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How Papilio Services is aiming to help Malta solidify its ‘blockchain island’ billing

How Papilio Services is aiming to help Malta solidify its ‘blockchain island’ billing
Last May, The Block
reported on a new initiative focusing on utilising blockchain technologies for
public transport infrastructure in Malta. The country, as this publication put
it, “appears to be one
step ahead of many other countries in the race to implement blockchain.”

Yet there is far more to the Mediterranean island than meets
the eye. Its location and strategy has made it a viable venue for many
stakeholders in the blockchain and cryptocurrency field. Indeed, its
‘blockchain island’ image is one that the government is trying to double down
on. But what does this mean for those trying to help companies get their foot
in the door?

Papilio Services ,
an independent multi-service financial provider with headquarters in Valletta, is
licensed to act as a company service provider by the Malta Financial Services
Authority. The company offers clients advice and planning opportunities for
clients across the fintech spectrum, including ICOs.

Chris Armstrong, a director at Papilio Services, noted the
need for greater regulation in this area while attending industry events last
year. “From my conversations last year, it seemed like the industry was crying
out for a proper regulatory approach, to give credibility to their products –
their ICOs, their issuers,” he tells The
Block .

The Maltese government was evidently thinking on similar
lines. As of November 1, the Malta Distributed Ledger Technology Acts came into
force. The Virtual Financial Assets (VFA) Act put a legal framework in place to
regulate VFAs and ICOs; the Innovative Technology Arrangement Services Act provides
for the regulation of designated innovative technology arrangements – anything
that is protected with cryptography but something which has to be auditable –
while the Multi-Digital Innovation Authority Act gives appropriate power and
functions to regulate the innovative technology arrangements.

“It gives the power to authorise [the technology], and check
it’s being carried out correctly,” explains Armstrong. “It authorises the right
of system auditors on these applications and frameworks. Anything to do with
the technical side of it would go through this authority. If you have an
exchange, for example, and you’ve got clients’ money that you are collecting,
then how are you going to keep that safe? Does your architecture, your wallets…
does that keep it safe? Is the cryptocurrency technology put in place the
correct technology? Is it robust enough?”

Recent reports have suggested separately that blockchain
companies are having difficulties with setup. According to an article from
the Times of Malta , citing parliamentary secretary for financial services
Silvio Schembri, banks ‘were willing to open accounts for blockchain operators
but had less appetite for crypto operations.’

For Armstrong, the legislation has provided more ‘certainty
and clarity’ around the process. Malta also legally requires the appointment of
a reputable VFA agent, authorised by the Malta Financial Services Authority, to
act as an intermediary between the regulator and the issuer. “The main thing
with the act is it clearly defines what a token is and what a token is not, as
an initial coin offering,” he says. “There’s a clear pathway. Our clients can
look at it now and say ‘is my initial coin offering like this, or is it like

“The fact that it’s a fully regulatory environment [means]
there’s now a lot of thought process going into this; setting up the
legislation, the authorities, regulators have been in touch with the providers
and lawyers,” adds Armstrong. “I think there is a good balance between the
regulator not being to beauracratic with its rules, whilst also being firm
enough with the regulation in order to satisfy and prevent money laundering
risks as well as protecting both the issuer and the investor accordingly. I
think it has to be robust enough, but also friendly enough that it’s not going
to put investors and issuers off.”

Armstrong gives this advice for those looking to set up an
ICO in Malta. “You need to clearly define the characteristics of your token,
your coin offering,” he explains. “The way the Act is, depending on what type
of coin or what type of rights may be associated to that token, or coin
offering, determines if it needs to be regulated and which regulatory route and
pathway it would take.

“If it’s deemed as a virtual token and doesn’t have rights, such
as a future share in equity as an example, as long as it’s defined as a pure
virtual token then it might not even have to be following the regulatory
approach,” Armstrong adds. “If it’s a virtual token with certain rights, and
it’s a certain type of asset – if it has assets like shares for example, if you
have a right to vote or to receive a dividend – then that probably would be
very similar to a company share situation, equity position, where then that
token would have to follow a route through the Financial Services and Banking
Act, resulting in differing regulatory requirements.”

Regarding the overall landscape, Armstrong says that ‘it is
quite straightforward when you have an understanding of it, but notes the
challenges for those who are less sure. Papilio Services will be appearing at
the Blockchain Expo event in
London on April 25-26 to help prospective visitors make informed decisions on
what Malta can and cannot do should they wish to set up an ICO.

“We’re looking forward from a general perspective just to understand the recent developments in the blockchain sector as a whole,” he adds. “We understand that this industry moves super-lightning quick and things change, so we’re looking forward to meeting people, understanding what’s changed since the last show, and how things have developed over the last few months.”

Interested in hearing more in person?  Find out more at the  Blockchain Expo World Series , Global, Europe and North America.

The post How Papilio Services is aiming to help Malta solidify its ‘blockchain island’ billing appeared first on The Block .

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