Malta's financial watch dog forwarded last week with an unexpected remark. Apparently, Binance, a leading cryptocurrency exchange with local authorities, is not allowed to operate in the cryptocurrency domain, as the regulators ' press release stressed.
While the Malta financial services authority has yet to authorize any cryptocurrency company under the country's widely promoted cryptocurrency system, the statement signifies a deterioration in ties between the cryptocurrency sector and Maltese officials, who had claimed to operate a blockchain island.
While the change of tone could be attributed to Maltese Prime Minister Joseph Muscat's recent resignation and his successor's subsequent arrival, it seems as though the local cryptocurrency industry had started to encounter difficulties even before that.
Nevertheless, the new government has affirmed its intentions to act as a blockchain island in a statement to Cointelegraph.
The Grand Plan inside Malta
Throughout his address to the United Nations General Assembly in September 2018, then-Prime Minister Muscat ambitiously described his country as a blockchain island. Indeed, the Maltese government approved three crypto-related bills about two months before the announcement, aiming to create a clear and open regulatory climate: the Digital Innovation Authority Act, the Innovative Technical Arrangement and Services Act and the Virtual Financial Asset Act.
While nations such as Canada, Japan, and Belarus had by that time already enacted cryptocurrency-specific laws, Malta's transition to becoming a blockchain island was unprecedentedly quick. The term itself was coined in April 2018, when the then Minister of Trade, Development and Small Business, Silvio Schembri, commented to Cointelegraph on the news of Binance, the world's top exchange, likely moving to Malta after experiencing regulatory difficulties in Japan where it had previously been headquartered.
The relationship Binance had with the Maltese government at the time was indeed similar. For example, shortly after the article on Bloomberg announcing Binance's interest in Malta aired, Prime Minister Muscat personally exchanges via Twitter, writing: "Welcome to Malta, Binance."
Binance CEO Changpeng Zhao, also known as CZ, was quick to respond to the tweet from the prime minister, adding that he was positive about the country's overall crypto possibilities. Still, the organization even had a private event in Malta at some point in the summer of 2018, which was held at the President of Malta's official residence. “What is the number of presidential palace at blockchain? “While speaking under the old walls, CZ asked, adding," We were very, very fortunate with Malta. Malta came at a time when there was much need for regulatory clarification.
Other international crypto companies that were looking for a more welcoming jurisdiction soon followed suit, namely fellow exchanges OKEx and BitBay, located respectively in Japan and Poland. Malta's lowest corporate tax rate in the European Union for international companies seemed yet another justification for relocation.
Malta continued its "pro-blockchain" politics in October 2018, signing a declaration with seven other EU countries to promote the use of blockchains. Then, the three aforementioned blockchain laws came into effect on Nov. 1, and that's when local players started experiencing difficulties for the first time.
Slow regulations do not work well with a short market
The most vital part of the 3 Maltese blockchain laws, in reality, requires the trade to be approved by the Malta Financial Services Authority while initial coin offerings are made, digital assets are sold or wallets and brokering activities are provided.
"According to Christopher P. Buttigieg, MFSA's Chief Officer of Strategy, Policy, and Innovation, VFA Agent's position under the VFA Act is primarily that of gatekeeper,' or first line of defense. In May 2019 the Organization registered the first VFA officers six months after the Act came into force. There is currently 20 authorized VFA age according to MFSA's financial registry there are currently twenty approved VFA agents.
Under the VFA system, however, no companies have yet been approved, despite the fact that it has been more than a year since it was decreed. “It’s definitely disappointing for the hundreds of companies that are attracted to the country by promises of a good, regulatory environment, "said Jan Sammut, ICO Launch Malta founder He went to add:
My understanding is that the government at the time gave priority to the company over operational readiness. Subsequently, what started initially as an understandable desire to get things right & not put the country's reputation at risk in the event of a crisis, seems to have become the double whammy of a regulatory program's absolute overkill, along with utter operational complacency in granting actual licenses.
"Crypto companies are still struggling to access financial services because of regulatory sluggishness," an OKEx spokesman confirmed to Cointelegraph, adding that the exchange is still committed to operating from Malta after the transition period has ended.
The representative of OKEx elaborated:
• "It is too expensive; it does not give any interest. We affirm that OKEx will continue to commit resources to Malta and encourage effective regulation. In addition to the obvious procrastination with MFSA licenses, there are other concerns — including their potential cost-effectiveness.As Leon Siegmund, member of the board of the Malta Blockchain Association and founder of Bitcoin Club Malta, decrypt VFA license crypto news outlet
In addition, the local approach to the regulation of cryptography is not that strong. As previously reported by Cointelegraph, there is also the EU AMLD5 Directive, in addition to Anti-Money Laundering and Know Your Customer policies imposed by the VFA framework.
At the moment , Daniele Bernardi, CEO of the Malta-founded pecuniary Consultant firm Diaman Group, told Cointelegraph that the rigid prophethood measure scared local banks away, making it difficult for local businesses to seek out a financial partner, "Malta's banks don't open any quite account for crypto companies due to their fear of breaking the AML regulation."Wayne Pisani, one among 20 licensed VFA agents at Grant Thornton, reiterated the sentiment to Cointelegraph:
• ' The aim was never to create a soft-touch regulatory framework, as this would have been contrary to internationally accepted standards of transparency and accountability in regulatory matters. However, the financial application framework of DLT is closely based on EU regulatory standards and complies with ESMA guidelines.
Pisani further added that a parallel project was launched concurrently with the implementation of the laws "to introduce specific guidelines setting out explicit procedures to direct stakeholders in their AML and CFT responsibilities that go beyond the requirements laid down in the EU's 5th Anti-Money Laundering Directive.
“Similarly, a representative of the VFA Agent Community, sent a letter to Cointelegraph, a body soon to be established representing the majority of VFA agents in the world, argued:
“Malta has demonstrated its commitment to a high-quality regulatory framework within its VFA scheme which cannot create future disputes with other international regulations. This shows that in making Malta develop itself as a high-quality jurisdiction in this region, a long-term strategy that is more interested in long-term survival rather than short-term fast wins.
This cautious approach makes sense because allegations of corruption have long engulfed Malta's government. On reviewing the Panama Papers back in 2016, the close associates of local journalist Daphne Caruana Galizia Muscat, including his father, had run firms to launder money and sell passports illegally.
Caruana Galizia was shot dead in a car bombing in October 2017. Numerous mass protests followed, calling for the resignation of Muscats, partly because of his inability to resolve the bombing which attracted the attention of the EU. Muscat declared on Dec. 1, 2019 that he'd stepped down due to the political crisis. Robert Abela, a fellow member of the Labor Party and son of former Maltese President George Abela, has replaced the prime minister.
MFSA breaks it off with Binance, but the government remains apparently pro-crypto
On February 21, 2020, in the midst of the uncertainty surrounding the VFA system, the MFSA released a public statement claiming that Binance "is not approved by the MFSA to operate in the sphere of cryptocurrency." The agency explained that recent media reports misrepresented Binance as a "Malta-based cryptocurrency company," while the exchange "may not fall within the sphere of regulatory oversight."
Later, CZ took to Twitter to mark the assertion as "a mixture of reality, FUD & misinformation." Addressing news articles reporting that Binance is not authorized to operate in Malta, the CEO of the exchange said Binance "is not headquartered or run in Malta."
Binance has registered two companies in Malta, none of which have reported any activity since its formation, according to an investigation conducted by a local anonymous blogger BugM. Notably, CZ reassured previously that "any country that can attract Binance to open a branch at its location will earn good tax revenue."
Binance has a physical office in Malta but is located in the Cayman Islands and Seychelles, according to Decrypt. Sammut told Cointelegraph that this has been brewing for some time, adding that the MFSA was right to give a clarification on the exchange's regulatory status, elaborating:
Bearing in mind that the company is not actually under their jurisdiction, the MFSA is right to distinguish the name of Malta from any possible consequences of an incident that they cannot predict because the business is not under their supervision. If the MFSA had to issue licenses, on the other hand, we might not be here now...
Binance had not replied when asked to clarify its relationship with the MFSA. While current-Prime Minister Abela has yet to comment publicly on cryptocurrencies and blockchain, it seems that the new government is still interested in continuing as an island of blockchain.
Although current-Prime Minister Abela has yet to comment publicly on cryptocurrency and blockchain, the new government still appears to be interested in continuing as a blockchain island. The argument was further corroborated on his personal Twitter account by Changpeng Zhao, CEO of Binance, where he also confirmed Malta had not changed its stance. Hence, DOES NOT mean that the government has introduced a harsher or more stringent approach to cryptos in some way or another, but merely an authority stating facts.
Clayton added that Malta's government is still committed to following the blockchain route and that more information will soon be revealed:
The government of Malta is committed to integrating blockchain with other recesses. In addition, the Malta government opts for an overall and integrated plan for Malta's physical, financial and innovation services. More information on the new strategy will be made available in the coming months.
Thus, the new government of Malta has not officially taken another path about cryptocurrencies. As for now, the regulator is continuing to work with industry players on its initiatives related to crypto. The MFSA published feedback earlier this week on the concept of security tokens and the difficulties these assets face in Maltese markets, and how these "can be approached in a way that does not stifle innovation.