Virtual Assets And Fintech: An Opportunity For Malta

This demonstrates that Malta's regulatory framework is robust and trustworthy, positioning the country as a forward-looking and secure hub for digital finance within the EU.

Let me put some context here.

Malta was one of the first jurisdictions in Europe to adopt a dedicated regulatory framework for digital assets, introducing the Virtual Financial Assets (VFA) regime in 2018. That early move laid the groundwork for a smooth transition into MiCA, equipping the MFSA with years of supervisory experience and proven technical knowledge, so much so that ESMA's review shows that Malta's early move to regulate digital assets has worked well, with the MFSA and FIAU showing strong knowledge and experience, even when dealing with complex cases that cross borders.

At the same time, however, the review noted that Malta's process has not entirely met expectations yet. There is still work to be done. There is still room for improvement. Closer scrutiny before issuing company licences, such as examining their governance, business plans, potential conflicts of interest, IT systems, and any unregulated activities, is a case in point.

Having said that, it's essential to note that these recommendations were not intended solely for Malta. Furthermore, it is worth noting that Malta, along with Liechtenstein and France, was granted the opportunity to grandfather licensed VFA service providers under MiCA through a simplified procedure, as the requirements under the VFA framework were deemed to be nearly equivalent to those under MiCA.

ESMA's peer review on Malta was intended from the outset to convey constructive feedback on a real case scenario that helps all countries fine-tune their approach to a recent sensitive sector-specific legislation. The outcome of the peer review is, in fact, directed to all national regulators in the EU.

Despite all the potential repercussions of putting the spotlight on us, we received confirmation that we are performing at a very high level.

As a result of ESMA's recognition of Malta's strong technical expertise and regulatory commitment, the review now led to two conclusions: firstly, a worthy recognition for our sound jurisdiction; secondly, our case now provides valuable guidance for ongoing improvement, not only in Malta but also throughout Europe.

That is why today, we as local service providers and operators in the industry, are pleased with the outcome.

ESMA's recognition of MFSA's know-how, resources and early preparation for MiCA is welcome news for our industry. The review did not highlight any material deficiencies but rather appears to express a difference in opinion regarding the timing of authorisation granting.

But we should not relent.

The next step, to my mind, is simple: take the recommendations – which apply to all EU regulators, not just Malta – and be the first to integrate them into our systems. This will keep us ahead of the curve as first movers.

This will earn us even more security and respect, protecting investors, maintaining a fair market, and supporting innovation. And it seems the MFSA is claiming that they took all the recommendations on board and have implemented them. In fact, as a lawyer in this industry assisting clients to obtain licences from the MFSA, I have already noticed changes that point in this direction.

A few CASP licences are already in place. They come with strong recurrent governance and compliance checks, even if that keeps us all on our toes. This is what we need, because as we grow, larger EU jurisdictions will naturally watch us more closely. Let us keep in mind that this is a sector that transcends geographical borders and isn't limited by Malta's insularity or size.

That is why the Malta Chamber plays a vital role in this ecosystem, fostering dialogue between CASPs, fintech innovators and regulators.

Last month, the Virtual Assets Business Section committee organised an engagement session with the MFSA focused on the interplay between MiCA and another directive, referred to as PSD2. This is essentially is another EU law that makes payments safer, helps protect consumers and encourages new companies to offer payment services, like online banking apps or digital wallets.

In the coming weeks, we will pursue further updates with the regulator. That is why we call for CASPs and VASPs to join the Malta Chamber to actively contribute to this dialogue and ensure that Malta's framework continues to grow stronger through a vibrant industry–regulator partnership collaboration.

We genuinely want to build on ESMA's endorsement and guidance, because virtual assets and fintech are an opportunity for Malta, not a threat.

This article was first published in Times of Malta. Joseph F Borg is chairperson of the Virtual Assets Business Section within the Malta Chamber of Commerce, Enterprise and Industry.

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