Members of the Financial Action Task Force (FAFT) have voiced concerns about the estimated €60bn ($71bn) of cryptocurrency and other virtual assets which moved through Malta in a ‘wild west’ period after the government declared the country a blockchain island in 2017.

The cryptocurrency and blockchain industries are now licensed and regulated. But lax controls and large volume of transactions in the first year of Malta’s new line of business were flagged as problematic by FAFT members meeting in Paris this month to review the country’s anti-money laundering regime, the Times of Malta reported.

Some members were critical of structural deficiencies, particularly in law enforcement, and a lack of serious cases among the increased number of prosecutions for financial crime.

However, FAFT members also acknowledged the Maltese government has enacted many reforms since 2017 to counter money laundering.

To attract cryptocurrency and blockchain companies, the government initially allowed them to operate without a licence for a year. Activity was like the wild west with an explosion of high-risk transactions carried out by cryptocurrency exchanges with little oversight, the newspaper reported sources as saying.

In 2018 the government passed laws providing a regulatory framework for cryptocurrency and blockchain businesses.

The business unit for virtual financial assets’ agents within the Malta Chamber of Commerce said: “It is common practice, even at EU level, to set a transitory period when new regulatory requirements are rolled out and imposed on an industry. The purpose … [is] to allow companies to familiarise themselves with the framework and to shape up their operations in line with the same.

“With such an innovative sector, it is counter-intuitive to set a hard-line approach. One needs to keep in mind that up until 2018, the crypto industry was largely unregulated, with Malta being the first EU member state to step forward and regulate it at a high standard.”

Most crypto exchanges have now implemented robust AML rules within their operations on par with traditional financial institutions and crypto transactions can be traced, the unit added.

“While anonymous cryptocurrencies do exist, the Malta Financial Services Authority [MFSA] banned locally licensed service providers from dealing with such cryptocurrencies from the very start,” the unit said.

Arguing Malta’s framework is of the world’s most stringent, it added: “It is absolutely incorrect, both in fact and in substance, to infer that Malta has lax oversight … The MFSA carries out extensive oversight over operators in this sector with regular compliance visits and other oversight mechanisms in place to ensure proper supervision of this sector.”


FinCrime World Forum

Tomorrow, industry experts will focus on Virtual Assets in the FinCrime Mainstream. 

Must see sessions include:

  • The Real Ingredients of Virtual Compliance ‘Baking-in’ FinCrime good practice from the start, 9:00AM ET | 2:00PM BST | 3:00PM CEST
  • Crypto 2.0 – New ways of performing old tricks? Exploring Crypto Typologies with Nick Furneaux, 9:50AM ET | 2:50PM BST | 3:50PM CEST
  • Off the Crypto Rollercoaster Are stable coins and centralised digital currencies ‘safe’ alternatives? 10:50AM ET | 3:50PM BST | 4:50PM CEST
  • Scanning the Virtual Horizon The next steps for global Virtual Asset regulation, 11:40AM ET | 4:40PM BST | 5:40PM CEST
  • Scams: Fuelling the Crypto Fire A presentation by Scott Johnston, Chainalysis, 12:30PM ET | 5:30PM BST | 6:30PM CEST

Secure your place now