Malta as the ‘epicentre’ of security token financing

Blockchain Island Mal­ta is known world­wide for the pio­neer­ing role of its gov­ern­ment in DLT tech­nol­o­gy, but also as the loca­tion of cryp­to exchanges such as Binance and OkEX. Now Mal­ta is prepar­ing to present itself as a suit­able domi­cile for secu­ri­ty token financ­ing.

These efforts are being dri­ven pri­mar­i­ly by the Mal­ta Stock Exchange under its expe­ri­enced and inter­na­tion­al­ly respect­ed Chair­man Joseph Portel­li. Portel­li and his team are con­duct­ing an exten­sive road­show to New York, Lon­don and Tel Aviv, among oth­er places, and are cam­paign­ing fierce­ly to pro­mote Mal­ta as a loca­tion for this excit­ing future mar­ket.

Portel­li is par­tic­u­lar­ly con­fi­dent about Mal­ta as a future loca­tion for Secu­ri­ty Token Exchanges. He pre­dicts to the par­tic­i­pants of the road­show that by the end of 2020 Mal­ta will have the high­est den­si­ty of Secu­ri­ty Token Exchanges world­wide — even high­er than that of the USA.

Of course, Mal­ta’s exist­ing posi­tion­ing as Blockchain Island should also be help­ful in real­iz­ing this vision. Portel­li lists sev­er­al advan­tages of Blockchain tech­nol­o­gy and secu­ri­ty tokens in an inter­view con­duct­ed dur­ing the South­ern EU Sum­mit. On the one hand, he men­tions “proxy vot­ing”, i.e. the exer­cise of vot­ing rights by secu­ri­ty hold­ers. By means of Smart Con­tracts, token hold­ers can eas­i­ly cast their votes regard­ing con­crete deci­sions. Here, the blockchain would dra­mat­i­cal­ly sim­pli­fy a pre­vi­ous­ly cum­ber­some and cost­ly process.

Security token (financing) as a paradigm shift in the financial market

Prob­a­bly no field, how­ev­er, will be more affect­ed and trans­formed by blockchain tech­nol­o­gy and secu­ri­ty token offer­ing than SME financ­ing. Accord­ing to Portel­li, com­pa­nies that want to raise a cer­tain amount of assets no longer have to go through a cost­ly reg­u­la­to­ry process. Blockchain-based smart con­tracts — instruc­tions pro­grammed in code — make it pos­si­ble in many cas­es to elim­i­nate mid­dle­men and thus reduce costs.

Portel­li describes that secu­ri­ty tokens do NOT bring about a rev­o­lu­tion in the finan­cial sec­tor (as many experts argue), but rather an evo­lu­tion of it. There would be a par­a­digm shift from one extreme to the oth­er. It is pre­cise­ly small and medi­um-sized enter­pris­es (SMEs) that could ben­e­fit most from this devel­op­ment, because by costs reduc­tion make access to and list­ing on stock mar­kets afford­able, says the chair­man of the Mal­ta Stock Exchange.

For exam­ple, even those wish­ing to col­lect only small amounts of cap­i­tal on Alter­na­tive Invest­ment Mar­ket (AIM) — the Lon­don stock mar­ket for SMEs — already face costs for under­writ­ers, reg­u­la­tors, lawyers and accoun­tants in excess of one mil­lion euros.

The Mal­ta Stock Exchange already offers SMEs the oppor­tu­ni­ty to use secu­ri­ty tokens for rais­ing cap­i­tal and obtain­ing a list­ing at very low cost. For this pur­pose, a plat­form for SME financ­ing is being devel­oped based on the British mod­el of AIM and the method­ol­o­gy of NOMAD (nom­i­nat­ed investor). The rea­son for this is to ensure adher­ence to exist­ing reg­u­la­tions for gov­er­nance, risk and com­pli­ance.

Portel­li fore­sees that with this plat­form, the Mal­ta Stock Exchange could pos­si­bly estab­lish itself as the world’s lead­ing stock exchange for SME financ­ing with­in the next year.

MFSA & AIFU Publish Guidance Document for Investors of Fintech Companies

Thanks to its world-famous finan­cial sec­tor, its tech­nol­o­gy-friend­ly leg­is­la­tion and now its posi­tion­ing as Blockchain Island, Mal­ta attracts Fin­Tech com­pa­nies and start-ups from all over the world.

A big prob­lem that Fin­tech start-ups have had to strug­gle with so far was rais­ing cap­i­tal from the tra­di­tion­al finan­cial sec­tor. Because this could become an obsta­cle for the entire indus­try and ulti­mate­ly even for Mal­ta as a busi­ness loca­tion, the Finan­cial Intel­li­gence Analy­sis Unit (FIAU) and the Mal­ta Finan­cial Ser­vices Author­i­ty (MFSA) have now joint­ly issued a Guid­ance Doc­u­ment aimed at com­pa­nies that have Fin­Tech com­pa­nies as cus­tomers. These are main­ly pay­ment insti­tu­tions, cred­it insti­tu­tions and elec­tron­ic mon­ey providers.

The aim of the doc­u­ment is to assist these com­pa­nies in imple­ment­ing cer­tain pro­ce­dures, poli­cies and process­es to bet­ter ana­lyze risk assess­ment or oth­er aspects of these Fin­Tech com­pa­nies. It is also intend­ed to strength­en and method­i­cal­ly com­ply with FIAU-giv­en rec­om­men­da­tions to pre­vent the sup­port of mon­ey laun­der­ing or ter­ror­ist financ­ing activ­i­ties.

It address­es the risks asso­ci­at­ed with cryp­to cur­ren­cies, which the Inter­na­tion­al Mon­e­tary Fund had warned against in dis­cus­sions with the Mal­tese gov­ern­ment.

The authors stress that the doc­u­ment should help make financ­ing more acces­si­ble to Fin­Tech com­pa­nies while ensur­ing that the most strin­gent cor­po­rate financ­ing require­ments and secu­ri­ty guide­lines are met at all times.

Banks in par­tic­u­lar could bet­ter respond to the finan­cial needs of com­pa­nies in the future, since — accord­ing to the authors — a sup­port­ive and flex­i­ble bank­ing mod­el is essen­tial for the suc­cess of Mal­ta as a finan­cial cen­tre.

Malta puts rental contracts on the Blockchain

In view of a con­struc­tion boom, steady pop­u­la­tion growth and rapid­ly ris­ing rents, a reform of the rental law was urgent­ly demand­ed from many sides in Mal­ta. The Mal­tese gov­ern­ment under Prime Min­is­ter Joseph Mus­cat has now decid­ed on an exten­sive reform of the exist­ing pro­vi­sions, which will come into force at the turn of the year. The inno­va­tions also include the use of blockchain tech­nol­o­gy.

As of 1 Jan­u­ary 2020, all rental agree­ments in Mal­ta must be reg­is­tered and stored on the Blockchain. This will ensure that leas­es are stored in a secure envi­ron­ment and that no false entries can be reg­is­tered. Above all, how­ev­er, this is intend­ed to put a stop to the exist­ing black mar­ket. Ulti­mate­ly, the lease reg­is­ter, which is admin­is­tered by the Hous­ing Author­i­ty, serves to pro­tect land­lords and ten­ants alike.

Once again, the Mal­tese gov­ern­ment is demon­strat­ing that Blockchain Island is not only try­ing to attract inno­v­a­tive com­pa­nies from all over the world using DLT tech­nol­o­gy. No, they set a good exam­ple them­selves and are con­stant­ly look­ing for new and bet­ter oppor­tu­ni­ties to ben­e­fit from the tech­ni­cal pos­si­bil­i­ties of Blockchain tech­nol­o­gy in admin­is­tra­tive and offi­cial mat­ters.

This mea­sure fol­lows fur­ther ini­tia­tives of the Mal­tese author­i­ties. As we have report­ed, it was announced at the begin­ning of this year that all degrees award­ed by Mal­tese uni­ver­si­ties will in future be issued via the blockchain in order to avoid false state­ments and for bet­ter trace­abil­i­ty.

About Dr. Jörg Werner

Dr. jur. Jörg Wern­er, born 27 May 1971, attend­ed the law school of the Uni­ver­si­ty of Leipzig and passed his first state exam­i­na­tion in the State of Sax­ony in 1996. After suc­cess­ful­ly com­plet­ing his manda­to­ry legal intern­ship, he suc­cess­ful­ly passed the sec­ond state exam­i­na­tion of the State of Sax­ony-Anhalt in 1998 and was admit­ted to the bar and began to prac­tice as a Ger­man attor­ney (Recht­san­walt) before the court of Magde­burg the same year. He worked as an attor­ney at the Law Offices of Prof. Dr. Fre­und & Kol­le­gen until he formed the firm of Wrede & Wern­er. He was also admit­ted to prac­tice before the Supe­ri­or Court of Naum­burg. In 2001, he moved the firm’s offices to Cen­tral Berlin, where he was admit­ted to prac­tice before the Courts of Berlin. Dr. jur. Jörg Wern­er then com­plet­ed his doc­tor­al stud­ies at the Uni­ver­si­ty of Ham­burg and grad­u­at­ed as a Dok­tor der Rechtswis­senschaften (Doc­tor of Laws).

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