Malta’s Crypto Licenses Safe Despite EU Review

Malta’s Financial Services Authority (MFSA) has asserted that none of the local licenses issued under the Markets in Crypto-Assets Regulation (MiCA) are at risk following a recent peer review conducted by European Union regulators. The MFSA spokesperson emphasized that the authority has already begun addressing the issues identified in the review, ensuring that no licenses are in jeopardy of revocation or re-evaluation.

The European Securities and Markets Authority (ESMA), the primary supervisory body overseeing MiCA compliance, released a peer review on certain MiCA authorization gaps by the MFSA. This review comes as part of the ongoing efforts to ensure proper supervision under MiCA. The MFSA highlighted Malta’s commitment to collaborating with EU authorities and its proactive role in crypto regulation, despite some skepticism within the community.

The ESMA report recognized the MFSA as a highly effective supervisor, noting that Malta has been a pioneer in crypto regulation since 2018. The Maltese government introduced three crypto-related bills that year, making it the first country to regulate distributed ledger technology (DLT) and crypto assets in a comprehensive manner. This holistic approach covered both the technological and financial services components, setting a precedent for other regions.

The ESMA outlined several recommendations for the MFSA and other National Competent Authorities (NCAs) in the EU to ensure proper supervision under MiCA. These recommendations include timely assessments of crypto asset service providers’ (CASPs) growth plans, scrutiny of conflicts of interest in multi-service CASPs, and evaluation of risks from exposure to decentralized finance (DeFi) and unregulated services. The MFSA expects to fully implement these recommendations by September.

The ESMA emphasized that the peer review is not limited to Malta but targets all NCAs across the EU. The review aims to ensure that the MFSA’s approach to authorizing and supervising firms is in line with MiCA requirements. The regulator also stressed that the peer review includes recommendations for ongoing supervisory work and future authorization procedures.

Despite the generally positive perception of ESMA’s peer review, Malta’s approach to crypto supervision has faced skepticism. The country has pursued its vision of becoming a “blockchain island,” requiring crypto platforms to obtain a financial services license in 2018. However, in 2020, 70% of the initial applicants failed to secure the license, with many speculating that the rules were too stringent. In 2021, a unit within Malta’s Chamber of Commerce dismissed allegations of inadequate regulatory oversight, while in 2022, reports emerged that the collapsed crypto exchange FTX had Malta-registered firms, though neither was licensed to provide services. Some investigations highlighted Malta’s “fast-and-loose approach” to attracting crypto companies, noting that 85% of crypto businesses registered in Malta eventually left the island after the two-year transition period as of 2023.