Building the Blockchain Island
As published on The Malta Business Observer on 21.11.2019
On November 1, 2019 the MFSA announced that it had received Letters of Intent from 34 prospective VFA Service Providers, 21 of which pertain to crypto-asset exchanges. Only 12-months earlier, three Bills of law establishing the blockchain and cryptocurrency sector in Malta become effective. After months of consultation and tweaking, the Bills are amongst the most holistic sets of legislation that any jurisdiction has put forward in the field of virtual financial assets.
During these past months, there was a lot of hype around Malta establishing itself as a blockchain island and the numbers published elicited mixed reactions with many seeing them as too low as a basis for a new economic sector. However, one must also keep in mind that the sector is still very much in its infancy and it is pertinent that Malta attracts quality players to its fold.
Numbers apart, this is yet another prime example of Malta’s capacity to use its jurisdiction in order to carve out niche economic sectors. If we just look around at the current economic pillars that sustain our economy and which include financial services and remote gaming, one would easily appreciate the power of regulatory vision and legislative frameworks that Maltese legislators have had in the past. Our present economic success is also built on the strong foundations that these sectors were built upon.
The blockchain island vision has been built around the enactment of these three Bills. However, the development of an ecosystem is not only dependent on the regulatory frameworks. In fact, the legislative dimension is just one of a number of factors that determine the success of any ecosystem.
As one can expect, having a vision and a strategy is key to building any ecosystem. In this respect, one must say that the Maltese Government had a very clear vision to establish Malta as the blockchain island and the setting up a task force, the publication of the National Blockchain Strategy and the enactment of these Bills are a strong testimony to this vision. This vision needs to now permeate into the different levels of government and civil service. We truly need a new era of governance and governing, one which is truly smart and digital. The blockchain offers some unique opportunities for efficiency-gains and cost-reduction and Government needs to now focus on revamping the civil service and ensure that it truly becomes a smart government. This, to me, needs to be the focus of Government in the coming months as it needs to be the prime mover in blockchain adoption.
The regulatory framework is also key to the deepening of any ecosystem. In this case, the regulatory element does not stop with the legislative acts. It is now crucial for the regulators involved, which include the newly set-up Malta Digital Innovation Authority, the MFSA and the MGA to deliver an efficient and quality-driven level of service to the industry. To this end, they require the resources and capacity to do so. Regulators must also foster an open dialogue with service providers and operators to ensure that feedback loops are present in the system.
The service providers also play a key role in developing the ecosystem. They will be the main touch point that foreign investors will face. They are the prime ambassadors of the jurisdiction and the responsibility is huge. It is therefore imperative that service providers respect the clients but also the jurisdiction itself and they must remain knowledgeable and always give professional advice. This brings us to another main determinant of the successful development of the ecosystem, education and human resources.
As Malta’s labor market remains buoyant, human resources are probably one of the most pressing challenges that the economy is and will continue facing in the foreseeable future. In a sector which is knowledge-intensive, skilled and trained human resources are essential for its future. Our educational institutions become critical in this. The University of Malta is taking a lead in this however more efforts need to be taken to ensure that this sector and others will be adequately resourced in the years to come. Initiatives that were approved by the Government earlier this year to bring over more third country nationals are also necessary to sustain Malta’s economy. However, this is not without its own challenges and a holistic plan for human resources and integration of foreign workers is needed.
Ecosystems also require support structures to operate effectively. In this case, the blockchain island requires a host of support structures which include an effective and supportive banking structure. This is currently Malta’s main weakness and concern. The banking system is undergoing a major de-risking exercise and a number of niche economic sectors including crypto currencies, medical marijuana and remote gaming are heavily underbanked. Not to mention the limited correspondent banking facilities. It is a matter of national importance as a number of sectors can be jeopardized without the adequate access to banking facilities.
In essence, an ecosystem does not only depend on a regulatory framework, albeit it is central to its sustainability. The blockchain island requires further initiatives to truly materialise and this will continue being work-in-progress. Agencies such as Tech.Mt and FinanceMalta have a key role in making this a success, not only by promoting Malta but more importantly by ensuring that the ecosystem deepens and that any weaknesses or challenges are tackled. It is now the responsibility of all stakeholders, public and private, to ensure that we truly succeed in launching new economic sectors.
Read more about Blockchain:
- Blockchain and CFOs: Friends or Foes?
- The Malta Digital Innovation Authority: Bringing Sanity to the Blockchain Island Frenzy