The Crypto-currency race is on! Comparing leaders in DLT Regulation

Our comparison of Cryptocurrency & DLT Regulation

Dr. Priscilla Mifsud Parker co-authored with Sarah Vassallo | 28 Feb 2018


Cryptocurrencies and their underlying technologies have become one of the most popular topics amongst both financial services and non-financial services related companies and entrepreneurs. Although there are a hundred and one opinions dividing the spectrum of players and commenators on such topics, many regulators around the globe have realised that technological progress will not be slowed down, and there is much to be gained from providing legal certainty to businesses transacting with the use of cryptocurrencies as well as technology service providers. 

While several countries have chosen to take up a crypto-friendly approach, often classifying cryptocurrencies as assets or commodities rather than actual currencies for tax purposes, few regulators have set out to devise a regulatory framework. We have taken the opportunity to understand what certain jurisdictions which are often overlooked due to their size are doing by taking the lead and are set on becoming top jurisdictions, not just to own and transact in cryptocurrencies, but also to set up blockchain-based businesses which are set to disrupt the business community as we know it. 


A few weeks ago, Malta announced that three new bills are currently being drafted which shall not only seek to set out a framework for Initial Coin Offerings (ICOs) as well as the provision of services related to virtual currencies, but it shall also create the legal basis for a new authority, the Malta Digital Innovation Authority (MDIA) which will be responsible for certifying Technology Arrangements, that is platforms which operate using distributed ledger technology as well as the voluntary registration of Technology Service Providers. 

Although the above has not yet become law and is still being drafted, one can confidently predict that Malta will have enacted a legal framework for the regulation of virtual currencies in the next few months. The Maltese financial services regulator (the MFSA) has stepped up to become on of the first to regulate Virtual Currencies and also sought industry insight in respect of Distributed Ledger Technology (DLT). During the course of 2017 it has issued a number of consultation documents, encouraging industry practitioners to have their say to ensure that any future regulation is drafted with the practitioners’ needs in mind. 

Malta’s strengths 

Technology experts often scrutinize regulators whose traditionalist views can come into conflict with the promotion of technological growth and innovation. However, Malta’s regulator has a notably positive track record for pioneering regulation on so-called controversial topics and managing to strike the right balance between innovation and stability. This was proven in 2004 when Malta became the first country to regulate Remote Gaming in the EU. 

Malta already vaunts a robust and ever-growing financial services industry and is ready to take on the next step and embrace disruptive technologies such as cryptocurrencies and distributed ledger technology. 

What is Malta proposing? 

Should the proposed framework become law, a person will be able to voluntarily ask for the certification of a technology arrangement which will need to possess certain qualities which will be clarified once the certification process has been formulated. This will not only provide a framework for businesses wishing to use DLT, but it also provides a degree of legal certainty to smart contracts which shall not be regulated as such, but which will still be recognised. Technology Service Providers, that is an auditor, or an administrator of a technology arrangement may also seek to be registered with the MDIA. 

When it comes to cryptocurrencies, the proposed Virtual Currencies Bill will set out the rules applicable to ICOs and the provision of services in relation to Virtual Currencies. To assess the viability of persons offering ICOs conducted in or from Malta, a ‘Financial Instruments Test’ will be applied to determine whether a Virtual Currency as a financial instrument in terms of existing legislation or at least if it qualified as an asset under the new Virtual Currencies Bill. 

More information will be provided as soon as the bills are drafted and available to the public, but the consultation document already promises a flexible framework that protects investors and grants legal certainty to businesses. 


Besides an amendment to its Money Laundering and Terrorist Financing Prevention Act which provides that providing services of the exchange of virtual currency or custodial wallet services requires an authorization by applying to the Registrar of Economic activity, there is little to say in terms of future legislation. However Estonia is highly pro-active in the field of cryptocurrencies, so much so that an Estonian government agency proposed the launch of a token dubbed at ‘estcoin’ which would complement the Baltic nation’s e-residency programme. The idea was swiftly turned down by the European Central Bank's (ECB) president Mario Draghi who clarified that no Member State may introduce its own currency. 

A few noteworthy remarks may be made here. Prima facie, Draghi’s assertion seems to lump tokens under the category of cryptocurrencies despite that many distinguishing features from cryptocurrencies exist. However, an overview of the Estonian proposal shows that there are plans whereby these tokens may be used as a medium for the exchange of goods and services both in and outside of Estonia. Therefore, Estonia seems to have attributed the qualities of a currency to its token and naturally, this did not sit well with the ECB, nor with other Member States regulators. 

By virtue of its Estonia being part of the Eurozone, it relinquished its right to issue its currency or control its monetary policy. It has also given up its ability to raise money in anything other than the Euro. As things stand, significant questions exist as to how the estcoin could legally co-exist with the Euro. 

Nonetheless, as pointed out by ECB spokesperson Peter Ehrlich, should the project be undertaken through a public-private partnership, the project would fall outside the ECB’s jurisdiction since the latter does not have a say on projects undertaken by the private sector. Such a project would certainly be popular among ICO investors who would be attracted by a government-backed token, however, proceeding with this project, shall be an uphill struggle for Estonia who would need to prove it is not acting in breach of its obligations. 


In October 2017, Gibraltar’s Financial Services Commission published a draft regulatory framework on cryptocurrencies as well as businesses offering blockchain services which came in force on 1st January 2018. The framework provides for the commercial use of distributed ledger technology as used to store data or to transmit value. Value was defined as “assets, holdings, or other forms of ownership, rights or interests." The law would also cover cryptocurrency exchanges as well as investment services and other controlled financial offers which are connected to technology. While encapsulating the framework within nine pages, the regulations promote sound values of honesty and integrity, and fairness and clarity to promote investor interest, the maintenance of adequate financial and non-financial resources, sound risk management practices, the protection of the clients’ assets, corporate governance arrangements, the setting up of secure systems and protocols, the effective prevention of financial crime risks and contingency plans for the winding down of business. 

Gibraltar's value-based approach to regulation whereby each start-up or business seeking certification is assessed on a case-by-case basis is rather innovative and humbly admits that the regulator cannot possibly keep up with the changes in such a fast-pased industry. 


While there is no formal legislation for DLT-based businesses, the Israeli Tax Authority (ITA) has shed light on the taxation of cryptocurrencies. The Israeli news outlet Haaretz reported on the 12th of January that cryptocurrencies shall be taxed as capital gains, and thus will be subject to 25% capital gains tax in the case of private investors, with a 47% marginal rate for businesses. Investors would need to report on their holdings within 30 days and arrange prepayment of tax. The ITA has also clarified that only companies selling cryptocurrencies will be subject to a VAT taxes at the rate of 17%. Private investors will therefore be exempt from any VAT obligations due to the fact that cryptocurrencies are classified as an intangible asset used for investment purposes only. The ITA clarified miners will be classified as dealers for VAT purposes. 


FINMA, the Swiss Financial Market Supervisory Authority, issued guidelines regarding the application of securities regulations to ICOs. FINMA has stated that it will analyse each offering on a case by case basis, due to the novelty of the industry. 
FINMA has classified tokens by as 
•    Payment; 
•    Asset, 
•    Utility; and 
•    Hybrid tokens.

Each token has a different treatment and will be subject to different regulations.
Asset tokens, according to FINMA, will be subject to both securities regulations as well anti-money laundering regulations. Interestingly FINMA has clearly defined that payment tokens will not be treated as securities, nevertheless, are subject to the Anti-Money Laundering Act.

Utility tokens will not be treated as securities either, as long as, they do not serve an investment purpose and are exempt of the Anti-Money Laundering Act application, as long as, they only provide access rights to a non-financial application of blockchain technology.
Data Protection will also play an important part. Storing of personal or legal entity’s data in Switzerland is subject to the Swiss Data Protection Act which requires the need to be comply with certain conditions as required in the Swiss Data Protection Act.

United States

Although the US has not explicitly legislated on the matter, it one of the largest bitcoin markets in the world and thus and a basic overview of how cryptocurrencies are treated is interesting. The US Federal government has so far abstained from promulgating laws which regulate the classification and usage of cryptocurrencies throughout the whole country. This has created a very ambivalent situation where states are left to their own devices, and often there are no restrictions in the case of usage – but also no protection in case things turn sour. The reaction by states is mixed. While some have not regulated on the matter, others have embraced blockchain technology which underpins crypto, or gone to the extent of deterring residents from dealing in cryptocurrency.

To rectify this situation, the Uniform Law Commission brought together a number of legal professionals to draft the Uniform Regulation of Virtual Currency Businesses Act. The act has been approved by the Uniform Law Commission and has been promulgated for consideration and adoption by state legislatures. If adopted, it will not apply to persons holding or using virtual currency for personal use, government, banks or persons whose activity is expected to be $5,000 or less on an annual basis, among others. It is mainly geared towards ‘companies engaged in virtual-currency business activities’ that assume or control over a client’s virtual currency which is defined as a digital representation of value that is used as a medium of exchange, unit of account, or store of value, but is not legal tender. 
The Uniform Regulation of Virtual Currency Businesses Act has received both praise and criticism, however, no state has yet adopted it as its legal framework. 

What's next?

As we move towards a decentralised future where cryptocurrencies and even more prominently blockchain technology are no longer foreign concepts but everyday instruments that facilitate our lives, jurisdictions can no longer afford to remain silent on such crucial innovations. While jurisdictions such as Malta and Gibraltar are leading the race, it is only a matter of time before every jurisdiction shall need to address these innovations and provide a regulatory framework within which business can flourish.

The uses of blockchain technology are so far limitless. The way such technology as well as ICOs, virtual currency funds, smart contracts and cryptocurrencies will fit into the traditional world's legal, regulator and daily live framework will definitely cause some disruption until the technology and its underlying activities are fully comprehended and integrated into and form part of our society. What we know for now is that Malta is looking  to embrace such developments and be at the forefront. It certainly looks like a very exciting period.

Should you wish to discuss regulation as well as the possibility of setting up your blockchain-based business, we encourage you to get in touch with our financial services specialists at Chetcuti Cauchi. 

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Key Contacts

Dr Jean-Philippe Chetcuti

Senior Partner, Tax & Immigration

+356 22056111

Dr Priscilla Mifsud Parker

Senior Partner, Corporate, Tax & Immigration

+356 22056122

Dr Charlene Mifsud

Partner, Corporate & Commercial

+356 2205 6298

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