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Malta’s Pivots to Becoming a Fintech Haven

5 mins
Updated by James Hydzik
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In Brief

  • Crypto enthusiasts and industry observers alike are asking what has happened to the Malta “Blockchain Island” story.
  • BeInCrypto asked Steve Tendon, who coined the phrase “Blockchain Island” in 2017, to elaborate on the matter.
  • Cracks began to appear, once implementation met bureaucratic and commercial realities.
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The Malta “Blockchain Island” story that captured crypto-loving hearts in 2018 came to a sudden end in early 2020. The announcement by the Maltese government that it is pivoting to becoming a fintech center is only the most direct message this year of the failure by the government to square the circle of cryptocurrencies and the legacy system. Other signs, mostly confined to the banking sector, confirm the change.

Crypto enthusiasts and industry observers alike are asking what happened after the joyous announcements and parties. A better question would be to ask what happened before all that. In short, there is an essential mismatch between the original vision in 2017 and the original actions taken in 2018. To see the mismatch, ask yourself a question: “Why would I brand a coin haven, ‘Blockchain Island’?”

One of six

BeInCrypto asked Steve Tendon, who coined the phrase “Blockchain Island” in 2017, about the mismatch. He replied that cryptocurrency was only one of the six main points underlying the blockchain concept. These points were:

  • Public registries/services on the blockchain;
  • R&D, education and innovation with and on the blockchain;
  • Appoint a blockchain regulator and create a regulatory infrastructure;
  • Regulate cryptocurrencies/tokens, including exchanges and initial coin offerings (ICO);
  • E-residency and digital identity (of individuals and legal entities) on the blockchain;
  • Smart governance.

However, the focus quickly fell upon cryptocurrency. On Feb. 23, 2017, at the CEPS Ideas Lab conference, Malta’s then-Prime Minister Joseph Muscat claimed that “Europe should become the bitcoin continent.” Tendon notes in his Chain Strategies blog post on Malta’s course that:

“A lot of work had to be done to refocus the project on the idea that blockchain technologies, and not cryptocurrencies, had to take center stage.”

Moves to realize the non-crypto aspects of the vision commenced. The Ministry of Education and Employment announced in 2017, that it would put academic records on blockchain. The fanfare was minimal.

Pivot I

Despite the attempt to keep to the original script, though, the allure of crypto proved overwhelming.

The idea was simple, if you believed Muscat. In 2018, Malta would pass three laws designed to set the country up as “Blockchain Island.” In the face of ever-tightening regulation in the United States and in particular Asia, the vision of a crypto haven would catch the attention of many companies in the industry. In the short term, it worked.

The three laws, passed on July 4, 2018, were met with great acclaim in the industry. These laws were:

  • Virtual Financial Assets Act (VFA Act);
  • Innovative Technology Arrangement and Services Act (ITAS Act);
  • Malta Digital Innovation Authority Act (MDIA Act).

Commercial confirmation of Muscat’s vision came as well. Binance, the largest trading platform in the world, at the time, landed in Malta precisely because of fears of regulatory issues in Hong Kong, after being banned in Japan early in 2018. Shortly afterward, Binance’s main competitor on the exchange markets, OKEx, followed suit.  

However, cracks began to appear, once implementation met bureaucratic and commercial realities. Incoming companies wrangled with bureaucratic issues. But at the heart of the matter was banking. It became very difficult for crypto startups to be banked in Malta.

Banking their replacements – not

Malta’s efforts ran into a commercial snag: banks were in no hurry to service blockchain and crypto-oriented companies setting up shop on the island. The irony of banks refusing to open accounts for companies who are setting up an alternative to banks seems to have been lost, but the problem is real enough.

Malta’s largest banks, HSBC and Bank of Valetta, are under direct European Central Bank (ECB) scrutiny due to their market share. However, smaller banks trying to fill the gap in the local market soon learned to fear getting caught up in money laundering schemes and becoming the next example of what happens when banks go bad.

Malta Financial Services Authority (MFSA) has launched investigations into — and recommended that the ECB revoke the licences of — a few banks that catered to igaming and financial services, but also engaged in suspicious transactions. These moves by the MFSA occurred while Malta faced attention from the Council of Europe’s Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL). 

MONEYVAL’s committee visited Malta in November 2018 as part of their review of the country’s status in implementing anti-money laundering (AML) and countering the financing of terrorism (CFT) measures.

MONEYVAL found Malta’s AML/CFT implementation to be spotty, especially in terms of investigations and enforcement. After an unimpressive 2019 follow-up visit, MONEYVAL gave the country a year to clean house or be placed under even greater monitoring measures.

Malta’s investigations into Pilatus Bank and Satabank were attempts to signal to all that the government could flex its muscles. Gaining bank accounts as well as licences would be an uphill battle. Tendon told BeInCrypto that reputational risk could well have taken its toll in this matter.

Pivot II

Physical events in Malta also had a bearing on the course of the would-be crypto haven. PM Muscat was linked substantially with the now infamous “Panama Papers” leaks by murdered journalist Daphne Anne Vella. Muscat, who had won a second term in the July 2017 general election, was forced out of office due to the ensuing scandal. He resigned effective Jan. 13, 2020.

The new government of PM Robert Abela is progressively moving Malta’s stance away from the previous emphasis on crypto-focused companies and toward a more nuanced return to Tendon’s original idea. The government introduced a regulatory sandbox for fintech companies in July 2020.


A full 70 per cent of the companies, which flocked to Malta at the beginning of the crypto haven phase, failed to file for full licensing. Malta is not begging them to return, and the new government gained attention by reporting to media that anchor Binance was not Malta-licensed in financial services terms.

Onward to 2021

Maltese regulators have been busy in fall 2020. At the end of October, VAIOT, a developer of AI-powered digital services, successfully registered its white paper with MFSA and thus became the first project regulated under the VFAA.

On Nov. 24, Crypto.com gained both a Financial Institution License and a Class 3 Virtual Financial Assets License. 

Despite the twists and turns of Malta’s journey, the essential, blockchain regulatory structure remains for the government to build upon. As Tendon told BeInCrypto: “The MDIA act and the ITAS act are still two ground-breaking laws that would serve as the basis for a ‘blockchain’-focused agenda.”

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James Hydzik
James Hydzik is a finance and technology writer and editor based in Kyiv, Ukraine. He is especially interested in the development of regulation in the face of increasingly rapid technological change. He previously covered the CEE region for Financial Times banking and FDI magazines. An ardent believer in gut renovating eastern Europe one flat at a time, he currently holds more home renovation gear than crypto.
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