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."


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."


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).

Germany Could Become the Next Crypto Haven by 2020

A new law in Germany, which has already been approved by the Bundestag (the federal parliament) and is currently awaiting approval by the nation's 16 states, could allow German banks to sell and custody Bitcoin and other cryptocurrencies as early as next year.

Germany has five constitutional bodies:

  • Presidency (the head of the state is the Federal President)
  • Executive Branch (the head of the executive branch, i.e. the cabinet, is the Chancellor, who is chosen by the Bundestag)
  • Judicial Branch (consists of the Federal Constitutional Court and five other Supreme Courts)
  • Bundesrat (the upper chamber of parliament, which represents the Länder, i.e. the 16 states of the federal republic, has 58 members, with the number of delegates each state has depending on its population)
  • Bundestag (the lower chamber of parliament, with the deputies/members chosen by the people of Germany through the election process)

According to a report published in German news outlet Handelsblatt on Wednesday (November 27), in Germany, currently, only blockchain-powered Fintech startup Bitwala is integrating banking and crypto trading. 

However, a proposed law that seeks to implement the 5th Money Laundering Directive of the European Union (as represented by the European Parliament and the Council of the European Union); member states of the European States have until 10 January 2020 to implement this directive.

The bill has already been passed by the Bundestag, and it is expected to also be approved by the Bundesrat. The previous version of the bill required German banks to use either special subsidiaries or external custodians for custody of cryptoassets. 

The crypto industry in Germany is ready to welcome the proposed law. Dr. Sven Hildebrandt, a partner at Distributed Ledger Consulting (DLC), told Handelsblatt:

Germany is well on its way to becoming a crypto-heaven. The German legislator is playing a pioneering role in the regulation of cryptocurrency.

As for the Association of German Banks (BdB), it had this to say:

... credit institutions are experienced in the safekeeping of client assets and in risk management, are committed to investor protection and have always been controlled by the financial supervision.

BdB also mentioned that one benefit of the new legislation will be that it will allow residents in the country to invest in crypto via domestic rather than foreign financial institutions.

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