The latest reports confirm that the Malta Financial Services Authority (MFSA) has released feedback about the definition of security tokens. The financial watchdog also highlighted the challenges that such assets face in Maltese markets.
According to a paper published on Feb. 25, the agency commented on security token offerings (STO) from 18 industry stakeholders. It covered regulated businesses, law, national agencies, consultancy firms, technology providers, among others.
Initially, the MFSA asked industry stakeholders to give their opinions and also advise on the definitions of STOs in July 2019. Additionally, it asked for the experts to help in interpreting the challenges that STOs encounter within the current legal infrastructure. The MFSA also noted the absence of clear definitions for transferable securities by the watchdog and at the European Union level.
According to that paper, most of the respondents widely disagreed with the categorization of different types of STOs proposed by the MFSA. Many respondents are convinced that there should not be a distinction based on whether the instrument is tokenized because the European Union law unifies the concept of transferable securities.
This distinction could seemingly result in the risks of structuring arbitrage. A crucial suggestion was to create a new infrastructure for the traditional transferable securities that deploy DLT (distributed ledger technology).
Others said that Malta should adopt the general taxonomy for crypto assets proposed by the Blockchain Research Institute. On the other, the categorization should rely on the effect of blockchain technology and the underlying framework of a project.
This document also presents other alternatives on the issue. They include the management of rights and obligations that are related to securities, alternative solutions, double-checking authentications of transactions, among many others.
Is Malta’s approach friendly?
Malta claims to be a ‘blockchain island’ since it has set in place many blockchain and crypto-friendly policies. But, crypto startups still struggle to get any financial services as a result of regulatory slowness and stagnation.
Last year, banks turned away all the companies in the crypto field. Apparently, the banks never had any risk appetite to support these types of ventures. As an alternative, financial services remain reserved for those startups that entirely conform with the regulations set by the MFSA. The process may take up to six months for a first response.
Recently, news broke that major crypto exchange Binance was operating illegally in Malta as the MFSA alleged that it had never approved the exchange.
“Following a report in a section of the media referring to Binance as a ‘Malta-based cryptocurrency’ company, the Malta Financial Services Authority (MFSA) reiterates that Binance is not authorized by the MFSA to operate in the cryptocurrency sphere and is therefore not subject to regulatory oversight by the MFSA.”
Is Malta the best example of what laws should be implemented to enhance the growth of blockchain and crypto industries?