As one of the first firms in Malta to take an early interest into crypto and blockchain, Anton John Mifsud, Head of E&S Group’s legal department, sheds light on the difficulties operating in an island he describes as a “victim of its own success”.
Despite the issues, Dr Mifsud remains optimistic, especially thanks to Government efforts to provide a legal framework within which entities can safely do business in within the realms of crypto, blockchain, digital securities and fintech.
“I would describe it [E&S] as a mid-size boutique firm,” says Dr Mifsud. “We try and service particular industries to avoid trying to do everything.” E&S Group, celebrating its 9th birthday, is now composed of several departments, including legal, accounting, marketing, front office, as well as financial control.
“As we know, crypto wasn’t around nine years ago, but one of our main strengths is that we were one of the first firms in Malta that had an interest in this early on, and that gave us an edge over other firms. A few years ago, people were concerned and would say ‘while blockchain technology might be popular today, will it still be around tomorrow?’.” Dr Mifsud believes the answer is a solid yes.
“If you ask me, I think blockchain is here to stay, so for us, it was a wise decision to delve into this new area of law and try to be a pioneer in this area.” But he also has strong opinions about what needs to be done to attract more companies to set up shop in Malta, as well as ideas on how the country can sustain the level of growth it has been experiencing over the past decade.
“While Malta has been very innovative with its legal framework, it doesn’t mean that other jurisdictions aren’t catching up. So, we need to walk the talk on several fronts. First, there is the problem with our banking system. Clients find it very difficult to open an account, and the burden is entirely on the customer to disprove that they are not a criminal,” he asserts. “In the sphere of cryptocurrency, it’s even worse. Mention the word ‘crypto’ to some banks and they won’t even touch it as it’s outside their perimeters of risk. I can understand that for the smaller financial institutions it does seem risky, but when it comes to bigger banks, I find it hard to conceive.”
Dr Mifsud believes this unwillingness to take risks by some financial institutions comes from another challenge that’s plaguing many sectors across Malta: a skills shortage.
“Let’s face it, blockchain is a new technology and most of the best brains are taken up by the sector itself, so it’s very difficult for banks to beef up their human power to actually meet the demand from the industry.”
“Malta is a victim of its own success. It’s a small country and it doesn’t have the brain power to meet the demands. We’ve managed to attract some talent from outside of Malta, but essentially, we’re a small pool of professionals who are all competing for the best brains. The short-term solution is of course to attract more talent from abroad, but in the long-term, you need home-grown talent.”
Dr Mifsud also believes Malta needs to invest in several support services which surround the blockchain ecosystem.
“For example, for systems auditors who audit smart contracts, there is a separate licensing process. This is not administered by the Malta Financial Services Authority (MFSA), but by the Malta Digital and Innovation Authority. Not everyone is aware of this,” he explains.
Another aspect which he believes could be problematic, is the time it takes to set up a crypto-exchange here.
“The issue is the time to market. If you want to launch your business in two months’ time, I’m sorry but Malta is not an option. Some countries can grant a licence for a cryptocurrency exchange in one month. This can make them more attractive to investors.”
But despite the list of challenges Dr Mifsud says Malta is facing, he also believes it can remain competitive – especially since Government introduced the Virtual Financial Assets (VFA) Act and the Innovative Technology Arrangement and Services (ITAS) Act, which came into effect on 1st November 2018.
“Since the new law came into force last year, we’ve already seen a change. We are now receiving queries from higher quality clients who are considering setting up business here. They like the fact that Malta has introduced more stringent checks and balances, and the industry is more regulated. It’s not easy to acquire a licence from the MFSA, and that carries weight in business,” he concluded.
This interview initially appeared in the June edition of Blockchain Island.