(Aug. 31, 2018) On July 4, 2018, the Maltese government enacted three laws whose goal is to make Malta a haven for projects that rely on blockchain and other distributed ledger technology (DLT). The Malta Digital Innovation Authority Act (MDIA Act), Innovative Technology Arrangements and Services Act (ITAS Act), and Virtual Financial Assets Act (VFA Act) in combination aim to provide a robust legislative and regulatory framework, yet one that does not negatively affect the growth of technology companies that use DLT. (MDIA Act, July 15, 2018, cap. 591; ITAS Act, 2018, cap. 592; VFA Act, 2018, cap. 590 (all on Ministry for Justice, Culture and Local Government’s Laws of Malta website).)
Article 5 of the MDIA Act creates the Malta Digital Innovation Authority (the Authority)—a body whose purpose is to “address the development in Malta of all innovative technology arrangements and innovative technology services” (MDIA Act art. 6) in order to “seek the development of the innovative technology sector in Malta through proper recognition and regulation of relevant innovative technology arrangements and related services” (id. art. 3). The MDIA Act grants the Authority extensive powers to recognize applicants that use “innovative technology arrangements” (defined in article 2 as “intrinsic elements including software, codes, computer protocols and other architectures which are used in the context of DLT, smart contracts and related applications”); investigate applicants that they suspect of not meeting the “quality and integrity standards required … for purposes of recognition or compliance” with the law (id. art. 39); and sanction those who do not comply with a fine of up to €12,000 (about US$14,017) or imprisonment for up to three months, or both (id. art. 40(5)).
The ITAS Act outlines the different methods by which the Authority can recognize “innovative technology arrangements and innovative technology services.” (ITAS Act art. 3(2).) The Authority can certify the qualities, features, attributes, behaviors, or aspects of a particular arrangement as fit for a particular purpose or purposes (id. art. 7(1)) and then issue a certificate that “shall state the details of how the innovative technology arrangement is identified, including any public key or a brand name, and the Certificate shall be given a unique number for purposes of identification” (id. art. 7(6)). There are further safeguards as to the quality of the service provided by the particular arrangements, including a requirement to have a registered technical administrator, who can prove to the Authority that the arrangements can satisfy the service listed on the certificate, in office at all times. (Id. art. 8(4)(c).)
The VFA Act regulates what have become known in wider circles as Initial Coin Offerings (ICOs)—the initial circulating of a cryptographic digital medium of exchange, unit of account, or store of value (a token, coin, etc.) by an issuer, usually in exchange for fiat currency in exchange. The VFA Act mandates that no issuer can make an ICO without first publishing a white paper that has been signed by every member of the issuer’s Board of Administration (VFA Act art. 3) and contains “information which, according to the particular nature of the issuer and of the virtual financial assets offered to the public, is necessary to enable investors to make an informed assessment of the prospects of the issuer, the proposed project and of the features of the virtual financial asset” (id. sched. 1).
Furthermore, that information must be presented in “an easily analysable and comprehensible form.” (Id.) The white paper must also include a warning that the “offering of virtual financial assets does not constitute an offer or solicitation to sell financial instruments.” (Id.) Finally, the white paper must be approved by the registered VFA agent (id. art. 3(3)), who must be appointed and be “at all times in place” with the issuer in order to ensure compliance with the law (id. art. 7(1)).
In parallel, the three new pieces of legislation look to provide a solid regulatory and legislative framework for the use of blockchain and DLT technologies—allowing service providers to be recognized by the government as being legitimately innovative in return for increased public confidence in the accountability of this rapidly growing and cutting-edge sector.
Prepared by Ben Hills, Law Library intern, under the supervision of Clare Feikert-Ahalt, Senior Foreign Law Specialist.