The Malta Financial Services Authority discloses Expert’s Feedback Report Addressing STOs Regulatory Issues


In a recently released report, The Malta
Financial Services Authority (MFSA) has disclosed expertise feedback addressing
the challenges related to crypto-assets and legal definition of the Security Tokens
(STOs).
The report comprises opinions from the
experts of national agencies, technology service providers, regulated
businesses, law and consulting firms among others.
When and How as the Report was prepared?
The process of assessment started in July
2019, which began with the consultation of the authorities from various
industries to identify challenges across security tokens and to establish legal
certainty regarding the crypto assets. The feedback process ended on September
16, 2019, with the participation of 18 experts across various industries.
During the assessment process, the MFSA had
asked the industry authorities their opinions and advice on the definition of
the security tokens. The MFSA focused on the study of the framework of European
Union Legislations and its probable implications on the security tokens. It
also considered the directives from Markets in Financial Instruments and the
Market Abuse Regulations among others
As a conclusion of the assessment, MFSA recognized
that MFSA and the EU directives lacked the appropriate legal definition of the
security tokens. They also concluded that the digital ledger-based solution
could be viable but it needs alterations in the EU directives about the central
security Depository (CSD) rules otherwise it can create complications in the
deployment of the blockchain technology
The Feedback of the Industry experts
The majority of the experts disapproved of the
categorization of the security tokens proposed by the MFSA. Most of them
believed that the distinction in terms of tokenization is inappropriate as the
concept of transferable securities is unified under EU law. And the
classification can lead to the risk of structuring arbitrage. One of the
suggestions was to restructure the framework for the securities that utilize
distributed ledger technology (DLT).
Some of the experts suggested adopting the
taxonomy for crypto assets proposed by the Blockchain Research Institute. Some
believe that classification should be done as per the impact of blockchain
technology and the underlying infrastructure of the project.
The report document contains opinions about
management of rights, alternative solutions obligations related to transferable
securities, double-check verifications of transactions among several other
issues.
Malta’s Crypto-favored policy
Malta is the heaven for the crypto industry
with its crypto-friendly policies and thus it is popularly known as the
Blockchain Island among the crypto community. But Malta is notoriously known as
a money-laundering hub as well.
But as the government has tightened its
regulatory policy in the last year due to several scams and financial frauds, the
loopholes in the regulatory policy have become the hindrance for the crypto
startups. Due to the lack of appropriate
regulatory compliance, crypto startups are finding it difficult to procure
loans from the banks. Banks are reluctant to offer their financial services to
the unregulated businesses and regulating the businesses under the MFSA is a
time-consuming process that takes several months for registration and
licensing.

Jayashree Ingle
CBW - External Analyst
INDIA