Malta had great foresight when it comes to regulating innovative technology including Distributed Ledger Technology and AI. Recognising that innovation is key to enhancing growth of the economy, Malta was the first world jurisdiction which provided legal certainty in providing technological assurances, starting in the field of blockchain and distributed ledger technologies, and widening to AI and other innovative technologies. However, being first comes with its disadvantages, especially when competing in a cutthroat competition with other countries to attract foreign investment.
When I used to be invited to international conferences held locally and overseas two years ago, I would come across representatives of foreign regulatory institutions that come and speak with us, questioning why Malta wants to regulate such technologies since to paraphrase a common sentiment amongst them “blockchain is equal to money laundering”. It was an uphill struggle explaining to them that blockchain is a technology that is used in all sectors of the economy, and that blockchain is not equal to cryptocurrencies and, even more so, not equal to money laundering.
Two years have passed since then, and many other jurisdictions have realised that distributed ledger technologies, one of which is blockchain, have huge potential in all other non-financial sectors of the economy. The fact that such technologies go beyond the financial, does not mean that we are shy in dealing with finance related blockchain applications such as exchanges and cryptocurrencies. In fact, we always argued, it is the lacuna in regulation addressing such financial instruments that creates a risk of money laundering.
Malta is now participating in the standardisation of EU regulation addressing Markets in Crypto assets Regulation (MICA) and Digital Operation Resilience Act (DORA). This EU legislative framework will bring legitimacy to all the European cryptocurrency industry by obliging operators to implement measures to counter money laundering and terrorist financing, such as KYC and transaction monitoring. Such operators are obliged to record all transactions and report suspicious transactions, amongst other measures. All EU member states will be at the same level playing field – a level at which Malta has already been operating for two years. This is great news for Malta because in this way, we will get rid of the picture being fabricated by some, that Malta is some Crypto Island rather than Blockchain Island.
I feel that Malta should be proud to say that we were the first to legislate blockchain technology, and just because some wrongly perceived that blockchain is equal to cryptocurrencies and money laundering, that certainly does not mean that we should stop promoting this technology. It would be a huge mistake to succumb to such wrong perceptions. Instead, we – and by we, I refer to Malta and the EU – should be bold in embracing the use of blockchain including that being used in the financial sector just as long as the operators and users in this sector are following transparency and other AML/CTF regulatory requirements.
Malta built a regulatory structure which does not limit innovation and technological growth. Rather, it is one which protects the users of this technology and therefore, creates new business opportunities. Our overall objective is to promote innovative technology by making them more trustworthy and safer to use. It is for this reason that Malta has created its certification regime to be sure that what the operators are saying about their application is in fact being performed by the software. We should have the courage and technological know-how and understanding to explain to critics of blockchain to stop spreading false perceptions that blockchain is equal to money laundering. It is not only an injustice to the technology itself, but also to the economies that stand to gain from this technology. Otherwise, we risk losing the huge benefits that Distributed Ledger Technology can bring such as traceability, improved security, increased efficiency, greater transparency, to mention but a few.
These benefits, after all, can be applied to all sectors of the economy.
Stephen McCarthy is CEO of the Malta Digital Innovation Authority.