Malta is further strengthening its position as Europe’s hottest region for crypto startups, with the country’s Financial Services Agency (MFSA) announcing on Friday, the release of a consultation paper on security token offerings (STOs).
STOs in the crypto industry is primarily regarded as the regulated version of initial coin offerings (ICOs), with the former easily to come under the existing regulatory framework for securities.
With that in mind, Malta plans not just to bring the innovative capital raising mechanism under existing laws but also to incorporate it within their new Capital Markets Strategy to go live before 2021.
Here are the key points from Malta’s STO consultation paper.
Benefits of STOs
The MFSA expressed confidence that the rise of STOs can improve the capital markets by
Mitigating settlement risk,
Reducing intermediary risk,
Improving investors engagement with businesses in which they invest;
Developing innovative types of securities to meet issuer’s capital better and investors risk appetite.
Definition of Security Tokens
The MFSA classified STOs into two, namely Traditional STOs and Other STOs.
Traditional STOs referred to blockchain-based transferable securities such as shares; bonds (including callable bonds); convertible debt securities; derivatives, asset-backed securities.
Other STOs referred to “a technology representation such as a token that depends on distributed ledgers.” A typical example as per the consultation paper is a token giving only the right to profits of certain investments of a business.
Registration for STO Issuance in Malta
Projects looking to issue an STO in Malta must consider the nature of the token, their legal structure, and also pass a three-pillar assessment based on,
Corporate Governance and
Compliance with Transparency requirements
Market Abuse Regulation
Under the guidelines proposed by the MFSA, insider trading, market manipulation, and lack of transparency by the issuer would be punishable in line with Malta’s existing regulations on market abuse.
The consultation paper admits that the need for Central Securities Depository (CSD) takes on reduced significance given the adoption of distributed ledgers. However, it recommends a situation where CSDs download data from the DLT at pre-defined intervals and store them at the relevant legal node.
Industry participants and interested parties have until August 30, 2019, to send their recommendations on Malta’s proposed STO regulation.