This week, EU financial regulators released the (Malta Financial Services Authority) MFSA market feedback statement regarding key points concerning STO adoption within the sector. Specifically, the report focused on the impact of the current legal framework regarding security token adoption. This news demonstrates a desire by EU regulators to facilitate growth within the tokenization sector. Additionally, the move falls in line with recent Maltese efforts to fight money laundering within the country.
MFSA Feedback Statement
Importantly, the feedback statement research included data from July 19, 2019, until September 16, 2019. This data came from a variety of industry experts. In total, the report utilized statistics and feedback from 18 market participants. These participants ranged from IT and Tech companies, all the way to government agencies and legal firms.
According to the statement, most respondents disagreed with the idea of the MFSA categorizing STOs differently than traditional securities. In fact, the majority of respondents stated that their belief is that tokenized securities should be in the same category as traditional securities.
Notably, the report speaks of the potential of digital ledger-based settlements as an upgrade to the current outdated systems in place. The report calls this technology a “workable solution” but highlights some key obstacles that must be overcome before large scale adoption can take place.
MFSA Feedback Statement Identifies Issues
Specifically, the MFSA feedback statement points to the desire of STO issuers to remove the central securities depository (CSD) from the settlement equation. Importantly, blockchain technology’s trustless nature makes it possible to totally eliminate this step in the settlement process.
Unfortunately, current regulations state that all securities listed at a trading venue must be recorded in the books of the CSD. This requirement nullifies much of the efficiency the market would gain from blockchain integration. As such, study participants highlighted a need to update the current laws to reflect the new technology.
Additionally, the report pointed out a lack of transparency on the cash side of the settlement process. This vagueness poses an issue for regulators studying the implications of STOs within the framework of European Union legislation. These issues would need to be resolved before regulators would feel comfortable with the upgrade.
Despite being one of the world’s smallest countries (122 per square miles/316 km2). Malta is home to a huge number of blockchain firms. The country managed to attract startups from every sector of the market since its pivot towards blockchain. The island’s pro-crypto stance and friendly regulatory framework earned the country the nickname “blockchain island.” In July 2018, the Maltese Parliament passed laws that set the framework for the expansion of blockchain and distributed ledger technology (DLT) within the sector. Specifically, this framework included cryptocurrency and digital assets. Since then, the Maltese market experienced steady growth.
Interestingly, the release of the MFSA feedback statement coincides with Malta’s recent clampdown on crypto firms. For example, the MFSA published a statement in which it listed the crypto exchange Binance as an unlicensed platform. These maneuvers signal a tightening of the restrictions moving forward. For now, blockchain island is using its insight to help EU regulators determine a strong course of action.