Understanding the Dynamic VASP Act Regulations in BVI: A Detailed Analysis of the Latest Changes

The British Virgin Islands (BVI) is a popular offshore jurisdiction for conducting international business.

One such measure is the introduction of a regulatory framework that regulates the Virtual Asset Service Provider ("VASP").

It is designed to regulate activities related to virtual assets, including cryptocurrencies, to prevent their use for illicit activities. In this article, we look at the VASP regulatory framework in the BVI, including its scope, requirements and impact on the virtual asset industry in that jurisdiction.

Definition of VASP and exemptions

The Virtual Assets Service Providers Act, 2022 (“VASP Act”), which came into force on 1 February 2023, created a new legal framework for the registration and supervision of persons engaged in the business of providing “virtual asset services” (VASP business).

Thus, the act provides that “VASP” means a virtual asset service provider who provides, as a business, a virtual assets service and is registered under this Act to conduct one or more of the following activities or operations for or on behalf of another person:

  • exchange between virtual assets and fiat currencies;
  • exchange between one or more forms of virtual assets;
  • transfer of virtual assets, where the transfer relates to conducting a transaction on behalf of another person that moves a virtual asset from one virtual asset address or account to another;
  • safekeeping or administration of virtual assets or instruments enabling control over virtual assets;
  • participation in, and provision of, financial services related to an issuer’s offer or sale of a virtual asset; or
  • perform such other activity or operation as may be specified in this Act.

In addition, there is a list of activities that do not fall within the scope of the VASP:

  • providing ancillary infrastructure to allow another person to offer a service, such as cloud data storage provider;
  • providing service as a software developer or provider of unhosted wallets;
  • solely creating or selling a software application or virtual asset platform;
  • providing ancillary services or products to a virtual asset network to the extent that such services do not extend to engaging in or actively facilitating as a business any of those services for or on behalf of another person;
  • solely engaging in the operation of a virtual asset network without engaging or facilitating any of the activities or operations of a VASP on behalf of customers;
  • providing closed-loop items that are non-transferable, nonexchangeable, and which cannot be used for payment or investment purposes; 
  • accepting virtual assets as payment for goods and services.

It is important to note that if a legal entity is issuing tokens in its own name, i.e. conducting its own trading, it is unlikely to qualify as a VASP.

Impact of the VASP Act on the activities of entities

For those who were already carrying on a VASP business before the Act came into force, there is an exemption clause. It allows such persons to continue to do business without registering with the Financial Services Commission (“FSC”) – provided that an application for registration is made within 6 months of the Act coming into force. Therefore, as the Act came into force on February 1, 2023, the deadline for applications for registration for existing businesses is July 31, 2023.

AML requirements 

The BVI expanded the definition of “relevant person” to include VASPs and expanded the definition of “relevant business” to include a virtual asset conduct or service business where the transaction involves virtual assets valued at USD 1,000 or more, in line with the provisions of the money laundering legislation. VASPs are required to comply with the AML (Anti Money Laundering) regime in the BVI from December 1, 2022, in accordance with the amendments to the previously mentioned laws.

Specifically, a VASP must maintain customer identification procedures, keep records of KYC (“know your customer”) processes and suspicious transactions, set up internal procedures for reporting suspicious transactions, and have internal controls and communication procedures that are suitable for anti-money laundering and prevention purposes. 

VASPs are also required to appoint a Money Laundering Reporting Officer (MLRO) and ensure that staff are properly trained on their obligations. 

Lastly, VASPs must comply with the new “travel rule” in relation to virtual asset transfers, which means that VASPs that are senders and receivers will be required to obtain, verify and store full originator and beneficiary information on each virtual asset transfer before the transaction is executed or accepted. Intermediary VASPs have separate obligations requiring them to ensure that all information is complete and to identify any missing or incomplete information.

Registration and requirements for VASPs

It is required to register as a VASP with the FSC by application by an authorized representative, legal counsel, or other local service providers, such as registered agents, if a person wishes to conduct virtual asset service activities in or from the BVI in one or more of the following categories:

(a) to carry on the business of providing virtual asset services;

(b) conduct a virtual asset service business; and

(c) operating a virtual asset exchange.

The application must provide the following information (Application form):

  • directors, senior officers, auditors and authorized representatives who fulfill the criteria set out in the law and are approved by the FSC;
  • information on the persons who have a controlling shareholding;
  • business plan (e.g. consumer protection provisions, capital, public disclosure, liquidity, etc.)
  • policies and procedures documents (e.g., AML/CFT manual, written risk assessment, data protection, customer assets, custodial systems, etc.);
  • other relevant information.

If the Commission approves an application for registration, it shall:

(a) register the applicant and issue a certificate of registration in such form as it thinks fit; and

(b) may impose such conditions on the registration as it thinks fit.

If it does not approve an application for registration as a VASP, then FSC has an obligation to inform the applicant in writing of this, stating the reason for refusal.

The FSC in the BVI FSC Guidance on Application for Registration of VASPs has committed to provide initial comments on the submitted application within 6 weeks of submission and to complete the application process within 6 months of submission.

The requirements for registered VASPs are:

  • a minimum of 2 individual directors, one of whom is physically resident in the BVI (if required by the FSC, depending on the nature and risk associated with the VASP);
  • appointment of an authorized representative (Form D);
  • appointment of an auditor (Form B-1) to audit the financial statements of the VASP, to be submitted within 6 months after the end of the financial year; the auditors will also be required to report to the FSC in certain circumstances;
  • appointment of a compliance officer;
  • prior written authorization from the FSC for a name change, the appointment of a director or senior officer (Form A), or the transfer of an interest in the VASP by a person with a significant or controlling interest (unless the VASP is listed on a recognised stock exchange); 
  • notifying the FSC of any material changes in the information provided as part of the application for registration and other details of its business;
  • maintaining the business in a financially sound condition and record-keeping obligations.

A VASP will also be able to participate in the regulatory sandbox of the FSC, (governed by the Financial Services Regulations 2020) if it wishes to provide virtual asset services and innovative fintech services (Part V VASP Act).

Application fee

  1. person wishing to provide virtual asset custody services: US$10,000
  2. person wishing to operate a virtual asset exchange: US$10,000
  3. other types of VASP applications: US$5,000

Penalties for legal entities for non-compliance

The FSC has extensive powers to supervise VASPs and there are penalties or fines of up to US$100,000 and/or 5 years imprisonment for violations of the law. The full list can be found in Schedule, Section 46.

Conclusions

Under the provisions of the specified Act, it can be clearly deduced how the regulation of the virtual asset business in the BVI will take place. In this regard, if your business is currently conducted or you intend to provide virtual asset services in or from the BVI, make sure that you have analyzed your business and seek professional advice from Manimama to meet new compliance requirements .

The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.


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Brunei: small but rich sultanate

Brunei Darussalam (Brunei) is a small state on the island of Borneo in Southeast Asia.

Although Brunei has a population of just over 430,000, it is still one of the smallest nations in the world, but has a thriving economy that is ripe for business opportunities. In this article we will explore the advantages and challenges of doing business in Brunei, taxation, and company formation requirements.

Advantages of doing business in Brunei

  1. Strategic location – Brunei is located in the heart of Southeast Asia, making it an attractive hub for businesses looking to expand in the region. Also its proximity to major markets such as China, Japan and Australia, coupled with its developed infrastructure and transport network, makes it an ideal location for business.
  2. Stable political environment – the country exists as a constitutional monarchy and the government has consistently pursued pro-business policies. The political stability, coupled with a low crime rate, makes the country an attractive destination for foreign investors.
  3. Favorable tax regime – Brunei has no personal income tax and the corporate tax rate is quite low at just 18.5%. This makes it an attractive destination for businesses looking to minimize their tax liabilities.
  4. Skilled workforce – Brunei has a well-educated and skilled workforce, with a literacy rate of over 95%. This is all thanks to the country’s strong education system with a number of universities and vocational schools, and an emphasis on lifelong learning. This means that businesses operating in Brunei can easily access a skilled workforce that is well-equipped to meet their needs.
  5. Ease of doing business – Brunei is ranked as one of the easiest places to do business in the world, according to the World Bank’s Ease of Doing Business Index. The country has streamlined its business registration process and has implemented a number of reforms to make it easier for businesses to operate.
  6. Popular areas for doing business in Brunei are mining (oil), tourism, e-commerce, telecommunications, services and light industry.
  7. English is a popular language for business and finance.
  8. Brunei has a well-developed infrastructure.

The challenges of doing business in Brunei 

  1. Limited market size – this is because Brunei has a population of just over 430,000 people. This means that businesses operating in Brunei may face limited growth opportunities as the domestic market is relatively small.
  2. Limited diversity – Brunei’s economy is heavily reliant on the oil and gas industry, which accounts for over 90% of its exports. This means that businesses operating in Brunei may be exposed to the volatility of the global oil and gas market.
  3. Limited human resources – despite the fact that Brunei has a strong education system, Brunei’s population is quite small and therefore the country may face a shortage of skilled workers in certain industries.
  4. Limited infrastructure – while Brunei has a well-developed infrastructure compared to other countries in Southeast Asia, there is still room for improvement. Businesses may face challenges with logistics and transportation, particularly in remote areas.

Taxation

There are no following types of taxes in Brunei

  1. income tax;
  2. inheritance tax;
  3. wealth tax;
  4. capital gains tax;
  5. value added tax;
  6. sales tax.

But there are types of taxes such as:

  1. Corporate tax – 18.5% for resident/non-resident companies, except those involved in oil operations (55%). 
  2.  Withholding tax – for non-residents: 
  • dividends – 0 %;
  • Interest, commissions, fees or other charges on loans or debts – 2.5%;
  • royalties or other one-off payments for the use of movable property – 10%;
  • fees for the use of, or the right to use, scientific, technical, industrial or commercial knowledge or information – 10%
  • fees for technical services – 10%;
  • management fees – 10%;
  • rent or other payments for the use of movable property – 10%.
  1. Export tax – 1%.

Prospects for it and crypto business 

Brunei has a small but growing IT industry, and there are opportunities for businesses looking to invest in the sector. However, it may not be the best offshore destination for businesses specifically focused on crypto due to the country’s conservative Islamic values and the government’s cautious approach to the technology.

In terms of IT business, Brunei has a well-educated and skilled workforce, and the government has made efforts to promote the development of the sector. 

The government has also implemented a number of policies and programs to support the growth of the IT sector, such as the establishment of the Brunei Economic Development Board (BEDB) and the Digital Economy Council. These bodies are responsible for promoting investment in the sector and supporting the development of local startups.

However, businesses looking to invest in the IT sector in Brunei may face challenges, such as the small market size and limited access to funding. The government has taken steps to address these issues, such as the establishment of a National Innovation System and the provision of funding through the BEDB, but it may take time for these initiatives to have a significant impact.

In terms of crypto business, Brunei’s government has taken a cautious approach to the technology. The country is a member of the Asia-Pacific Group on Money Laundering and has implemented strict anti-money laundering and counter-terrorist financing measures. The government has also issued warnings to the public about the risks of investing in cryptocurrencies.

Furthermore, Brunei is an Islamic country, and Islamic law prohibits riba (in Islam) or usury, which refers to the charging of interest. This could pose a challenge for businesses looking to operate in the crypto sector, which often involves lending and borrowing with interest.

Requirements for a company

It should be noted that Brunei cannot establish an international company and as from 2017 foreign beneficiaries can only establish a local company in the form of Public Company (Berhad) (PC (Bhd.))/Private Company (Sendirian Berhad) (PC (Sdn. Bhd.)) or a foreign company branch in the form of Foreign Company (FC), which once incorporated has the same powers as the local company.

PC (Sdn. Bhd.) – established in the form of LLC; must have at least 2 and not more than 50 shareholders, not younger than 18 years old; at least 2 directors (1 must be resident); registered office in Brunei; the most common capital structure – 2 ordinary shares of BND 1 each.

PC (Bhd.) – established in the form of LLC; must have at least 7 shareholders and can be over 50 shareholders, not younger than 18 years old; at least 2 directors (1 must be resident); registered office in Brunei; each shareholder must have one share, which is equal to BND 1.

FC – a branch of a foreign company incorporated in Brunei as an addition to its parent company incorporated elsewhere; must have a registered office in Brunei and appoint a local agent; once incorporated, receives the same powers and authority as a local company; must file a copy of the annual financial statements of the head office annually with the Registrar of Companies and prepare branch accounts for tax computation.

Results 

Overall, Brunei is an attractive destination for businesses looking to expand in Southeast Asia. Its strategic location, stable political environment, favorable tax system, and skilled workforce make it an ideal location for businesses looking to access major markets in the region. However, businesses should also be aware of the challenges they may face, such as the limited market size, limited diversity, limited human resources, and limited infrastructure. By carefully weighing the benefits and challenges of doing business in Brunei, businesses can make informed decisions about whether or not to invest in the country. Navigating the opportunities and challenges of doing business in Brunei can be complex, but our law firm has the expertise and experience to guide you through the process and help you make informed decisions about investing in the country.

The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.


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Regulatory environment of cryptocurrencies in Bahamas

Cryptocurrency has been a hot topic of discussion globally, with various countries and regulatory bodies grappling with the challenges and opportunities it presents.

In the Bahamas, the government has taken steps to regulate the use of cryptocurrencies in the country.

Bahama’s sand dollar

The Bahamas has been relatively progressive in its approach to cryptocurrency regulation, recognizing the potential benefits that it can bring to the country’s economy. In 2019, the Central Bank of the Bahamas announced that it would be launching a digital version of the Bahamian dollar, known as the Sand Dollar. The Sand Dollar is a blockchain-based digital currency that is backed by the Bahamian dollar and is designed to be used as a means of payment within the country. The Sand Dollar was officially launched in October 2020, making the Bahamas one of the first countries in the world to have a central bank digital currency (CBDC) in circulation. The launch of the Sand Dollar is seen as a significant step towards the country’s goal of becoming a leader in the adoption and use of digital currencies.

Supervisory bodies

The Central Bank of the Bahamas has taken a proactive approach to regulating cryptocurrencies in the country, with the aim of ensuring that they are used safely and securely. In 2020, the bank issued guidelines for the regulation of digital assets, which set out the requirements for entities that provide services related to cryptocurrencies. Under the guidelines, businesses that provide services related to cryptocurrencies, including exchanges, wallet providers, and other intermediaries, are required to obtain a license from the Central Bank of the Bahamas. The license application process involves a rigorous review of the applicant’s business operations and compliance with the bank’s requirements.

The guidelines also require licensed entities to implement robust anti-money laundering (AML) and counter-terrorist financing (CTF) measures. This is in line with international best practices and is aimed at preventing the use of cryptocurrencies for illegal activities such as money laundering and terrorism financing.

In addition to the regulation of digital assets, the Securities Commission of the Bahamas (SCB) is also responsible for regulating initial coin offerings (ICOs) and other crypto-related securities offerings. The SCB has issued guidelines for the regulation of ICOs, which require issuers to provide detailed information about the offering and the underlying assets.

VASP license

If you are interested in obtaining a Virtual Assets Service Provider (VASP) license in the Bahamas, here are the steps you need to follow:

  1. Understand the requirements: The Central Bank of The Bahamas has set out specific requirements that must be met by applicants for a VASP license. These requirements include having a physical presence in the Bahamas, complying with anti-money laundering and counter-terrorism financing regulations, and having adequate systems and controls in place to manage the risks associated with virtual assets.
  1. Submit an application: Once you have familiarized yourself with the requirements, you can submit an application for a VASP license to the Central Bank of The Bahamas. The application must include detailed information about your business, including its ownership structure, management team, and compliance policies and procedures.
  2. Pay the application fee: Along with your application, you will need to pay a non-refundable application fee of $5,000.
  3. Wait for approval: After submitting your application, you will need to wait for the Central Bank of The Bahamas to review and approve it. The bank may request additional information or clarification during the review process.
  4. Obtain the license: If your application is approved, you will be issued with a VASP license, which will allow you to provide virtual asset services in the Bahamas.
  5. Maintain compliance: Once you have obtained your VASP license, you will need to ensure that you maintain compliance with the Central Bank of The Bahamas’ regulations. This includes regularly reporting on your operations and complying with anti-money laundering and counter-terrorism financing requirements.

What the government is anticipated to do

In 2022, Central Bank of The Bahamas issued a Public Consultation on the  Digital Assets Guidelines, which is believed to build a strong foundation for any future guidelines for the Government to ensure that digital assets are used safely and securely within the country. The proposed requirements outline the regulatory expectations surrounding the governance, risk management, acceptable forms of engagement, prudential treatment and reporting requirements for supervised financial institutions (“SFIs”) involved in or planning to engage in digital asset business activities. The deadline for commenting on these proposals was on February 27, 2023.

The future guidelines and policies will likely set out the requirements for entities that provide services related to digital assets, including exchanges, wallet providers, and other intermediaries. These requirements will likely include obtaining a license from the Central Bank of The Bahamas, complying with anti-money laundering and counter-terrorism financing regulations, and having adequate systems and controls in place to manage the risks associated with digital assets, aimed at creating a safe and secure environment for the use of digital assets. 

Overall, the regulation of cryptocurrencies in the Bahamas is aimed at creating a safe and secure environment for the use of digital currencies, while also supporting innovation and growth in the sector. The government’s proactive approach to regulation is likely to encourage the development of new crypto-related businesses and investment opportunities in the country.

Conclusion

the Bahamas has taken a progressive approach to the regulation of cryptocurrencies, recognizing their potential benefits while also ensuring that they are used safely and securely. The launch of the Sand Dollar and the issuance of guidelines for the regulation of digital assets are significant steps towards the country’s goal of becoming a leader in the adoption and use of digital currencies. The regulation of cryptocurrencies in the Bahamas is likely to encourage innovation and growth in the sector, while also protecting consumers and preventing the use of cryptocurrencies for illicit activities.

It’s worth noting that obtaining a VASP license in the Bahamas can be a complex and time-consuming process. It’s important to ensure that businesses have a thorough understanding of the requirements and that the businesses have the necessary resources and expertise to comply with the regulations. Working with Manimama’s team will definitely  help businesses to ensure a smooth process. We understand that our clients are focused on growing, and we are committed to helping them achieve their goals while managing legal risks. Contact us today to learn more about our services and how we can help you achieve your business objectives.

The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.


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Malta – blockchain island in Mediterranean

Progressive attitude towards virtual currencies positioned Malta as the champion in crypto regulation for its plain legal framework and efforts to furnish legal certainty to the industry.

Being an EU based jurisdiction might add another value to do business, in lieu of choosing an offshore country. Malta is appealing to an increasing number of fintech businesses, crypto exchanges and investors thanks to its holistic legal framework.

Progressive attitude towards virtual currencies positioned Malta as the champion in crypto regulation for its plain legal framework and efforts to furnish legal certainty to the industry. Being an EU based jurisdiction might add another value to do business, in lieu of choosing an offshore country. Malta is appealing to an increasing number of fintech businesses, crypto exchanges and investors thanks to its holistic legal framework.

Overview of legislations

Financial service providers in Malta are bound to comply with all EU directives and General Data Protection Regulation, inter alia, Investment services Act, the Banking Act, the Financial Institutions Act and the Insurance Intermediaries Act. In response to a growing demand for laying out a regulative framework on digital assets, Maltese government enacted following acts in 2018 to regulate Blockchain, Distributed Ledger Technology (“DLT”) and Initial Coin Offering (“ICO”):

These legislations are predicated on the fundamental basic principles of market integrity, consumer and industry protection. Below is the brief outline for each legislative act.

VFA Act

While the cryptocurrencies are not considered as a legal tender, the Maltese government recognizes them as “a medium of exchange, a unit of account, or a store of value”. They represent the cryptographic format proportional to fiat currencies or utility tokens.

The VFA Act defines the classes of digital financial assets, establishes a framework for offerings of virtual financial assets to the public, such as ICOs and services based around virtual assets. In compliance with EU markets in financial instruments directive (MiFID), digital assets might be characterised as financial instruments. To alleviate this uncertainty, pursuant to VFA Act, Malta developed the financial instruments test for virtual and security token issuers to identify the type of asset and applicable legislation to the ICO and token. The test is designed to identify whether a certain asset qualifies as DLT or VFT.

Virtual financial asset means any form of digital medium recordation that is used as a digital medium of exchange, unit of account, or store of value and that is not: electronic money, a financial instrument; or a virtual token;

While DLT asset means virtual token, virtual financial asset; electronic money; or financial instrument, which is intrinsically dependent on, or utilises; Distributed; Ledger Technology.

If the asset at issue is found to be a virtual financial asset, this asset shall be regulated under the VFA Act.

As per article 3 of the VFA Act, issuers must publish “whitepaper” which has been signed by each member of the issuer’s board administration and contains all relevant information on the nature of the assets offered to public to allow investors to make informed judgement on the prospects of the issuer, presented project and features of virtual financial asset. The document should contain a disclaimer that “offering of virtual financial assets does not constitute an offer or solicitation to sell financial instruments.” The document must be in the “easily analysable and comprehensible form” and approved by the registered VFA agent who must be present with the issuer “at all times in place” to ensure compliance with the law.

Through regulation of each class of the digital assets, the Act deems to protect stakeholders and investors in the industry.

ITAS Act

The ITAS Act is primarily intended to establish a framework for registration of Innovative Technology arrangements, involving smart contracts, technology service providers and certifying technology platforms. Registration and certification will facilitate consumers and investors to be favoured with legal assurance that their investments are sound and will not be challenged by any sort of fraud. The provisions of the Act also refers to a Malta Digital Innovation Authority which functions as a regulator.

MDIA Act

On the basis of MDIA Act, the Malta Digital Innovation Authority was established in 2018, to found internal administration to inspect and certify DLT platforms to guarantee credibility for customers intending to use the platforms. The Act gave the Authority exhaustive power to recognise, certify, and regulate applications related to “innovative technology arrangements and services” (described in article 2 as “intrinsic elements including software, codes, computer protocols and other architectures which are used in the context of DLT, smart contracts and related applications”). The main reason why Malta chose this method is to make sure that technical sides of the matters are inspected by Tech specialists to keep standards and quality high and security is ensured.

Regulatory bodies

The purpose of the establishment of the Malta Digital Innovation Authority was to “address the development in Malta of all innovative technology arrangements and innovative technology services”) and to “seek the development of the innovative technology sector in Malta through proper recognition and regulation of relevant innovative technology arrangements and related services” (under Article 5 and 6 of the MDIA Act).

Specifically Malta Digital Innovation Authority in charge of the following statutory duties:

  • promotion and facilitation of the use of innovative technologies, to make them accessible and to hinder unethical application;
  • establishment of standards and norms for Innovative Technology Arrangements, applications, software and derivative products to remain in accordance with international rules, standards and laws;
  • policy reforms in cryptocurrency and blockchain technologies;
  • certification and audit of DLT and blockchain technology systems.

Malta Digital Innovation Authority has an authority to investigate the applicants who do not meet “quality and integrity standards required” under the current legislation and penalize those who do not meet compliance requirements with a fine up to €12,000 (about US$13,976) or/and imprisonment for up to 3 months. Malta Digital Innovation Authority IA collaborates with Malta Financial Services Authority (hereinafter referred as “MFSA”) to grant licences to service providers which use DLT and blockchain technology. Being a unified financial regulator of the country, the MFSA supervises financial exchanges in the country to thwart money laundering and related crimes and enforce applicable rules and has an authority to revoke licenses and to issue fines for non-compliance.

Taxation

Malta does not have a particular tax law or VAT applied to cryptocurrency transactions; the government published guidelines on tax treatment of transactions involving DLT assets. Transactions involving coins are treated in the same way as transactions involving fiat and conventional currency. Thus cryptocurrencies and bitcoins do not fall under the scope of income, duty and capital gains taxes within this jurisdiction.

On the contrary, coins transferred within coin exchange trade, earnings from this business are taxed similarly as trading stocks, at 35% corporate income tax rate. Mining is not subject to VAT, with the exception of cases when it is done against transaction fee payment.

Summary and future

Maltese regulations that prioritised the importance of the blockchain industry fostered blockchain business to meet the challenges brought by the fast-evolving digital landscape. Basically, the government laid down high standards to ensure the protection of market stakeholders and to preserve financial stability. New regulations might arise as the government plans to integrate artificial intelligence with cryptocurrency regulation, and might implement precise guidelines in relation to security token offerings. Thus, further regulatory measures might arise in the time to come. While digital assets and blockchain technologies remain largely unregulated leading to uncertainty, Malta might serve as a role model for regulatory efforts in other jurisdictions.

The content of this article is intended to provide a general guide to the subject matter, not be considered as a legal consultation.


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