Last week, the Malta financial control agency presented itself with an unexpected statement. It seems that Binance, an important cryptocurrency exchange that had been enjoying a close relationship with local authorities, is not authorized “to carry out its work in the cryptocurrency sphere,” as underlined in the press release of the regulator.
While the Malta Financial Services Authority has not yet licensed any cryptocurrency business – and not just Binance – under the cryptocurrency framework, which is widely marketed in the country, the declaration means a deterioration of relations between the cryptocurrency sector and Maltese officials, who have claimed to run a “blockchain island.”
While the change in tone could be attributed to the recent resignation of the Prime Minister of Malta, Joseph Muscat, and the subsequent arrival of his successor, it seems that the local cryptocurrency industry had begun to experience difficulties even before that. However, in a comment to Cointelegraph, the new government has reiterated its plans to function as a blockchain island.
Within the great plan of Malta
In September 2018, the then Prime Minister Muscat ambitiously introduced his country as a blockchain island during his speech at the United Nations General Assembly. In fact, about two months before the announcement, the Maltese government had approved three bills related to cryptocurrency, with the aim of establishing a firm and transparent regulatory climate: the Digital Innovation Authority Law, the Arrangements Law and Innovative Technological Services and the Law of Virtual Financial Assets.
Although nations such as Canada, Japan and Belarus had already enacted laws related to cryptocurrency by then, Malta's transition to its conversion into a blockchain island had unprecedented speed. The term was adopted in April 2018, when Silvio Schembri, the current minister of economy, investments and small businesses, told Cointelegraph the news that Binance, the world's leading exchange, could move to Malta after facing regulatory difficulties. in Japan, where it previously had its headquarters.
Binance's relationship with the Maltese government was really close at that time. For example, shortly after the article announcing Binance's interest in Malta was published in Bloomberg, Prime Minister Muscat personally welcomed the exchange via Twitter, writing: “Welcome to Malta, Binance” . Binance CEO Changpeng Zhao, also known as CZ, immediately responded to the prime minister's tweet, adding that he was optimistic about the general possibilities of cryptocurrency in the country.
In addition, sometime in mid-2018, the company even had a private event in Malta, which was held at the official residence of the President of Malta. “How many of you have attended a blockchain event in the presidential palace?” CZ asked as he gave a speech under the ancient walls, adding, “We were very, very lucky with Malta. Malta arrived at a time when normative clarity was very necessary.”
Other foreign cryptocurrency companies seeking a more friendly jurisdiction soon followed suit, such as the OKEx and BitBay exchanges, which were based in Japan and Poland respectively. Malta's lowest corporate tax rate for international companies in the European Union – set at a modest 5%, compared to the EU average of 22% – seemed to be another reason for relocation.
In October 2018, Malta continued its “in favor of blockchain” policy, by signing a declaration to promote the use of blockchain together with seven other EU countries. Then, on November 1, the three blockchain laws mentioned above came into effect, and that was when local actors began experiencing difficulties for the first time.
Slow regulations do not get along with a fast market
The most important part of the three Maltese laws on blockchain – the VFA law – essentially requires companies to obtain a license from the Malta Financial Services Authority if they make initial coin offers, trade digital assets or provide electronic wallets and activities brokerage
The law also introduces the so-called VFA agents: entities that audit and defend these companies. According to Christopher P. Buttigieg, the director responsible for strategy, policy and innovation at the MFSA, “the role of the VFA Agent under the VFA Act is primarily that of the guardian,” or the first line of defense. The agency registered the first VFA agents in May 2019, six months after the law entered into force. Currently, there are 20 authorized VFA agents, according to the MFSA financial record.
However, no license has yet been granted to any company in the context of the VFA, although it has been more than a year since its promulgation. “This is definitely disappointing for the hundreds of companies that were attracted to the country with promises of a friendly and comprehensive regulatory environment,” Jan Sammut, founder of ICO Launch Malta, told Cointelegraph. He added:
“My impression is that the government at that time prioritized market primacy rather than operational readiness. Subsequently, what initially began as an understandable desire to 'do things right' and not jeopardize the country's reputation in in the case of a scandal, it seems to have become the double blow of an absolute excess of a regulatory package, together with a total operational complacency for the issuance of real licenses. ”
“Cryptocurrency startups still have difficulties in obtaining financial services due to the slow regulation,” an OKEx spokesperson confirmed to Cointelegraph, adding that the exchange remains dedicated to exercising functions from Malta, having requested a license after the end of the period of Transition. The OKEx representative stated that:
“We want to reiterate that OKEx will continue to allocate resources to Malta and adopt the relevant regulations. In 2018, OKEx has received permission to perform functions and provide its services outside of Malta under the transitional provision granted by the MFSA for a period of one year. until the license is obtained. Recently, OKEx has submitted an application to obtain a VFA license. ”
In addition to the apparent delay of the MFSA in obtaining licenses, there are other issues, such as its possible profitability. As said Leon Siegmund, member of the board of the Blockchain Association of Malta and founder of Bitcoin Club of Malta, Decrypt, company news criptomonedas about the VFA license: “It 's too expensive, no value addition. that it cannot be moved, it is a small market, so it is not really useful. ” Reportedly, the MFSA requires a fee of 10,000 euros to process a preliminary VFA application.
In addition, the local approach to cryptocurrency regulation is not very smooth. As Cointelegraph previously reported , in addition to the Money Laundering and Meet Your Client policies imposed by the VFA framework, there is also the EU AMLD5 directive.
At that time, Daniele Bernardi, general director of the financial consulting firm Diaman Group, based in Malta, told Cointelegraph that strict compliance requirements have scared away local banks, making it difficult for local businesses to find a financial partner, ” Banks in Malta do not open any type of account for cryptocurrency-related companies, due to their fear of breaking the anti-money laundering policy. ” Wayne Pisani, partner of Grant Thornton, one of the 20 registered VFA agents, confirmed that sentiment to Cointelegraph:
“It was never the intention to create a regulatory framework of soft touch, as this would have gone against the internationally accepted principles of regulatory certainty and transparency. In fact, the framework that regulates the financial application of the DLT is inspired by the regulatory principles of the EU and follow the ESMA guidelines “.
Pisani also added that, simultaneously with the enactment of the laws, a parallel project was initiated “to launch guidelines as they establish clear procedures to guide those interested in their obligations in the fight against money laundering and terrorist financing. , which go beyond the norms established by the Fifth Directive of the European Union against money laundering “. Similarly, a representative of the VFA Agents Forum, an entity that will be launched shortly and that represents the majority of the country's VFA agents, argued in a letter sent to Cointelegraph:
“In its VFA framework, Malta has demonstrated its commitment to a high-quality regulatory environment that does not create future inconsistencies with other international regulations. This demonstrates that the long-term strategy of making Malta establish itself as a high-quality jurisdiction in this space that is more interested in long-term sustainability than in quick short-term gains. ”
This cautious approach makes sense, given that the Maltese government has long been surrounded by accusations of corruption. In 2016, when reviewing the Panama Papers, local journalist Daphne Caruana Galizia said that several associates close to Muscat, including his wife, had run companies to launder money and sell passports illegally. Over time, Caruana Galizia's blog, in which he presented that information, became Malta's most read news source. In October 2017, Caruana Galizia was killed in a car bomb attack. Next, there were numerous mass protests calling for Muscat's resignation, partly because of his inability to resolve the attack, which has attracted the attention of the European Union.
On December 1, 2019, Muscat announced that he was resigning due to the political crisis. The prime minister has been replaced by Robert Abela, a fellow Labor Party who in turn is the son of the Maltese former president, George Abela.
The MFSA breaks with Binance, but the government supposedly remains in favor of cryptocurrencies
On February 21, 2020, amid the uncertainty surrounding the VFA framework, the MFSA issued a public statement, saying that Binance “is not authorized by the MFSA to perform functions in the cryptocurrency field.” The agency clarified that the recent media reports incorrectly referred to Binance as a “cryptocurrency company based in Malta,” since the exchange “may not fall within the scope of regulatory oversight.”
Quickly, CZ went to Twitter to label the statement as “a mixture of truth, FUD and misconception.” Referring to the press articles that state that Binance is not regulated to work in Malta, the general director of the exchange stated that Binance “has neither headquarters nor works in Malta.”
According to an investigation carried out by an anonymous local blogger, BugM, Binance has registered two companies in Malta, none of which has reported any activity since its establishment. It should be noted that CZ has previously assured that “any country that can attract Binance to open a branch in its location will receive an attractive income from taxes.” According to Decrypt, Binance has a physical office in Malta, but its headquarters are in the Cayman Islands and in Seychelles.
Sammut told Cointelegraph that this has been brewing for a long time, adding that the MFSA was right in issuing a clarification on the regulatory situation of the exchange, saying that:
“Given that the company is not, in fact, under its supervision, the MFSA is right in wanting to distance Malta's reputation from any possible impact of an incident that cannot be foreseen because the company is not under its supervision On the other hand, if the MFSA were to issue licenses maybe we would not be in this situation now … ”
When asked to clarify his relationship with the MFSA, Binance did not respond. The MFSA also declined to comment on this story.
However, although the current Prime Minister Abela has not yet publicly commented on cryptocurrencies and blockchain, the new government seems still interested in continuing as a blockchain island. Bartolo Clayton – who has recently been appointed by Abela as parliamentary secretary responsible for financial services, digital economy and innovation, the position previously held by Minister Schembri, a cryptocurrency sympathizer – clarified the official position on Binance in a letter to Cointelegraph:
“Binance has never been in possession of an official MFSA license. That statement has been corroborated by Changpeng Zhao, Managing Director of Binance, on his personal Twitter account, where he also stated that Malta has not changed its position. This, by therefore, it does NOT mean that the Government has introduced in some way or another a tougher or stricter stance towards cryptocurrencies, but is simply an authority that declares the facts. ”
Clayton added that the Maltese government remains committed to following the blockchain path and that more information will soon be revealed:
“The Government of Malta has pledged to consolidate the blockchain together with other sectors of the environment. The Government of Malta believes that we believe that more synergies between these emerging sectors should be explored and encouraged to reap and exploit its benefits. In addition, the Government of Malta is opting for a comprehensive and holistic strategy for digital, financial and innovative services in Malta. More details about the new strategy will be announced in the coming months. ”
Therefore, the new Maltese government has not officially taken a different course when it comes to cryptocurrencies. For now, the regulator continues to consult industry actors about their initiatives related to cryptocurrency. Earlier this week, the MFSA published comments on the definition of value tokens and the challenges faced by these assets in the Maltese markets, and how these “can be addressed in a way that does not stifle innovation.”
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