Introduction
Dr. Werner & Partner attended a conference on Friday 2nd March 2018 organised by ‘Blockchain Malta Association’ entitled: ‘Reflections on the Proposed DLT Regulations’ at Le Meridien Hotel in Balluta.
Blockchain Regulation
Parliamentary Secretary Silvio Schembri opened the conference and stated that the Government was fully committed to open a new Digital Innovation Authority (DIA) which will act as the main and sole regulator for ‘Innovative Digital Technology’. The second bill, Technology Arrangements and Services Bill (commonly known as: TAS) was also discussed by Dr. Schembri and mention was also made of the much-anticipated VC Bill (soon to be Virtual Currency Act). These three bills will eventually form the basis of Malta’s Blockchain and Cryptocurrency Regulation.
Wyoming embracing Blockchain.
Throughout the conference, mention was made of the State of Wyoming’s proposed Blockchain regulation. As Wyoming seeks to regulate Blockchain technology, it will emphasize on: zero corporate income/franchise taxes whilst ensuring that there are strict privacy laws governing LLCs formed in the state. If the proposed laws are adopted, the ‘blockchain tokens exemptions bill’ would make Wyoming the first state to allow initial coin offerings (ICOs).
ICOs
As previously discussed in other articles, an ICO allows companies to offer virtual coins instead of traditional stock to raise equity/funds. Once the business reaches its fundraising goal/full potential, those who would have purchased coins would be able to trade in their coins for other products.
The Digital Innovation Authority.
The key-note speakers noted that with the setting up of a Digital Innovation Authority (DIA), this new body would still need to rely on Agencies and other authorities to ensure its good governance. The panel also opined that the idea for an Authority is not for Malta to introduce heavy regulation but rather for Companies wanting to simply seek ‘certification’ and ‘registration’. In this connection, prospective companies coming to Malta who do not wish to seek any form of regulation whatsoever will not attempt any certification.
On the other hand, those companies relocating to Malta with the intent of operating a DLT platform in a coherent and regulated manner will obviously seek approval from this new Authority. Flexibility is therefore extremely important if Malta wants to attract all sorts of firms/entrepreneurs with different business plans.
Legal Personality of the DLT.
Perhaps the most interesting debate throughout the conference was that pertaining to the: Legal personality of technology arrangements. To note that a DLT (Distributed Ledger Technology) is a form of Software Platform arrangement with multiple users. Since there are a great amount of contractual relationships emanating from the DLT Platform [and many stakeholders e.g. the Regulator, Insurance, Risk, Compliance etc], could it be safe to say that the DLT is in-itself a legal person?
Dr. Max Ganado argued that the way forward is to treat DLTs as being software arrangements/a special type of asset which can form the basis of a new type of legal person. A couple of key note speakers opined that the whole ‘context’ which merited scrutiny was not the DLT Platform itself but rather ‘Smart contracts’. It was argued that DLT is simply a technology where decentralised activity will flourish meaning that it should not [and cannot] be regulated per se, nor can it have any form of legal personality.
Dr. Ian Gauci stated that a similar comparison can be found in Company Law whereby one can distinguish between the responsibility of the shareholders (members) and the technology arrangement (which is the smart contract). This could lead to a lifting of this segregation (similar to lifting the corporate veil under Company Law) and imbue legal personality to a technology arrangement similar to legal persons under Company Law, also having some obligation to appoint administrators as with directors under Company Law. In this connection, it is worth contemplating a straightforward question: i.e. who owns the liability? and at what stage does the liability eventually kick in?
Virtual Currencies.
Finally, mention was made of the MFSA’s Consultation Paper on Virtual Currencies [this was also tackled in a previous article] and the point was reiterated that if a Virtual Currency or ICO qualifies as a ‘financial instrument’ in terms of the MIFID Regulations, it would then entail regulation after passing the Financial instruments test.
Ensuring flexible Blockchain Regulation.
To sum up, the crux of the matter is the following: should Malta opt for heavy regulation to cover all areas relating to Blockchain and Cryptocurrencies or should there be some form of flexibility? Moreover, should regulation be subject to ‘off-chain’ regulations/equivalence? For how can Malta attempt to regulate Blockchain technology if this phenomenon is both de-centralised and world-wide?
In this connection, when one discusses ‘Blockchain Regulation’ one needs to appreciate that this is an extremely high level of regulation. The Maltese Government has an important choice to make and that is whether it will seek to introduce tough Regulation or not. After all, what has always made Malta very attractive is its flexibility, so the proposed Authority should certainly ensure that there is transparency [especially regarding: ICOs] in order to guarantee investor protection.
The future seems to be really exciting as Malta finally ventures into the unknown…
