EU talks but Malta walks: national security threats from FinTech

The European Parliament (EP) has issued a press release explaining the recommendations that MEPs of its Foreign Affairs Committee have been proposing in order to cut cash flows to terrorists, including the proposal to assess whether virtual and crypto currencies, block chain and FinTech technologies help fund terrorism financing and should be regulated by the EU. These recommendations have been brought up as the EP and the Council of the European Union engage in discussions regarding the proposed amendments to the Fourth EU Anti-money Laundering Directive (2015/849/EU) tackling terrorist financing risks linked to virtual currencies.

The Asia-Pacific region has already been quick to introduce anti-money laundering and countering financial terrorism (AML/CFT) regulation with respect to the above technologies, in countries such as Australia, South Korea and Japan. On the other hand, the EU has taken the approach to wait-and-see how these innovations develop before issuing any harmonised legislation which means that the risk of national security arising from such technologies remains an issue in EU member states.

That said, one particular member state has been vocal about the re-active situation in Brussels and has announced its plans to lead the revolution in FinTech.

On 16 February 2018, the Government of Malta published a consultation document seeking feedback from the general public and stakeholders regarding the proposed legal framework that would make Malta a pioneer in block chain and other FinTech investment.

The document mainly proposes the setting up of an independent and dedicated Digital Innovation Authority, as well as, new legislation regulating technology arrangements and service providers such as distributed ledger technology (DLT) platforms (‘the TAS Bill’), and the issuers and persons participating in initial coin offerings (ICOs) and virtual currencies (‘the VC Bill’).

Further to the above, the document gathers the feedback received by the Malta Financial Services Authority to a similar consultation which revealed concerns with the use of ICOs and virtual currencies (VCs) for the purposes of money laundering and funding of terrorism. This has led to a proposed ‘Financial Instrument Test’ which will help determine whether an ICO or a VC will fall within the proposed legal framework which is set to provide more transparency in the fight against illegal and fraudulent transactions. The ICOs or VCs which do not fall within the criteria will be regulated by the Fourth EU AML Directive, or the current EU legal framework should the amendments not be finalised before Malta issues its own legislation.


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