Malta Proposes Test To Identify When ICOs Are Securities

  • Malta recently set out to create a test that will determine whether assets laucnhed through an ICO should be deemed as securities
  • The test will be a two-stage process and, by the country's report, may see other EU member follow suit.

Malta has recently proposed the creation of tests to determine whether assrts launched through initial coin offerings (ICOs) can be defined as securities.

The island off the coast of Sicily may become the first nation in the European Union (EU) to put forward assessment protocols to measure the credibility of ICOs, while also affording investors a greater level of security through its proposals this week.

In a report published by the Malta Financial Services Authority (MFSA), assessing how tokens should be classified using a multiple stage process would create a better level of security for investors..

The success of Malta's assessment process may, by the reports’ own admission, see other EU members implement it.

"This Consultation Paper presents an analysis of the definitions of the financial instruments listed under Markets in Financial Instruments Directive 2 (‘MiFID’) as well as their relevance and implications to DLT [distributed ledger technology] assets. The methodology underpinning the Test’s determination as well as the considerations which should be taken into account within the context of the EU and national legislative frameworks are also presented."

MFSA

DLTs within Malta will come under a two-stage examination which will help find the right classification for each, on a case-by-case basis. Specific blockchain technology applications or tokens can be exempt from further regulations. In some cases, they may enter the second stage of examination, where the token or DLT would be assessed against different kinds of securities.

The report reads:

"It is being proposed that the Test will consist of two stages, wherein the first stage would effectively determine whether a particular DLT asset qualifies as a Virtual Token (‘VT’)3. Subject to a negative determination during the first stage, the second stage would determine whether the DLT asset would qualify as a financial instrument under Section C of Annex 1 to MiFID."

MFSA

Any token or asset that undergoes these stages of testing may be classified under existing Maltese and EU regulations. During the second stage of testing, these tokens can then be placed under more specific securities categories.

Tokens or DLTs that fail the second stage of testing will then be subject to a third line of assessment. Those that come under this line of testing will be placed under the regulatory oversight of the proposed Virtual Financial Assets Act (VFAA).

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Facebook’s Cryptocurrency Libra Will Inherit the Monetary Policy of Central Banks

Social media giant Facebook has recently announced it’s creating a “low-volatility” cryptocurrency that’s fully fiat-collateralized, Libra (LBR). The cryptocurrency, notably is going to inherit the monetary policy of the central banks whose currencies are represented in its reserves.

As first reported by The Next Web, the official Libra website outlines its economics, and notes a secondary token that’ll pay backers dividends is set to be created. This cryptocurrency, the Libra Investment Token, will only be available to members of the Libra Association – which maintain the network – and accredited investors.

The cryptocurrency itself, contrary to initial reports, won’t be a stablecoin, but a cryptocurrency backed by the Libra Reserve, which has various assets such as “a collection of low-volatility assets, including bank deposits and government securities in currencies from stable and reputable central banks.”

Libra’s price will, as such, be subject to fluctuations, although its volatility is likely not going to resemble that of cryptocurrencies like bitcoin. The association is set to only invest in debt from stable governments unlikely to default or experience high inflation, the website notes.

As the value of Libra will be effectively linked to a basket of fiat currencies, from the point of view of any specific currency, there will be fluctuations in the value of Libra.

The amount of Libra tokens in circulation isn’t fixed, unlike the maount of bitcoin that'll ever be in circulation, capped at 21 million. Instead, Libra tokens in circulation be determined by the balances of users, with tokens always being backed by an equivalent amount of real-world assets. The organization believes this will discourage “runs on the bank” as the coin won’t be fractionally backed, and users won’t be trying to cash out before others do.

All of this means the Libra ecosystem is going to inherit the monetary policy of central banks issuing the fiat currencies in the Libra Reserve. The Reserve is, in fact, not going to be actively managed, and tokens are going to be created or burned in response to demand from “authorized resellers.” Who these resellers are going to be is still unclear.

Our goal is for Libra to exist alongside existing currencies. Since Libra will be global, the association decided not to develop its own monetary policy but to inherit the policies of the central banks represented in the basket.

It’s worth noting reports have suggested Libra has been in contact with cryptocurrency exchanges and various top financial institutions to let users exchange Libra tokens for their local fiat currencies.

As covered, lawmakers in the U.S. have recently asked Facebook to halt the development of its cryptocurrency, with Congresswoman Maxine Waters claiming that “given the company’s troubled past,” Congress and regulators should have an opportunity to examine the issue and take action.