Issue link: https://maltatoday.uberflip.com/i/1024340
7 maltatoday | SUNDAY • 9 SEPTEMBER 2018 NEWS MFSA boss denies loophole gives cryptocurrencies free rein YANNICK PACE CRYPTOCURRENCY companies which have rushed to set up shop in Malta will have a full 12 months in which they can become fully licenced under the new onerous laws that will regulate blockchain technologies. But the CEO of the Malta Financial Services Authority has denied sug- gestions that grandfathering clauses in the laws that allow 'unlicensed' companies to carry on their business until they are fully regu- lated, will give them free rein to exploit their le- gal vacuum. Joseph Cuschieri said companies setting up busi- nesses in Malta ahead of the laborious licensing stage will still have to abide by all the legal provisions regu- lating the sector, irrespective of when they started their operations. Malta recently passed three laws aimed at regulating blockchain tech- nologies such as cryptocurrencies. The new laws will enter into force in the coming months and will make Malta among the first countries in the world to provide a complete set of for operators working in blockchain. Now dubbing itself as "the block- chain island", the Maltese govern- ment wants to bill its trailblazing regulation and incentives to build its own Silicon Valley for the new tech- nology. But concerns have also been raised about whether such distributed ledg- er technologies can be used for mon- ey-laundering and the financing of terrorism, and whether the industry is also prone to scams or market ma- nipulators. One such concern was raised in The Shift, which pointed out a potential loophole in the law that would al- low companies currently operating in Malta to continue operating in an unregulated manner for the year-long transition, following the entry into force of the new laws. The Virtual Financial Assets Act – one of the three laws making up Mal- ta's blockchain legislation – allows companies already operating in Malta 12 months to apply for a licence with the MFSA. This means they could be operating for up to a year without having been approved for a licence. But Cuschieri said that a 12-month period was necessary for operators to apply for the licence. "Once the law comes into force in November, we would have a situation where these companies are effectively commit- ting a criminal offence by continuing their operations," Cuschieri told Mal- taToday when contacted. "To rectify this, it was decided to grant a 12-month period to operators, during which period they are to apply for a licence. The application can be quite lengthy and could take the MF- SA up to six months to process. "What we are saying is that compa- nies that are already operating must notify us immediately and tell us that they are operating in the sector so that we can start monitoring them un- til they have a licence in hand." Cuschieri stressed that this did not mean that these companies would not be required to abide by the provisions of the law, or any other relevant leg- islation, such as those related to the prevention of money laundering. "Once the law is in force, as a com- pany you are obliged to abide by that law, even before you are granted a li- cence," he said. "If on the other hand you are not granted a licence, then you can no longer operate in Malta." Lawyers working in the sector who spoke to this newspaper said a tran- sitional period was normal when new laws come into force. They said that while the length of the transition period could be ques- tioned, 12 months was not an abnor- mal period of time to allow operators to become compliant or complete an application process. "For example, the recently-intro- duced regulations on beneficial own- ership of companies included a simi- lar grace period for companies that had been incorporated before the reg- ulations came into force," they said. They said the laws are actually quite stringent and include sufficient meas- ures to deter dodgy operators. Moreo- ver, given that there are currently no regulations, the introduction of new laws is only going to reduce any risks of illicit behaviour, they said. Malta's 'blockchain island' market- ing has now gone beyond the simple regulatory framework: Prime Minis- ter Joseph Muscat has taken a lead- ing role in promoting the industry by endorsing and engaging with some of the world's leading blockchain entre- preneurs. Some of the largest cryptocurrency exchanges, like Binance, have an- nounced moves to Malta over the past year. Asked whether it would have been safer not to allow companies to op- erate before the laws were in force, Cuschieri insisted that authorities can't stop companies from operating. "The reality is that at the moment, there is no legal framework for ad- dressing issues with those that are al- ready operating," he said. He said that as things stood, crypto- currencies, both locally and abroad, exist within a grey market, meaning they are not legal, but also not illegal. "With the new laws, authorities will have the necessary tools to be able to carry out enforcement and to turn the local market into a regulated one." Cryptocurrency outfits operating in Malta still have up to 12 months to apply for a licence under the new laws MFSA CEO Joseph Cuschieri