology Arrangement's compliance with any qualitative standards set and guidelines issued by the Malta Digital Innovation Authority (‘MDIA'). The Issuer shall ensure that it's Systems Auditor, prior to the commencement of the offering of the Virtual Financial Assets, has prepared a report which covers all aspects of its Technology Arrangement/s.

The Issuer shall ensure that all communications, meetings, notifications and/or submissions to the MFSA are made through its VFA Agent. The Issuer shall provide written confirmations to the VFA Agent that its Board of Administration has established procedures which provide a reasonable basis for the said Board to make proper judgements as to the prospects and, where applicable, the financial position of the Issuer and, also where applicable, as provided investors with a roadmap which clearly establishes and sets out milestones for the Initial Virtual Financial Assets Offering (ICO) and any profit forecast or estimates have been made after due and careful analysis andthat financial information presented in any document published by it has been properly extracted from its accounting records.

The Issuer shall obtain from its Auditor a signed letter of engagement defining clearly the extent of the Auditor's responsibilities and the terms of his appointment. The Issuer shall confirm in writing to its Auditor its agreement to the terms in the letter of engagement. In respect of each annual accounting period, the Issuer shall require its Auditor to prepare a management letter in accordance with International Standards on Auditing.

The Issuer shall appoint and have at all times in place an MLRO. The role of the MLRO is an onerous one and the Issuer shall ensure that it is only accepted by individuals who fully understand the extent of responsibilities attached to the role. The Issuer shall ensure that the MLRO is a senior employee of the Issuer or a member of the Board of Administration.

An Issuer shall establish a ‘Cyber-Security Framework' which shall include Information and data security roles and responsibilities; Access management policy; Sensitive data management policy; Threats management policy; Business continuity plan; Response and recovery plan; and Security education and training.

No Issuer shall offer a Virtual Financial Assets to the public in or from within Malta or apply for their admission to trading on a DLT exchange unless such Issuer draws up a whitepaper which complies with the requirements of the VFA Act (Schedule 1) and has this whitepaper registered with the MFSA in accordance with the VFA Act.

An Issuer wishing to undertake any ICO or/and have a the DLT issued admitted for trading on any VFA exchange shall submit, through its VFA Agent, the following documents to the MFSA:

(a) the whitepaper and any supplementary documentation, duly signed by its Board of Administration;

(b) a copy of the Financial Instrument Test, duly signed by its Board of Administration and endorsed by its appointed VFA Agent;

(c) a confirmation from its Systems Auditor that the Issuer's Technology Arrangement/s complies with any qualitative standards set and guidelines issued by the MDIA applicable to the particular type of arrangement (irrespective of whether the said arrangement holds a certification or a ruling of eligibility under the Innovative Technology Arrangements and Services Act)

(d) one (1) copy of the Issuer's audited Annual Accounts for each of the last three years.

Where the Issuer forms part of a Group of which the Issuer is a member, the consolidated accounts of the Group of which the Issuer is a member for each of the last three (3) financial years prepared in accordance with either Generally Accepted Accounting Principles or Practice or with equivalent standards. Provided that where an Issuer and/or Group has/have been established for a period of less than three (3) years, the documents mentioned above shall be required for such shorter period that the said person(s) has/have been established.

(e) a certified copy of its Constitutional Document/s;

The whitepaper shall convey factual information about a business in words and figures, and shall serve as a source of information about the Issuer and its proposed activities. The whitepaper shall be dated, contain all the information stipulated in the First Schedule to the Act, be signed by the Issuer's Board of Administration and include a statement by the Issuer's Board of Administration that the whitepaper complies with the requirements under the Act, the relevant regulations and these Rules.

Where a smart contract is deployed, the Issuer shall ensure that the elements of a whitepaper are coded within the respective smart contract. This shall, where applicable, include inter alia coding for Transfer limitations; Soft cap and hard cap; Refund mechanisms; Dispute resolutions; Besting schedules; and Burning protocols.

In conclusion, one can see that the duties and requirements by the Rules are quite detailed and extensive in regards ICO issuers. Thus, it is highly advisable that ICO issuers intending to launch ICOs in Malta get prepared and well acquainted with these Rules. EMCS has been following the DLT regulation and is well positioned to advise you on this matter.

Summary written by

Director

Silvan Mifsud

silvan.misfud@emcs.com.mt

Silvan holds a degree in Banking and Finance from the University of Malta and an MBA from the University of Reading, with specialisation electives in Corporate Finance and Leadership in Management.

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MALTA – A ‘World First’ at having a regulatory framework for Blockchain technology, ICOs and Virtual Financial Assets.

sadmin — Thu, 05 Jul 2018 11:52:51 +0000

Upon presenting the bills for the 2^nd reading, the Parliamentary Secretary for Financial Services, Digital Economy and Innovation, described the upcoming Cryptocurrency laws as a "world-first", which would make Malta a global pioneer in this sector.

These bills were presented in Parliament on the 24^th April, 2018 and second reading has started on the 6^th June 2018. 2^nd reading was concluded on the 26^th June, 2018 and the final 3^rdreading was concluded on 4^th July, 2018. The 3 pieces of legislation are as outlined in the below image:-

The Malta Digital Innovation Authority Bill (the "Bill"), provides for the establishment of an Authority to be known as the Malta Digital Innovation Authority ("MDIA" or "Authority").

MDIA's role will mainly comprise two main aspects which are interlinked. It will seek to promote and develop the innovative technology sector in Malta by means of providing formal recognition and regulation of relevant innovative technology arrangements and related services. The innovative technology arrangements comprise those elements including software, codes, computer protocols and other architectures used in the context of distributed or decentralised ledger technology (DLT), smart contracts and related applications.

It is envisaged that these two main roles will be undertaken in full respect of the importance of not hindering innovation and the efforts and potential of the start-up sector in this innovative technology area whilst still ensuring that there are standards in place for the protection of consumers and investors, the integrity of the market and the public interest in general. This balancing approach is significant because it shows that Malta has made it its top priority to protect consumers and investors without hindering the development of the much-needed innovative technology business which is being intermixed with and utilised in a variety of sectors.

The MDIA's role as a regulator will include, amongst others, the granting, issuance, refusal, revocation, cancellation or suspension of authorisations with respect to the provision of innovative technology arrangements or services provided in or from Malta. When it comes to its supervisory role, it will keep under review all practices and activities which will be regulated by the provisions of this Bill, once it is enacted as an Act, and any other applicable laws which the Authority will be entitled to administer or enforce. Moreover, it will have the power to investigate allegations of practices and activities detrimental to consumers and to determine when innovative technology arrangements and services are exempt from particular legal requirements. It will also have the power to issue rules which shall be binding on innovative technology authorisation holders and others specified therein.

It will therefore strive to promote transparency in the innovative technology business by establishing a register containing a list of all holders of innovative technology authorisations and by compiling a second list stating the reasons why it refused particular applications, which information will be maintained on its website for three months. On the one hand, this measure will ensure that applicants request for authorisations in respect of legitimate businesses. On the other hand, this public information will then be useful in assisting other regulatory authorities, whether local or international, in carrying out their functions. Further powers which the Authority will be entitled to exercise are enforcement powers such as inter alia requesting information, searching and inspecting premises, undertaking site inspections, testing machinery, apparatus, appliances and other equipment at any place as the Authority may consider necessary and imposing administrative fines.

Due to the fact that most forms of innovative technology solutions may overlap with existing regulatory mandates, the MDIA shall at all times coordinate with other competent authorities such as the Malta Financial Services Authority, the Malta Gaming Authority, the Malta Information Technology Agency, the Malta Competition and Consumer Affairs Authority and the Malta Statistics Authority so that it ensures that there is no replication of work and controls.

The legislation with which the MDIA will work with is the 2^nd piece of legislation being enacted. This is the Innovative Technology Arrangements and Service Act. This Act provides for the voluntary registration of Technological arrangements. Technological arrangements are presently defined as only being only being DLT and smart contracts but he act also provides to eventually include other future technological arrangements. This Act also provides for the licensing of service providers which will be system auditors and technical administrators. This Bill also includes the concept of the resident agent when the persons making an application for any form of recognition are not ordinarily resident in Malta.

The 3^rd piece of legislation is the Virtual Financial Assets (VFA) Act. This Act clearly outlines the difference between a virtual token, a financial instrument or a virtual financial asset. The definitions given are the following:-

"virtual token" means a form of digital medium recordation that has no utility, value or application outside of the DLT platform on which it was issued and may only be redeemed for funds on such platform directly by the issuer of such DLT asset.

"financial instrument" shall have the same meaning assigned to it under the Second Schedule to the Investment Services Act, whether or not issued in Malta i.e. Transferable securities, money market instruments, derivatives etc....

"virtual financial asset" or "VFA" means any form of digital medium recordation that is used as a digital medium of exchange, unit of account, or store of value and that is NOT - (a) electronic money;(b) a financial instrument; or (c) a virtual token.

The Act also establishes the need of having a Financial Instrument (FI) test done to reach a determination on how a DLT asset should be classified. The Test will consist of two stages, wherein the first stage would effectively determine whether a particular DLT asset qualifies as a Virtual Token (‘VT'). Subject to a negative determination during the first stage, the second stage would determine whether the DLT asset would qualify as a financial instrument under Section C of Annex 1 to MiFID. Should a negative determination be reached again during this stage, then the DLT asset would qualify as a Virtual Financial Asset (‘VFA') under this bill.

If it is determined that the DLT asset is a VFA, to licence an initial virtual financing offering (ICO), there would need to draw up a whitepaper and have it delivered to MFSA at least 10 working days before the intended publication date and appoint a licensed VFA Agent which will guide the issuer on drawing up this whitepaper and be the only point of contact between the issuer and the MFSA. Such VFA agent will also be responsible to do all KYC and due diligence procedures on the issuer. VFA agent also needs to submit to MFSA on an annual basis a certificate of compliance on behalf of the issuer.

The VFA Act also provides for the licensing of various service providers. These are:-

Reception and Transmission of Orders
Execution of orders on behalf of other persons
Dealing on own account
Portfolio Management
Custodian and Nominee Services
Investment Advice
Placing of Virtual Financial Assets
Operation of a VFA Exchange

A VFA exchange is defined as a a DLT exchange operating in or from within Malta, on which only virtual financial assets may be transacted in accordance with the rules of the platform or facility. This means that such VFA exchange will not be allowed to transact to the other DLT asset types, not defined as Virtual Financial Assets (i.e. electronic money or financial instruments). However the VFA exchange will be allowed to do (i) VFA-to-VFA exchanges, (ii) fiat-to-VFA exchanges and (iii) VFA-to-fiat exchanges.

Way Forward – Consultation on Virtual Financial Assets Regulations just issued by MFSA

The proposed regulation outlines the activities that are exempted from the need of obtaining a VFA service licence. These exemptions include persons dealing on own account in terms of the Act and not providing any other VFA services or performing any other activities in virtual financial assets. For the purposes of this exemption, dealing on own account shall mean the trading by a person in its own name and against proprietary capital resulting in conclusion of transactions in one or more virtual financial assets. However, this exemption shall not be automatically operative but its applicability shall be subject to the determination in writing by the competent authority that the requested exemption applies.

The regulation also clearly outlines the various VFA service licences available. These are:-

VFAA Class 1	Licence holders authorised to receive and transmit orders and, or provide investment advice in relation to one or more virtual financial assets and, or the placing of virtual financial assets.
VFAA Class 2	Licence holders authorised to provide any VFA service and to hold or control clients' money, but not to operate a VFA exchange or deal for their own account.
VFAA Class 3	Licence holders authorised to provide any VFA service and to hold or control clients' money, but not to operate a VFA exchange.
VFAA Class 4	Licence holders authorised to operate a VFA exchange and to hold or control clients' money, virtual financial assets and, or private cryptographic keys and custodian or nominee services solely in relation to the operation and activities of such VFA exchange.

Finally the proposed regulations outline the relevant fees, which are:-The regulation also outlines the duties of the subject person in the case of it as holder of a VFA service licence, has control over the assets belonging to its customers. Such duties include the obligation of holding proper and adequate records.

	Application Fee	Annual Supervisory fee
Whitepaper Registration	4,000 EUR	1,000 upon submission of certificate of compliance
VFAA Class 1 Licence	3,000 EUR	2,750 EUR (up to annual revenue of 50,000 EUR)+ 350 EUR or part thereof for further tranches of 50,000 EUR, up to a maximum of 1,000,000 EUR
VFAA Class 2 Licence	5,000 EUR	4,500 EUR (up to annual revenue of 250,000 EUR)+ 400 EUR or part thereof for further tranches of 250,000 EUR, up to a maximum of 5,000,000 EUR
VFAA Class 3 Licence	7,000 EUR	6,000 EUR (up to annual revenue of 250,000 EUR)+ 400 EUR or part thereof for further tranches of 250,000 EUR, up to a maximum of 50,000,000 EUR
VFASS Class 4 Licence	12,000 EUR	25,000 EUR (up to annual revenue of 1,000,000 EUR)+ 2,500 EUR or part thereof for further tranches of 1,000,000 EUR, up to a maximum of 100,000,000 EUR

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Malta to regulate blockchain technology services sector

sadmin — Thu, 18 Jan 2018 11:51:32 +0000

In the coming weeks, Malta is launching the world's first legal framework for the creation of a regulatory body to regulate services in the sectors of Blockchain, Artificial Intelligence, and IOT devices. This was announced by Parliamentary Secretary, Silvio Schembri, when addressing the Unlock Blockchain Conference organised at the Dubai International Financial Centre.

During the conference, attended by various high-level international investors interested in the blockchain technology sector, Silvio Schembri said that the Maltese Government worked closely with the industry to come up with a legal framework that satisfies the AML and KYC regulations, without stifling technology innovation in such a highly dynamic sector.

"This new regulator will help those who wish to invest in this sector to operate within a legal structure and gain the trust of millions of potential customers all over the world who want to make use of new services related to blockchain technology", said Silvio Schembri.

During his visit in Dubai, the Parliamentary Secretary met Dr Aisha Bint Butti Bin Bishr, Director General of Smart Dubai, to discuss new opportunities for cooperation between the Maltese Government and the Government of Dubai in relation to the blockchain technology sector. This should lead to a new agreement, whereby Malta will share its experience in the regulatory developments related to this technology, whilst both countries will work hand in hand on several implementation projects for the use of blockchain technology in several sectors.

Parliamentary Secretary, Silvio Schembri, held several meetings with companies in Dubai operating in Financial Services and Technology, to promote new investment opportunities that will arise for businesses in Malta with the creation of the new technology regulator. Through these meetings, he invited such companies to consider extending their international operations to the Maltese jurisdiction from where they can also access other European markets.
The Parliamentary Secretary was accompanied by Consul General for Malta in Dubai Anthony Tabone.

(SOURCE: PRESS RELEASE BY THE PARLIAMENTARY SECRETARIAT FOR FINANCIAL SERVICES, DIGITAL ECONOMY AND INNOVATION)

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