ICOs: A Comparative Analysis of the Maltese and Gibraltarian perspective.

Introduction: The ICO World.

ICOs [Ini­tial Coin Offer­ings] or TGE [Token Gen­er­a­tion Events] have attained a ubiq­ui­tous sta­tus with­in the world of Cryp­tocur­ren­cies – as their intro­duc­tion in the finan­cial ser­vices sec­tor has sparked a num­ber of dif­fer­ent views on how to tack­le and even­tu­al­ly reg­u­late these inevitable nov­el coin offer­ings.

Crowd­fund­ing ini­tia­tives are inno­v­a­tive ways for new dig­i­tal cur­ren­cies to cre­ate financ­ing – by offer­ing investors the new cur­ren­cy in exchange for oth­er estab­lished ones such as for exam­ple Bit­coin and/or Etheri­um. In cer­tain cas­es, the new cur­ren­cy can also be exchanged for fiat Cur­ren­cies such as the Euro or US Dol­lar.

Prospective ICOs in Malta.

As already dis­cussed in pre­vi­ous arti­cles, the MFSA [Mal­ta Finan­cial Ser­vices Author­i­ty] had issued a con­sul­ta­tion paper in Novem­ber 2017 specif­i­cal­ly deal­ing with ICOs. Under the prospec­tive frame­work pro­vid­ed, a ‘Finan­cial Instru­ments Test’ would be applied to all practitioners/person will­ing to offer ICOs.

ICO Steps for necessary regulation.

The first stage would pri­mar­i­ly deter­mine whether the ICO qual­i­fies as a ‘finan­cial instru­ment’ in terms Sec­tion C of Annex 1 of Mar­kets in Finan­cial Instru­ments Direc­tive (MiFiD) and whether the activ­i­ties of the firm involved in such a VC con­sti­tute a reg­u­lat­ed activ­i­ty as list­ed in Sec­tion A of Annex 1 of MiFiD. If this is the case, then EU and Local leg­is­la­tion would apply.

The sec­ond step would entail whether or not the Vir­tu­al Currency/ICO would also qual­i­fy as an asset under the pro­posed Vir­tu­al Cur­ren­cy Act.  If a user man­ages to sat­is­fy the cri­te­ria attrib­uted to the first stage, then the sec­ond stage analy­sis would not be nec­es­sary.

VC Act and ICOs.

More impor­tant­ly, the now-cer­tain Vir­tu­al Cur­ren­cy Act will also estab­lish the principles/requirements need­ed for per­sons will­ing to offer ICOs. In this con­nec­tion, the Vir­tu­al Cur­ren­cy Act will also empow­er the MFSA to car­ry out the nec­es­sary checks and bal­ances in ensur­ing that ICOs are prop­er­ly mon­i­tored and if need be sus­pend­ed whilst also ensur­ing that the ‘Finan­cial Instru­ments Test’ is audit­ed by an inde­pen­dent and exter­nal audi­tor.

The Gibraltarian Approach to ICOs.

Work­ing in a sim­i­lar anal­o­gous frame­work to Mal­ta, the Gibral­tar­i­an Finan­cial Ser­vices Author­i­ty [i.e. the GFSC – Gibral­tar Finan­cial Ser­vices Com­mis­sion], has first and fore­most stat­ed that ICOs are strict­ly speak­ing — risky to invest in. These sen­ti­ments were also expressed by the MFSA back in 2017.

GFSC guidelines on ICOs.

Nev­er­the­less, the Gov­ern­ment of Gibral­tar as well as the GFSC have released a pro­pos­al for the sale of cryp­to­graph­ic tokens with a draft bill expect­ed to be launched by not lat­er than Octo­ber 2018. It goes with­out say­ing that these will be the first ever set of reg­u­la­tions specif­i­cal­ly devel­oped for ICOs pub­lished in the world. To note that a con­sul­ta­tive approach was also adopt­ed by the Mal­tese Gov­ern­ment which was met by a warm embrace by local prac­ti­tion­ers.

Gibral­tar’s gov­ern­ment has also intro­duced a ‘tri-lat­er­al approach’ that would more­over deal with “the pro­mo­tion, sale and dis­tri­b­u­tion of tokens,” even­tu­al­ly lead­ing to the cre­ation of a well-reg­u­lat­ed sec­ondary mar­ket relat­ed to token offer­ing. Mal­ta on the oth­er hand, will seek to do this via the intro­duc­tion and imple­men­ta­tion of the Vir­tu­al Cur­ren­cy Act.

Authorised Sponsors — to manage the ICOs.

One of the inter­est­ing aspects of Gibraltar’s ICO reg­u­la­tions will be the intro­duc­tion of the con­cept of autho­rized spon­sors – users who as such, are sup­posed to be “respon­si­ble for assur­ing com­pli­ance with dis­clo­sure and finan­cial crime rules’’.

More­over, these spon­sors must pos­sess the nec­es­sary knowl­edge and expe­ri­ence of this sub­ject and will pri­mar­i­ly be respon­si­ble for ensur­ing com­pli­ance with the new ICO reg­u­la­tions. We can com­pare this to the rules and reg­u­la­tions which will even­tu­al­ly also be found in the Mal­tese VC Act – specif­i­cal­ly ensur­ing that per­sons offer­ing the ICOs are con­stant­ly mon­i­tored.

Regulating an ICO.

The draft law will also estab­lish dis­clo­sure rules that will require ICO projects to pro­vide “ade­quate, accu­rate and bal­anced infor­ma­tion to any­one buy­ing tokens”- as stat­ed by the GFSC. The first stage of reg­u­la­tion will be that of con­trol­ling the pro­mo­tion of tokens in or from Gibral­tar. [In Mal­ta, as not­ed before, the first step of reg­u­la­tion will be that of clas­si­fy­ing whether the ICO pass­es the Finan­cial Instru­ments Test].

The pro­ceeds of tokens will even­tu­al­ly fall direct­ly under the aus­pices of the Pro­ceeds of Crimes Act 2015 [aimed at specif­i­cal­ly curb­ing any mon­ey-laun­der­ing or illic­it activ­i­ties.] From a Mal­tese per­spec­tive, it is yet to be seen whether sep­a­rate pro­vi­sions will be pro­mul­gat­ed to deal with crimes ema­nat­ing from ICOs or whether local leg­is­la­tors will refer to the local Crim­i­nal Code.


Whilst both Mal­ta and Gibral­tar are ful­ly com­mit­ted to imple­ment and even­tu­al­ly reg­u­late ICOs in their juris­dic­tions, a degree of cau­tion can be seen to be exer­cised from both sides.

One preva­lent fac­tor which is seen in both is the issue of mon­i­tor­ing the ICOs. Whilst the Mal­tese per­spec­tive will focus on ser­vice providers and whether the ICO can be clas­si­fied as a finan­cial instru­ment, Gibral­tar will adopt the ‘autho­rised spon­sor’ approach – ensur­ing cau­tion and com­pli­ance.

Whilst it can be evi­dent­ly seen that there is a cer­tain degree of com­pe­ti­tion between both these micro-states, the ques­tion both juris­dic­tions need to answer is whether over-reg­u­la­tion will curb prospec­tive busi­ness oppor­tu­ni­ties. More­over, the true suc­cess sto­ry of the ICO Laws can only be mea­sured once reg­u­la­tions actu­al­ly kick-in. That is why both Mal­ta and Gibral­tar are both doing their best in prepar­ing the nec­es­sary ground work to ensure that crowd­fund­ing will be even­tu­al­ly be a suc­cess sto­ry.

About Dr. Michael Calleja

Dr. Michael Calle­ja, born on the 07.01.1988, stud­ied law at the Uni­ver­si­ty of Mal­ta from 2006 till 2012. He grad­u­at­ed Bach­e­lor of Laws & Euro­pean Stud­ies in 2009 with a Sec­ond Class Upper Degree and grad­u­at­ed Notary Pub­lic in 2010. He suc­cess­ful­ly defend­ed his the­sis enti­tled: ‘Beyond the Bosman Rul­ing: Con­trac­tu­al Dis­putes in Foot­ball and the Spe­cif­ic Nature of Sport in the Euro­pean Union’ in 2012 and obtained his Doc­tor of Laws (LL.D) accord­ing­ly.

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