Malta's Regulatory Framework Has Attracted Crypto Players, but International Watchdogs and Local Opposition Are Skeptical

Last week, the International Monetary Fund claimed that the growth of blockchain in Malta has created major risks of money laundering and terrorism financing in the island's economy, as per the local media.

Malta is renowned for its crypto-friendly politics, whose efforts in the field have earned it the moniker of "Blockchain island." However, its push for becoming the international crypto hub has attracted criticism from both global watchdogs and local opposition.

Throughout 2018, a significant number of foreign crypto players who faced regulatory difficulties back home - including cryptocurrency exchanges OKex, Binance and BitBay - set up their operations in Malta due to the development of a friendlier crypto space.

"Rather than waiting for global guidance or just applying its existing rules to the crypto business, Malta moved forward aggressively to create a new regulatory framework for cryptocurrencies."

Setting up a crypto company in Malta might be more difficult that it seems - and the framework is in place.

According to Galea, crypto exchanges and wallet service providers specifically are subject to the Directive in Malta, as well as other crypto "Agents" defined by the above mentioned VFA Act.

"All operators, agents, and services providers hoping to conduct business in Malta will need to stringently adhere to obligations under the AML framework in Malta, which has always been implemented a notch above what is normally required on an European level. We recognise certain risks related to such a new industry as this one [crypto], which are mostly associated with exchanges and ICOs, and therefore we are doing everything we can to address them from the get-go."

"The real problem in Malta is that all the banks in Malta don't open any kind of account for crypto companies, due to their fear of breaking the AML policy. So if you have a lot of Bitcoin, but you are not able to convert it into fiat, you are not able to complete money laundering."

Malta's questionable past with traditional financial sector hinders local crypto adoption.

"Historically, Malta has been challenged with respect to financial crime enforcement even in traditional sectors, and it is currently working on a detailed plan to improve and enhance its financial security framework more generally, including strengthening its financial intelligence unit and improving the supervisory framework. As such, Malta's embrace of a new area is of some concern to global oversight bodies, including the IMF.".