Business 25 January 2019

Ed Drake

IMF: Blockchain in Malta poses ‘significant risks’ to financial system

Malta has rapidly become one of Europe’s leading blockchain destinations, even earning the nickname “blockchain island.” But according to the IMF, the rise of the blockchain sectors in Malta isn’t wholly innocent, and could in fact pose “significant risks” to the country’s financial system, the Times of Malta reported.

In comments made in a paper following a visit to Malta, the IMF highlighted risks around money laundering and terror financing in particular, with broader implications for the financial system on the island.

According to the report, the financial regulator was already facing significant pressures, in light of the island’s explosion as a destination for fintech sectors, and could be overwhelmed by criminal activity. It noted, “The increasing number of financial entities under supervision, the rapid development of new products, the evolving regulatory environment and the tightening of the labour market have put the Malta Financial Services Authority under considerable strain.”

The report said the gaming and financial sectors more broadly, as well as the citizenship by investment scheme, combined to create a number of threats to financial stability.

Malta has passed a number of laws around blockchain and cryptocurrency, creating a regulatory environment that has proven attractive to blockchain businesses. In competition with London, Berlin and Zug in Switzerland, Malta has quickly become a major European hub for blockchain and crypto businesses.

Tim Byun of the OK Group, which is considering starting a crypto bank in Malta, said the regulatory framework was the main benefit of Malta as a jurisdiction for blockchain. He was quoted as saying, “Malta has been a first mover to comprehensively regulate the blockchain industry, and we are excited to be involved in this new banking venture with RnF Finance Limited. Malta’s sound regulatory framework and support for new industries will cultivate many more opportunities on Blockchain Island.”

Yet the IMF’s stern warning shows the challenges countries like Malta face, particularly around detecting and eliminating criminal activity in ever-more sophisticated forms.

The message from the IMF is clear: without vigilance and an ongoing determination to uphold high compliance standards, Malta is playing with fire.

Note: Tokens on the Bitcoin Core (SegWit) chain are referenced as BTC coins; tokens on the Bitcoin Cash ABC chain are referenced as BCH, BCH-ABC or BAB coins.

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