Issue link: https://maltatoday.uberflip.com/i/1475298
8 NEWS 04.08.2022 An epitaph to Sophia the robot dancing the Blockchain dream George Mangion George Mangion is a senior partner at PKF, an audit and consultancy firm, and has over 25 years' experience in accounting, taxation, financial and consultancy services. His efforts have made PKF instrumental in establishing many companies in Malta and established PKF as a leading professional financial service provider on the Island THE announcement by Bloomberg four years ago that a top cryptocurrency ex- change company was heading to Malta had many practitioners eager to join the band wagon for new business opportu- nities in the DLT sector. I remember minister Silvio Schembri calling a press conference in February 2018 to announce the publication of a consultation document entitled "e Establishment of the Malta Digital In- novation Authority; the Framework for the Certification of Distributed Ledger Technology Platforms and Related Ser- vice Providers; and a Virtual Currency Act". A much-hyped dream for a paper- less blockchain solution in Malta were trumped by pre-Covid ambitions to con- siderably facilitate information exchang- es and processing among Government agencies, importers and exporters. We were impressed by the press re- leases issued by Castille that a future blockchain platform would allow par- ties to securely store the trade-related documents such as certificates or li- censes issued by government author- ities so that they are always accessible and cannot be lost. Apart from that, such faster information exchange can also contribute to identification of fraud related to products' origin or to tackle expired permits. It has the potential to deliver productivity gains to multiple industries, from the financial services sector to energy markets, supply chains, intellectual property management, the public sector. Critics pointed out that MFSA had to be careful not to gold plate its own laws in an overzealous approach to safeguard its reputation. Another essential ingre- dient is access to local banks which so far have not endeared themselves to the sector. As can be expected, the EU directive aims to protect SME's by making ac- cess to funds via ICO a friendly step and assures that the cost of registration for DLT structures is proportionate to their size and complexity. e directive lauds the potential of Initial Coin Offer- ings (ICOs) as an alternative investment instrument in funding SMEs and inno- vative start-ups. It aims to accelerate technology transfer. Needless to say, there is an overriding scope to identify criteria that enhance investor protection and obligations for the initiators of ICOs. Having briefly discussed the EU directive on the DLT sector, let us mention briefly the three Malta laws promulgated to regulate op- eration of VFA agents, issuers, system providers and IT auditors. Applicants are faced with a stiff finance instrument test (FIT) and obligations to invest sub- stantial paid-up capital. is test is ex- clusively administered and signed by accredited VFA agents, of which so far there are about two dozen with scant business on the horizon. Surely, no one seemed to have antic- ipated four years ago that Malta – to- day – still has not caught up with the success that Estonia recorded in at- tracting business. Estonia started ear- ly but recently finetuned its legislation. Following amendments to regulations this year, there were 269 businesses that were licensed and allowed to provide virtual asset services to third parties. On March 2022, a newly adopted Esto- nian Money Laundering and Terrorist Financing Prevention Act came into force. e main purpose of the new legisla- tion is to mitigate and lower the risks of money laundering, terrorist financing and the financing of the proliferations of weapons of mass destruction in the field of virtual currencies in Estonia. ese measures are taken to mitigate the risks associated with virtual asset service providers (VASPs) and improve the supervision of VASPs. e changes are also focused on ensuring that VASPs who do not intend to operate in Estonia and those who cannot be supervised in Estonia do not have an Estonian virtual currency license. Under the new legislation, the Estoni- an Financial Intelligence Unit (FIU) has the right to refuse an activity license in the field of virtual currencies if: • the information submitted by the company shows that its pur- pose is not to operate in Estonia, or its business has no significant connections with Estonia other than the place of business being in Estonia and the members of the management board located in Es- tonia. • the internal rules submitted by the company are not sufficient, proportionate, and unambiguous considering the nature, extent, and degree of complexity of the activities of the applicant or are in conflict with the applicable law. • the information technology sys- tems and other technological means of the company are not sufficient for the provision of the service. Can Malta attract new business in Blockchain and AI, given the onset of the Russian war, explosion in energy costs, the raging global inflation and shortage of workers? e mood is not completely bleak according to a recent PWC research. is shows that 45% of total economic gains by 2030 will come from product enhancements, stimulat- ing consumer demand. is is because AI will drive greater product variety, with increased person- alisation, attractiveness and affordabil- ity over time. e greatest econom- ic gains from AI will be in China and North America, equivalent to a total of $10.7 trillion and accounting for almost 70% of the global economic impact. Back in 2018 Castille sponsored a number of local conferences which served as a foundation stone for Block- chain and AI, but we cannot rest on our laurels. Blockchain in Malta will succeed de- pends on a number of promotional ef- forts by FinanceMalta and MDIA. Can Malta succeed in championing disrup- tive technologies and associated VFA business apart from embracing Arti- ficial Intelligence, Big Data, machine learning, biotechnics and Fintech in the financial services - among others? Realistically, reading the 2022 budget, one laments that a modest allocation was earmarked for innovation and re- search. Substantial resources are need- ed to train our workforce in future DLT entities aided with adequate capital and transfer of technology. In 2018, a lot of kudos was showered on the Joseph Muscat government which pledged to turn Malta into the next "Blockchain Island" in the Med, but one must ask: what is keeping the flow of foreign capital from gatecrash- ing the MFSA with bona fide applica- tions? Perhaps we should consider involving "Sophia" the female robot to charm a host of top DLT evangelists to revive Malta's dream.