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The Malta Digital Innovation Authority: Bringing Sanity to the Blockchain Island Frenzy?

The Malta Digital Innovation Authority (MDIA) was established by virtue of Chapter 591 of the Laws of Malta, the Malta Digital Innovation Authority Act, which became effective on the 1st of November 2018.

The MDIA is the primary authority responsible for promoting all governmental policies that promote Malta as the centre for excellence for technological innovation, while setting and enforcing standards that ensure compliance with any other international obligations. The MDIA seeks to foster, promote and facilitate the advancement and utilisation of innovative technology arrangements and their design and uses. It also seeks to promote education on ethical standards and legitimate exploitation of innovative technology arrangements.

MDIA’s role will mainly comprise of providing formal recognition and regulation of relevant innovative technology arrangements and related services. In order to understand the meaning of Innovative Technology Arrangements and Innovative Technology Services one must look at Chapter 592 of the Laws of Malta, entitled the Innovative Technology Arrangements and Services Act, 2018. With respect to Innovative Technology Arrangements, the Frist Schedule of the said act, stipulates:

The following shall be considered to be innovative technology arrangements for the purposes of this Act:

  1. Software and architectures which are used in designing and delivering DLT which ordinarily, but not necessarily:●uses a distributed, decentralized, shared and, or replicated ledger;

    ●may be public or private or hybrids thereof;

    ●is permissioned or permissionless or hybrids thereof;

    ●is secure to a high level against retrospective tampering, such that the history of transactions cannot be replaced;

    ●is protected with cryptography; and

    ●is auditable;

  2. Smart contracts and related applications, including decentralised autonomous organisations, as well as other similar arrangements;
  3. Any other innovative technology arrangement which may be designated by the Minister, on the recommendation of the Authority, by notice from time to time.

Essentially, a Blockchain would fall within the definition of an Innovative Technology Arrangement however its certification by the MDIA is voluntary. Nevertheless, this doesn’t exclude the possibly that any other regulatory authority, such as the Malta Financial Services Authority (MFSA) may require certification of a particular Innovative Technology Arrangement.

With respect to the definition of Innovative Technology Services, the Second Schedule of the same act, outlines:

The following shall be considered to be innovative technology services for the purposes of this Act:

  1. the review or audit services referred to in this Act with reference to innovative technology arrangements provided by system auditors;
  2. the technical administration services referred to in this Act with reference to innovative technology arrangements provided by technical administrators.

Authorisation of the above will be valid for a period of 2 years. The MDIA will also establish a register containing a list of all holders of innovative technology authorisations and by compiling a second list stating the reasons why it refused applications, which information will be maintained on its website for 3 months.

The MDIA’s role to certify Innovative Technology Arrangements and Innovative Technology Services will be undertaken in full respect of the importance of not hindering innovation and the efforts and potential of the start-up sector in this innovative technology area whilst still ensuring that there are standards in place for the protection of consumers and investors, the integrity of the market and the public interest in general. In this respect, the MDIA has already issued a set of guidance notes aimed at assisting service providers and Innovative Technology Arrangements applicants when approaching the MDIA for registration and certification respectively.

The MDIA’s role as a regulator will include, amongst others, the granting, issuance, refusal, revocation, cancellation or suspension of authorisations with respect to the provision of innovative technology arrangements or services provided in or from Malta. With respect to its supervisory role, it will keep under review all practices and activities which will be regulated by the Innovative Technology Arrangements and Services Act. Moreover, it will have the power to investigate allegations of practices and activities detrimental to consumers and to determine when innovative technology arrangements and services are exempt from particular legal requirements.

The MDIA shall at all times coordinate with other competent authorities such as the Malta Financial Services Authority, the Malta Gaming Authority, the Malta Information Technology Agency, the Malta Competition and Consumer Affairs Authority and the Malta Statistics Authority so that it ensures that there is no replication of work and controls. The effective cooperation between the Authority and other competent authorities shall be ensured by a newly established board, to be known as the Joint Regulatory Efficiency Board.

Article written by Dr. Franklin Cachia ADIT, Adv. LL.M., LL.D.