An evaluation of the introduction of a regulatory framework for virtual currencies in Malta

Abstract

The purpose of this dissertation is to provide an assessment of current volume of virtual currency use in Malta, and analyse the present general attitude in Malta towards virtual currencies. It also identifies the regulatory efforts being carried out internationally with respect to such currencies and provide a comparison with the local approach being adopted. The research also analyses the need for regulation of virtual currencies in Malta, the action that Malta should take in this respect going forward, and the optimal method of regulating such currencies should the regulatory route be deemed required. The research also highlights the likely effects that virtual currency regulation at a domestic level will bring about, and makes considerations towards jurisdiction as well as the regulatory bodies likely to be involved in regulating such currencies. Design: The objectives of the study were reached through the application of both a qualitative and quantitative research approach, whereby primary data was collected through face-to-face interviews with a semi-structured format with representatives from three financial regulatory authorities, two local industry players, and a foreign industry player. Primary data was also collected through the distribution of two questionnaires, one addressed to individuals working within the financial services sector, and the other to credit institutions and payment service providers. Findings: The study determines that Maltese financial institutions are currently following the recommendation set out by the European Banking Authority of shielding financial institutions from the risks of such currencies. Given the low volume of use in Malta, regulation of virtual currencies is not immediately required. The study’s findings suggest that regulation would have the effect of increasing virtual currency use in Malta and that any form of regulation introduced should be tailor-made to fit such currencies as otherwise such regulation may prove ineffective in mitigating the risks associated with such currencies. Furthermore, the study’s findings put forward that regulating at a domestic level is likely lead to arbitrage opportunities. As such regulation would best be set out at a European Union level or possibly at an international level, so as to ensure that there is harmonisation of rules for virtual currencies in different jurisdictions. Recommendations: The study suggests that regulators should presently focus on obtaining a better understanding of the currency, to be able to take an informed decision on regulating virtual currencies should the need arise. Given the dynamic concept of virtual currencies, regulation cannot be a one-time endeavour as otherwise any regulatory framework established would quickly become outdated. Regulation must also not be unnecessarily restrictive as this may stunt the development of such currencies.