Eight months have passed since Malta launched a landmark law to regulate blockchain companies, but not a single blockchain company has been licensed yet.
Back in January, a spokesperson for parliamentary secretary for the digital economy Silvio Schembri had told Lovin Malta that it was predicted that the first licenses will be issued in the second quarter of the year.
However, those plans have now gone awry.
“As we speak, the Malta Financial Services Authority has registered 14 VFA Agents whilst 7 are in principle approvals and 9 are pending. Moreover, very recently the Malta Digital Innovation Authority has approved 3 System Auditors,” the spokesperson told Lovin Malta earlier this week.
“The next step is for the VFA Agents to present applications for licenses in relation to companies within the cryptocurrencies sphere.”
The first batch of 14 VFA (Virtual Financial Assets) Agents, legal and financial services firms that serve as intermediaries between blockchain companies and the authorities, were approved by the MFSA last May.
Blockchain companies must now present themselves to a VFA agent, who must conduct extensive due diligence on them, from assessing their finances and financial projections, to testing their knowledge of their subject area and personal history to ensuring they have adequate cybersecurity measures in place.
The VFA agents must then submit an application to the MFSA on their behalf, in the knowledge that they will be subject to strict fines and possibly imprisonment if their due diligence was lax.
Jonathan Galea, managing director of the VFA agent Blockchain Advisory Ltd, told Lovin Malta that several blockchain companies which had expressed interest in moving to Malta had baulked as soon as they realised how rigorous the due diligence would be.
“A lot of over-enthusiastic companies who were here last year moved elsewhere when they realised how high Malta’s standards were,” he said. “However, we were not afraid of saying from the start that Malta is targeting the upper echelons of the industry.”
“This is a very new industry and we don’t want to attract the riffraff, but those companies who want to be regulated in the same manner as we current regulate the financial services industry.”
There’s no information yet as to how many blockchain companies have actually applied for a license to the MFSA so far. What we do know is that 350 companies had notified the authorities that they were operating in Malta by 1st November, the day the blockchain law passed.
The law granted companies already operational in Malta a one-year transitory period that allowed them to continue operating here while waiting for a license. If they fail to acquire a license and continue operating, they will be liable to penal sanctions.
The strict regulation is being seen as a crucial requirement for banks to agree to open accounts for these companies, a major obstacle for the industry in its early days in Malta.
Galea said that banks have now agreed to open administrative/operational accounts to cater for the day-to-day running of the companies, so long as they can prove they have a presence in Malta. However, they are holding back on issuing bank accounts to handle clients’ funds until the companies are licensed.
“There’s been some disillusionment and disappointment but we’ve been clear from the start,” Galea said. “We don’t want to restrict development but to bring an element of sanity to what was a Wild Wild West.”