The classification of DLT Assets under Maltese law

Abstract

Cryptocurrencies and ICOs are unregulated in the majority of jurisdictions and, as such, fall outside the scope of many statue books around the world, causing investors bearing the risks of losses and forfeiting investor protection afforded under applicable laws and regulations.

As a consequence of speculative investments, day-trading and pump and dump schemes, the ESAs and other national competent authorities have issued advice to market players on crypto-assets and ICOs, and sought to regulate any activities relating thereto.

Malta was the first jurisdiction which enacted laws regulating DLT Assets, a term which encompasses not only cryptocurrencies, but also any digital means of recordation which is dependent on, or utilises distributed ledger technology. The Maltese regulatory framework comprises a test which is required to classify DLT Assets into four subcategories; virtual tokens, financial instruments, electronic money and virtual financial assets.

The scope behind this thesis is to, first and foremost, give a brief overview on cryptocurrencies and virtual tokens in order to determine which type of crypto-assets may or may not fall within the scope of financial regulation. This thesis will also analyse the various recommendations issued by national and supranational competent authorities and assess whether their approach in classifying and regulating such cryptoassets ultimately converge. Finally, this thesis will analyse, in depth, the approach taken by the Maltese regulator in classifying DLT Assets from a practical perspective, while making a series of recommendations on how the classification of DLT Assets can be improved.