Insights

The Malta Digital Innovation Authority Bill (the “Bill”), presented in Parliament on 24^th April 2018, proceeded to the second reading stage of the Maltese legislative process on the 6^th June 2018. This Bill provides for the establishment of an Authority to be known as the Malta Digital Innovation Authority (“MDIA” or “Authority”). The establishment of MDIA is only one out of three main legislative measures which are currently being deliberated upon by the Maltese Parliament. All measures combined, seek to provide legal certainty in the sphere of blockchain technology and virtual assets in Malta. This brief update provides a high-level overview of MDIA’s role, the objectives and policies that it will seek to pursue, its composition and powers.

MDIA’s role will mainly comprise two main aspects which are interlinked. It will seek to promote and develop the innovative technology sector in Malta by means of providing formal recognition and regulation of relevant innovative technology arrangements and related services. The innovative technology arrangements comprise those elements including software, codes, computer protocols and other architectures used in the context of distributed or decentralised ledger technology (DLT), smart contracts and related applications. The services are those that will be listed in the Innovative Technology Arrangements and Services Act, 2018, once it is duly enacted. It is envisaged that these two main roles will be undertaken in full respect of the importance of not hindering innovation and the efforts and potential of the start-up sector in this innovative technology area whilst still ensuring that there are standards in place for the protection of consumers and investors, the integrity of the market and the public interest in general. This balancing approach is significant because it shows that Malta has made it its top priority to protect consumers and investors without hindering the development of the much-needed innovative technology business which is being intermixed with and utilised in a variety of sectors including financial services, health and education, voluntary organisations, public administration and transport.

Amongst the main objectives and principles that the MDIA will seek to pursue, one should note the objectives of:

• promoting and enforcing ethical and legitimate criteria in the design and use of innovative technology arrangements;
• harmonising practices and facilitating the adopting of standards on innovative technology arrangements in Malta in line with international norms, standards and rules;
• promoting transparency and auditability in the use of innovative technology arrangements;
• promoting ease of accessibility to the facilities provided by publicly available innovative technology arrangements and the recognition and implementations of the right of exit, withdrawal or termination of participation from any arrangement.

The pursuit of these objectives will secure the integrity of the Maltese DLT market and will ensure that any measures adopted in Malta will not be disconnected from DLT international policies and rules. This will afford both providers and consumers with more legal certainty especially when the operations and transactions, even though arising in or from Malta, include cross-border elements.

The MDIA’s role as a regulator will include, amongst others, the granting, issuance, refusal, revocation, cancellation or suspension of authorisations with respect to the provision of innovative technology arrangements or services provided in or from Malta. When it comes to its supervisory role, it will keep under review all practices and activities which will be regulated by the provisions of this Bill, once it is enacted as an Act, and any other applicable laws which the Authority will be entitled to administer or enforce. Moreover, it will have the power to investigate allegations of practices and activities detrimental to consumers and to determine when innovative technology arrangements and services are exempt from particular legal requirements. It will also have the power to issue rules which shall be binding on innovative technology authorisation holders and others specified therein.

It will strive for promoting transparency in the innovative technology business by establishing a register containing a list of all holders of innovative technology authorisations and by compiling a second list stating the reasons why it refused particular applications, which information will be maintained on its website for three months. On the one hand, this measure will ensure that applicants request for authorisations in respect of legitimate businesses. On the other hand, this public information will then be useful in assisting other regulatory authorities, whether local or international, in carrying out their functions. Further powers which the Authority will be entitled to exercise are enforcement powers such as inter alia requesting information, searching and inspecting premises, undertaking site inspections, testing machinery, apparatus, appliances and other equipment at any place as the Authority may consider necessary and imposing administrative fines.

Due to the fact that most forms of innovative technology solutions may overlap with existing regulatory mandates, the MDIA shall at all times coordinate with other competent authorities such as the Malta Financial Services Authority, the Malta Gaming Authority, the Malta Information Technology Agency, the Malta Competition and Consumer Affairs Authority and the Malta Statistics Authority so that it ensures that there is no replication of work and controls. This measure seeks to achieve efficiency by avoiding duplication of procedures, controls, reviews and assessments carried out by different national competent authorities relating to the same persons or arrangements, mostly by allowing the Authority to rely on other national competent authorities. In turn, this measure also simplifies the authorisation, regulation and supervision of innovative technology arrangements and services. It will hopefully allow businesses to obtain an authorisation from the Authority more swiftly, especially in cases where the persons seeking the authorisation are already known to other national regulatory authorities. The effective cooperation between the Authority and other competent authorities shall be ensured by a newly established board, to be known as the Joint Regulatory Efficiency Board.

More information on the progress behind the enactment of this Bill as law will be provided in the near future.