Recently, the Malta Financial Services Authority (MFSA), released the third chapter of the rulebook that is proposing a framework for, among other things, how a license for cryptocurrency exchanges will look like.
The idea is that the industry should respond to the proposal until September 14th. Now, however, Joseph Borg, a crypto lawyer in Malta, strongly criticizes the rules that the country’s authorities have written in the proposal for the license.
“As all the other chapters that have been issued to date by the MFSA, I get the sensation that the framework is heavier than expected. The stakeholders were probably expecting a lighter touch approach for an industry that is still in its infancy”, says Joseph Borg to Trijo News.
At the same time, Joseph Borg strongly advises the stakeholders to participate in the consultation and says that he is “sure the MFSA will try to find the right balance to issue a robust framework while keeping Malta an attractive jurisdiction for blockchain and crypto related businesses to establish themselves”.
Must ensure quality
The proposal states, among other things, that the companies that get the crypto license must carry out “appropriate research” on the cryptocurrencies they list on their platform. This is to ensure the quality of the asset.
“The MFSA has explicitly stipulated listing criteria within the Rulebook in order to ensure that entities licensed in Malta only list high-quality assets”, says Christopher Buttigieg, head of securities and markets supervision at the MFSA, to Trijo News.
However, it has been speculated that this could pose a problem for crypto exchanges that have many cryptocurrencies listed. Binance, for example, who has said they intend to move to Malta, has over 100 coins listed on their platform.
“Whilst I do not feel comfortable of speaking about specific companies, I believe that this is the right approach. One has to ensure that the coins being listed are not financial instruments and that they are not coins controlled by companies that can pump them and dump them at their will”, says Joseph Borg.
High capital requirements
Another thing in the proposal that Joseph Borg is critical to are the fees and capital requirements that companies have to pay and show in order to apply for a crypto license in Malta.
The initial capital requirement, i.e. the money a company has to show that they have in a bank account, to get a crypto license is €730,000.
“This is one example of a provision that needs to be sent back at the drawing boards. While I understand that the MFSA must ensure the business is serious, these requirements eliminate startups outright. Startups in such a new industry are fundamental for growth and innovation”, says Joseph Borg.
“These requirements eliminate startups outright”
However, Christopher Buttigieg at the MFSA says that the capital requirements are similar to those provided for the traditional financial services framework. He believes that the sums are proportional to the risk of the particular business models.
“For example, the capital requirement for a license holder authorized solely to provide investment advice shall be lower than that for a VFA exchange”, says Christopher Buttigieg.
Do you see a risk that these fairly high initial capital requirements and fees could scare away, or in some cases even prevent, small startup companies to establish their business in Malta?
“Capital requirements are a means of ensuring financial soundness in the best interest of investors and the general soundness of the financial system. That said, it is reiterated that the consultation period for the proposed chapter 3 of the Rulebook is still open”.
