1. JUN 18
By: Mario Buttigieg
DLT & Smart Contracts
Malta Regulations
2. The Need for Regulations
Hyperledger and Ethereum are the two major
platforms of DLT-based smart contracts with the
main idea being that the DLT will permanently
store the status of the contract and the program
itself.
The primary goal of DLT with built-in Smart
Contracts is to create self-enforcing
agreements that independently control and
automate the exchange of value according to
predetermined rules based on predefined inputs
recorded into a smart contract. In this way, users
that did not know each other, enter into
software-enforced agreements without any party
able to subsequently alter the contract’s code or
prevent its enforcement.
The below diagram shows a Smart contract’s life
cycle in which the:
• agreement’s terms and conditions are coded
in the smart contract;
• contract is stored on the blockchain and be
accessible to the parties involved;
• self-execution of the smart contract is done on
the network upon meeting the coded condi-
tions; and
• complete transaction, including its parties, is
permanently stored on the blockchain.
Regulatory oversight is being disrupted by these
new technologies, this requiring Regulators to
collaborate with business service providers to
learn how the right outcomes can be achieved.
Doing so will ensure that only well prepared and
bona fide service providers are in business.
Legitimate businesses are in favor of laws and
regulations and this is also the same expectation
of consumers. Regulators have the duty to create
this win-win situation in which business can
prosper and consumers can access the most
cost-efficient and innovative products ensuring
also security of their assets.
Malta was quickly to acknowledge this need.
Leveraging also on its well oiled financial services
laws and regulations, it came out with 3 bills to
regulate this space. One of these bills is
specifically regulating DLT and smart contracts’:
• underlying technology; and
• service providers.
3. Regulatory Framework
The Malta Digital Innovation Authority (“MDIA”)
will be regulating and certifying the innovative
technology arrangements (“ITAs”), including the:
• software & architectures used in designing
and delivering DLT; and
• smart contracts and related applications.
The certification will state the details of how the
innovative technology arrangement is identified
(including any public key or a brand name). Such
certification will only be issued once the MDIA is
satisfied that the:
• legal administrators and shareholders with
25% or more ownership or control are fit &
proper persons;
• software has been reviewed by independent
registered systems auditor/s who will provide
the necessary positive assurances;
• ITA has a registered technical administrator in
office at all times;
• ITA is in a position to comply with:
• the authorisation rules and regulations and
any further conditions;
• applicable laws such as AML, financing of
terrorism & data protection;
• in-built technology features allows the
technical administrator for transparent and
effective interventions in cases of material
loss to any user or breach of law.
• English is the official language used in the
offer (other secondary languages allowed).
System Auditors and Technical Administrators are
required to satisfy the MDIA that they:
• are fit and proper;
• have the necessary qualifications and/or
experience; and
• have sufficient technical resources or third
party support.
Once satisfied, the MDIA will issue a certificate of
registration which the service providers need to be
display on any of their website and in any ITA in
which they are providing their service.
When the ITA applicant is not ordinarily resident in
Malta, they are required to appoint an Agent who is
habitually resident in Malta and who is able and
capable of carrying out the necessary functions.
Such Agent (with some exceptions) is to remain
appointed at all times.
The Agent shall:
• interact between the ITA holder, the MDIA and
other government departments and authorities;
• sign and file all the necessary declarations and
forms;
• act as a judicial representative of the ITA holder.
The Agent shall also have the power to:
• apply for the certification of an ITA or service
provider, this including any such application for
revocation or cancellations;
• pay fees and taxes;
• authenticate documents issued by the ITA
holder or service provider;
• receive formal notifications.
Regulating the Technology Regulating the Service Providers
Appointing a Malta Resident Agent