Different Countries, Different Rules.
Having recognized the enormous potential blockchain and digital assets represent for the future of finance and securities, Estonia, Luxembourg and Malta have created a regulatory framework for the licensing of Blockchain-based companies.
In this article, we are going to shortly discuss the legal frameworks these countries have found and their implications from the perspective of a crypto-exchange.
Luxembourg has long held a reputation as an acclaimed financial center in the heart of Europe. It is no surprise, therefore, that the Luxembourg Parliament was among the first to recognize and prepare for the advent of digital assets. Already in 2013, the Luxembourg Parliament passed an amendment to allow the issuance of “dematerialized securities”. Bill 7363, passed in February 2019, allowed the circulation of tokens as dematerialized securities to be transferred via the blockchain.
What makes Luxembourg an appealing destination for a crypto exchange is the existing legal security around the issuing of dematerialized securities, its reputation as European financial hub and its transparent and trustworthy legislation. The country ranks 9 on the Corruption Perceptions Index of Transparency International.
Smallest of the Baltic states, Estonia has earned a reputation as a digital pioneer and innovator in the field of e-government services. The country is also home to a flourishing start-up and fintech scene that e.g. produced the unicorn TransferWise. Not resting on its laurels, the government early on recognized and paved the way for the future of digital assets. Already in 2017, it was the first in Europe to create a legal framework for virtual currencies, with July 1st, 2020 existing laws were updated to provision the existence of one central license applying to all providers of virtual currency services.
Estonia’s Financial Intelligent Unit (FIU) is responsible for the issuance of licenses for and supervision of businesses offering the exchange of fiat for virtual currencies – which of course includes digital asset exchanges. Companies must either be located and operated in or establish a subsidiary in Estonia to receive a license. FIU has withdrawn about 75% of licenses that were granted in the past to companies dealing with digital assets with the enforcement of new rules, which makes Estonia an attractive place for companies aiming for a higher standard in compliance.
Malta has made a name for itself as the “Blockchain Island”. On July 4, 2018, the Maltese Parliament passed the Virtual Financial Assets Act (“VFA Act”). Coming into force on November 1, 2018, the VFAA establishes four different types of VFAA licenses issued by the MFSA (Malta Financial Services Authority). VFAA Class 4 is directed exclusively at VFA exchanges and allows license owners to hold or control virtual financial assets and/or private cryptographic keys and trust or nomination services of customers only in connection with the operation and activities of this VFA exchange.
However, a number of factors shadow sunny Malta’s appeal as Blockchain Island. 70 % of companies that gave notice to request a VFA license eventually never applied for it due to the complexities of the new law. Malta’s government was involved in multiple corruption scandals that forced former Premier Muscat to resign in December 2019. Malta’s long-held reputation as a tax haven doesn’t help the efforts of an industry seeking public recognition and acceptance. Moreover, Malta currently only ranks 50 in the Corruption Perceptions Index of NGO Transparency International.
Currently Estonia, Luxembourg and Malta are leading the way as innovative and blockchain-friendly governments offering legal certainty in the field of issuance and exchange of digital assets. Luxembourg is a respected financial hub in the heart of Europe, its government especially eyeing at the growing field of digital securities issuance and trading.
Estonia offers a thriving fintech community, technology-friendly government with forward-thinking regulation that makes a great ecosphere for Blockchain-based companies of all types.
Due to the implementation of the VFA law and its complexity, Malta falls slightly behind in comparison to Estonia and Luxembourg.