During the last edition of the Malta Blockchain Summit, among the industry leaders there was also Steve Muscat Azzopardi, Senior Manager of Chetcuti Cauchi, one of the leading legal companies of the Blockchain Island.
We had the opportunity to talk to Steve about regulation and blockchain, in one of the leading countries in the industry and that is attracting more and more interest from crypto companies and startups.
When and why should Malta become the global centre of the new blockchain based finance?
I believe that Malta is already a very well established financial services centre in the traditional financial markets, we can look at banks, financial institutions and so on. Obviously as a new EU member state comply with all the relevant EU directives and clearly, any operation set up in Malta can enjoy passporting to the rest of the EU.
With regards to the blockchain finance, of course, Malta has issued a wide range pack of regulation last year, this was groundbreaking in that no other country has given such a wide range of laws, and we believe that this provides clarity to operators who set up in Malta as to what they need to do to meet compliance requirements. In having regulated firms we believe that that will provide investors and consumers with more confidence to actually participate in the blockchain economy.
In your opinion, what features are required to make Malta an increasingly important blockchain hub?
Obviously, this is still early days, but for the crypto industry as a whole, recently a lot has happened but it’s still very early stages if you compare it to historical market evolutions, we’re still in the first 5 minutes of an economy.
I believe what will help Malta is the tight regulations, so Malta has VFA agents, so these are advisors who act as a liaison between operators and the regulator, they serve as a filter and if they work properly hand in hand with the regulator to ensure the quality of operators setting up and operating from Malta, then that will help the reputation of the island as a stamp of approval, and clearly the aim, the objective for Malta is to do in the blockchain what we have done in the gaming sector, where Malta’s gaming licences are considered to be one of the best, if not the best, in the world, that’s certainly something that takes effort, it takes many years to get there and continual work, one does not reach the top and ease off on what you’re doing to keep yourself over there, so it’s a matter of continual investment in the industry, from the regulator level, from the monitoring measures, as well as ensuring that the jurisdiction remains attractive to both established and the new operators.
It’s not a secret that not only Malta but across the world there’s a struggle for banks to accept crypto business, more and more banks are understanding what crypto business means and how they can understand and mitigate the risks of accepting crypto business, so we believe that this is an area where there is the most immediate potential for growth, would be an either existing banks and financial institutions in understanding and opening their doors to crypto business, as well as new operations setting up possible aims directly at crypto, and thus not be burdened by the legacy of an existing brick and mortar business.
According to you, is it really necessary to create new laws to regulate cryptocurrencies?
Is it absolutely necessary? Possibly not, however, we do believe that doing so is the right direction to take, we believe that as we have seen when cryptocurrencies were not regulated, so throughout 2016 and even more so in 2017, there were a good number of ICOs, that eventually turned out to be fraudulent, or scams, or perhaps not intentionally fraudulent but in any case they were mismanaged and as a result the investors lost a huge amount of value, that obviously is cause for concern and does not benefit anyone. We also had stories obviously of wallets and exchanges being hacked and again further crypto value being lost in that way.
Now these are not headlines that are going attract the mass audience to participate in the crypto economy, so I believe the regulation will help provide a regulated playing field where operators can set up shop with a given level of governance, of compliance, of risk management and mitigation measures in place, and that will allow the consumers and investors as a wider audience to participate in this, because for now I believe it is still very limited to the early adopters and possibly the next stage, whereas for the crypto economy to flourish we need to see it grow in the way that we have seen for example online payments grow, 15 years ago, online payments did not exist and now the yearly increase is phenomenal that actually retail is in serious trouble.
That happens because there were certain measure in place, so the key players for example in e-commerce provided guarantees, so that if you bought something online and the product you bought never showed up, then the money was refunded for example, so that’s where we believe regulation can help. Malta has gone ahead with regulation, we believe that other countries will and should regulate, and possibly even end up at a point where for example in the European Union we may end up with a harmonised directive or law on crypto and on blockchain industries, that will then provide again the benefit of passporting, but also to provide equivalence that an operator can choose what country to set up in and the consumer will know that Europe offers that level of governance and of regulation in the way that it has built up, for example, UCITS on the fund side, or MiFID on the financial instruments’ side, and all the other like the banking directive, financial institutions and so on. We believe that regulation does help.
What are the next steps for Malta to increase its relevance in the blockchain world?
Again, Malta has not stopped with the laws that it rolled out last year, the regulators are actively looking at what else it can and should be doing, so here we believe it is taking action on two sides, one is looking at the laws that have already rolled out and it is possibly reexamining how those are working in practice, are they sufficient? are they too much?
And on a continual basis, they are issuing guidelines to VFA agents and to operators and how business can and should be done, that sort of deals with the existing. Also, the government is looking forward at what are the next stages, so even here we’re at the AI and Blockchain Summit, so artificial intelligence is one of the new technologies that is increasingly part of people’s everyday life and is expected to be increasingly so. So again, when you have companies that will have access to such a level of data of confidential data on people, should they have free access to do whatever they like?
Let’s look at for example Facebook which tends to do what it like until regulation stops it, well the idea here is that, let’s regulate before we get to that stage, so there are other areas where the government is looking at, it may be looking at augmented reality and virtual reality as other areas where technology is advancing and may require regulation, so it’s not a guarantee that there will be regulation but they’re considering it.
And as with AI, VR and AR those are the current hot emerging technologies, there will be more technologies coming out, at the moment we are excited about blockchain, AI, VR and AR as new technologies and there will always be new innovations coming out, the possibilities of what we can do with it will increase.
What are your personal goals and plans for the future as one of the most important law firms in the country?
Thank you for the compliment, we hope to continue to advise our clients in an evolving world, by not only keeping ahead of new laws but also contributing to these and helping to shape regulation by participation in discussion forum, by contributing to government policy and consultation documents, and ensuring that the feedback we get from our international clients is carried across to the regulator.
This way the regulator may come up with laws that effectively provide market stability, integrity and consumer protection and investor protection, but also do allow business operators the freedom to enjoy an environment where startups may flourish, where existing businesses may expand, where new ideas may be given attention and energy to flourish without such a high level of regulation that cripples it down, and apart from that we obviously will continue to invest in our team, to ensure that our skills remain at the top level and keeps us where we have got to so far.