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GVZH Advocates appoints new Partners

Dr Luca Vella and Dr Kurt Hyzler have been admitted as Partners of GVZH Advocates within the firm’s Corporate, Mergers and Acquisitions, Capital Markets, Banking and Finance and Financial Services Industry practice groups.

Luca Vella’s practice focuses primarily around corporate and commercial law, mergers and acquisitions and capital markets, and he has been involved in advising and structuring of numerous bond issues that have been brought to the market by various issuers over the past years. Kurt Hyzler handles mergers and acquisitions, banking and finance transactions and advises a wide spectrum of operators in the financial services industry in Malta. Both Luca and Kurt hold a Masters degree from the University of London.

Commenting on this development within the firm, Dr Andrew J Zammit, Managing Partner of GVZH Advocates said: “These new promotions reflect the firm’s commitment towards a transparent and merit-based career path for professionals that apply themselves to become recognised as leaders in their respective fields. The firm has undergone significant reorganisation initiatives aimed at creating clusters of technical expertise without obstructing clear communication lines across practice groups, and the absorption of new partners within this new organisation structure is meaningful in continuing to drive forward with the implementation of these changes. The addition of Luca and Kurt to the partnership, with their collective energy and enthusiasm, is a welcome development which recognises the tremendous value that they have added to the firm and its clients over the years, enabling them to take a more active role in leading and developing their teams further to support the firm’s exponential growth over the past years.”

About GVZH Advocates

GVZH Advocates is a leading law firm composed of top-tier professionals and firmly established in the Maltese legal landscape, built on the values of acumen, integrity and clarity. The firm is composed of 36 legal, tax, compliance and accounting professionals and 20 support staff, and also incorporates GVZH Trustees Limited, a company licensed by the MFSA to act as trustee and co-trustee, and as administrator of private foundations.

The lawyers within the firm handle a wide range of technical research projects, transactions and disputes – varying in size and complexity – servicing clients which include local family-owned businesses, listed multi-national companies doing business in Malta, and global law firms seeking expertise on points of Maltese law.

If you would like to get more information, please visit https://www.gvzh.com.mt/

Extension of Consultation Period

The MFSA has notified industry participants and interested parties that the Consultation period for the Guidance on Cybersecurity, issued on the 8 February 2019, has been extended to Monday 25 March 2019.

If you would like to find out more information, please visit https://www.mfsa.com.mt/

CUSTOMER SERVICE EXCELLENCE

KPMG named a global ‘Leader’ in customer service consulting

The ALM Vanguard report ranks Customer Service consulting firms based on their capabilities to create client impact through their depth of expertise and the ability to deploy across a range of engagement models. In ALM’s in-depth analysis of global firms, the report highlights the effectiveness of KPMG’s Six Pillars approach to Customer Experience Excellence.

“KPMG approaches customer service consulting within the context of accelerating differentiated customer experiences through the lens of the Six Pillars of [Customer] Experience Excellence: Personalisation, Integrity, Expectations, Time and Effort, Resolutions and Empathy,” writes ALM’s Matthew A. Merker, Senior Analyst, Management Consulting Research. He continues, “[The firm] advocates that if clients incorporate all Six Pillars into their customer experience, they will outperform the rest of the market.”

ALM’s report cites KPMG as ‘Best in Class’ for its Customer Service Operating System capability and recognises the impact of KPMG’s Connected Enterprise framework in helping clients transform their customer experience.

“KPMG’s customer service designs are integrated with middle- and back-office functions through [the firm’s] Connected Enterprise offering, which provides a symbiotic relationship of information sharing throughout the client organisation,” the report states. “This closes performance gaps in customer interaction and service delivery while providing transparency into opportunities for improvement in daily operations to increase efficiency and reduce costs.”

“Customer service has the largest impact on customer experience in the battle to win, retain and grow today’s customers,” says Julio Hernandez, Global Customer Centre of Excellence and US Customer Advisory Lead. “To deliver excellence and a differentiating customer experience, organisations need to think beyond traditional ‘operations’ and be more intentional in the design of the service experience. They must connect customer service to the Connected Enterprise and do so in a way that makes economic sense.”

The ALM report also praises KPMG’s service delivery model, highlighting KPMG’s effective use of “four key components” to help clients improve their delivery of a valuable customer experience:

Customer service economics that includes rapid assessment of the customer-service landscape to prioritise change that balances cost-to-serve with value.

Intentional service design that enables best practice customer journeys and service processes through intelligent data engineering and market alliances.

Innovative self-service capabilities that empower customers to self-serve more often and interact across channels.

Modernised workforces that are equipped with digital tools to augment capability and deliver the highest value.

Adrian Farrugia, Associate Director leading the Customers & Operations Advisory at KPMG in Malta stated that “We are thrilled that KPMG has been ranked as the leading CX services. This reaffirms the trust our customers have in our abilities and approach which deploys a wealth of best practice from our Customer Experience Excellence Centre and the rich insights we have gained from millions of points of customer feedback.”

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Malta becomes first Blockchain Island following new Regulation

On 4 July 2018, Malta officially passed three bills into law which establishes it as one of the first countries to enact a regulatory framework for blockchain technologies and cryptocurrency. While other nations have decided to wait for a tried-and-tested legal framework to base their regulations on, Malta has pioneered legislation into the industry to make them the biggest name in blockchain and cryptocurrency technology. As shown by the new laws, this move has been made to make Malta a hotspot for the industry. It is a huge move from the small nation, earning it the title of the ‘World’s First Blockchain Island,’ and it is expected to have many repercussions in Malta and across the world.

A new age is dawning

Bitcoin, the world’s first cryptocurrency, found recognition among the general public in the second half of 2017 when its price ascended rapidly from close to $1000 to over $19,000. However, people have known of the cryptocurrency for a long time; and while some may not have bought into the ideology of a decentralised digital currency, experts saw the potential buried in Bitcoin’s foundations.

The blockchain, which is a public transaction ledger that is managed by a peer-to-peer network, records everything that happens in the Bitcoin network and stores the records in a way that cannot be copied or altered. It was built to stop the possibility of double-spending the cryptocurrency, and it also built unequivocal trust within the network without the need for a central authority. Blockchain technology may have first been used for Bitcoin, but its applications are far spreading beyond cryptocurrencies. It could allow the media industries to limit a single copy of a song or movie to a single purchaser, or be used in all forms of business in the form of Etherium’s self-executing contracts. If it is allowed to, blockchain technology could change the way that day-to-day activities are performed. But to do that, companies in the industry will need assurances.

Malta steps forth to inspire blockchain advances

Malta made history with the three bills that it enacted as the regulatory framework for cryptocurrency and blockchain technologies, becoming the first world jurisdiction to provide the industry with legal certainty. Other jurisdictions have passed laws on cryptocurrencies and blockchains, but Malta’s regulations are the most detailed and comprehensive, delivering true certainty. The EU member has been keen to innovate and govern online industries, with the Maltese Gaming Authority being one of the most trusted regulators in the online gaming industry. Now, Malta has become a regulated haven for companies in the industry.

The primary purposes of the three bills are three-fold: to provide legal certainty for the first time in the industry; to support the growth of the increasingly important industry; to guide the government on how to embrace blockchain and cryptocurrency technology and forge Malta into an industry hotspot.

Now in power and governing the industry’s actions in Malta are the Innovative Technology Arrangement and Services Act (ITAS), the Malta Digital Innovation Authority Act (MDIA), and the Virtual Financial Assets Act (VFA). Herein, blockchain technology is referred to as distributed ledger technology (DLT), while a cryptocurrency is termed as a DLT asset. The purposes of each bill are as follows:

  1. ITAS: Primarily concerns the establishment of exchanges and companies based within the cryptocurrency market. It details the registration and certification of DLTs and provides technological arrangements for companies.
  2. MDIA: This bill establishes the MDIA as the regulatory body and formalises the internal regulatory procedures for the industry. As the regulator, the MDIA is also tasked with providing legal certainty to potential DLT platform users.
  3. VFA: The third bill regulates initial coin offerings, forcing new companies seeking to raise capital through an ICO to publish detailed white papers and make their financial history public. The VFA also governs cryptocurrency exchanges and wallet providers.

The three bills have been brought in by Malta to allow a safe place for the industry to grow, but they also ensure that potential users are protected under the new laws. The new legislation prohibits market manipulation, insider trading, and misleading white papers. ICOs in the industry have been accused of such foul play in the past, so Malta has decided to prohibit it without question. A person found guilty of such offences can face: a fine of up to $15,000,000 or three-times the losses avoided or profits made due to committing the offence, whichever is greater; incarceration for a term of up to six years; or suffer imprisonment and a fine. These staunch punishments will help Malta to legitimise the industry while also nurturing it as it grows to meet its immense potential.

The impact on Malta and the rest of the world

The desire to create the bills first was to help present Malta as a blockchain hotspot: the nation is already bearing the fruits of its bravery. Binance, the largest cryptocurrency exchange in the world, has already opened up an office in Malta, and OKEx has also followed suit. The Maltese government has investigated various ways to implement blockchain technology into public services, while the MGA sees the technology as a way to regulate online gaming services looking to accept cryptocurrency payments. They also plan to explore its applications alongside games, as it could provide transparency by proving the fairness of games via operators’ use of DLT.

Malta’s new regulations could also work as the much-desired framework for legislation in other nations. In the USA, investors have encountered frustration when trying to invest in certain ICOs, due to government accreditation being required for ICOs that offer securities. Malta’s VFA can assist with this issue as The Financial Instrument Test within the VFA details a three-step method to decipher whether an ICO’s asset could be deemed a virtual token.

Malta has opened as the world’s first regulated jurisdiction for blockchain and cryptocurrency technology. The favourable and clear-cut legislation will attract many of the biggest names in the industry to the island nation which will, in turn, provide a haven for the potentially world-changing industry to develop.

The lack of legal action has created uncertainty

Blockchain is being hailed as the greatest invention since the internet. Despite this, there is a great deal of variance in the regulation of the technology across the world. In the United States of America, blockchain technology has been mentioned as potentially being able to change how security is upheld during transactions online. Despite this, the US federal government has left the states to their own devices for regulating blockchain technology, which has resulted in at least eight states working on bills to accept or promote the use of the blockchain technology or the cryptocurrency Bitcoin, as of 2017.

In Europe, there is a more positive, active, and welcoming approach being taken to regulating blockchains and cryptocurrencies. Earlier in 2018, the European Commission revealed its planned vehicle to exchange expertise for the launch of blockchain applications across the European Union, known as the European Blockchain Partnership.

The issues that many jurisdictions have encountered when seeking to regulate the industry are defining the uses of blockchain, understanding what cryptocurrencies and blockchains are, and the willingness to commit and give the technology a stamp of approval. The industry has also come under scrutiny concerning the legality of cryptocurrencies. Some have disputed that cryptocurrency does not constitute legal tender, which brings about a lot of uncertainty in many areas of the world for the companies.

In research committed by Malta, one of the main concerns brought up by those in the industry was the legal uncertainty in many jurisdictions and the fear that their activities could be deemed unlawful at any time. The serious operators sought legal certainty above all else.

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The Difference between Digital Coins and Tokens?

The world of cryptocurrencies and blockchain continues to expand from its humble beginnings to becoming buzzwords by the conclusion of 2017, to now, when more people and businesses understand the new technology, as well as, its range of applications. One common point of confusion that has arisen surrounds the frivolous nature in which some refer to the digital coins, such as Bitcoin, and tokens as the same entity. Tokens and coins are, in fact, very different aspects of blockchain technology and its ilk, offering different applications on the blockchain and when making transactions.

What are digital coins?

Digital coins, or cryptocurrencies, often have a sole function: to be used as a payment method. The original cryptocurrency, Bitcoin, was introduced with the sole purpose of eradicating fiat currencies with its trusted and immutable decentralised public ledger, known as the blockchain. The focus for Bitcoin and most other coins is on the speed, safety, and affordability of making payments while it primarily denotes value to be used to exchange for services and goods.

Each coin is an asset native to its blockchain, with their function and operation being solely on their specific blockchain. They are first introduced from the blockchain following an initial coin offering (ICO), which allows people to pay money to acquire the digital coins for use within the blockchain. Exchanges and trading platforms, such as Coinbase and Kraken, have emerged to cater to the fiat money and cryptocurrency exchange of digital coins for users who aim to make a profit on the rise in the value of coins. The most famous incident involving the price of a digital coin on the stock exchange was Bitcoin in December 2017, when its price soared to $19,343.04.

The use of coins is primarily as a payment method for services or goods on a blockchain. While some coins, such as Ethereum’s Ether, have other functions as well, the primary function of the coin is to denote value for a payment, with Bitcoin being the prime and most recognisable example.

What are digital tokens and how do they work?

The reason why coins and tokens are often mistaken as the same digital item is not only because the two terms are somewhat interchangeable in the physical world, but also because they both hold value within their specific blockchain. Tokens are created within decentralised apps (dApps) that are hosted by a blockchain that functions on smart contracts, such as Ethereum. By funding a smart contract with the blockchain’s native coin, the user receives an allocated amount of tokens which, in turn, allows the user to interact with the dApp. The dApp which received coin in exchange for its tokens will then further develop its service with the new capital. Tokens often represent some form of value for use within or concerning the dApp which released them and are used as a medium of exchange.

Anyone who operates a dApp can create and issue customised tokens for use within their dApp. To create these tokens, the developer must pay a fee in the form of the blockchain’s native coin, such as Ether on the Ethereum blockchain, to pay the miners who validate the tokens. Coins are also required to exchange the tokens from peer-to-peer. Those who have created a token model for their dApp will often set specific methods in which users can earn the tokens. If constructed well, users will perform these actions to gain the desired tokens to use on their favourite goods and services. If a token ecosystem is well-crafted, it can add another incentive for users to interact with the dApp’s offering, giving it more value than just monetary.

The benefit of developers employing the token model on an existing blockchain, thus being required to pay the coin fees for the creating and distribution of coins, is that the blockchain provides structure, upkeep, validations, and security through its vast network of computers.

There are four different forms of token according to the definitions of Swiss financial regulators FINMA, all of which have the goal of gaining capital from users spending coin on using the tokens for the dApp at hand. The four definitions of token are as follows:

  • Utility Tokens: The utility tokens are used to gain access to a certain part of a dApp, such as a particular service or product offering. Due to their limited supply, utility tokens are often expected to increase in value.
  • Payment Tokens: Similar to how coins function, but more specific in their usage, payment tokens have the sole use of payment for services or goods.
  • Security/Asset Tokens: These are the tokens issued by the initial token sale (ITS), which people will invest their money in with the aim of making a profit.
  • Equity Tokens: This is an uncommon form of token at this time, but equity tokens are those that represent equity or stock in a company.

Tokens in practice

Ethereum is a grand example of how tokens work within a blockchain. The Ethereum network operates on the issuing and completion of smart contracts with its coin, Ether, working as the ‘fuel’ and payment method of the smart contracts. Within the network, there are many dApps which function token-providing smart contracts which require Ether to fuel.

Many decentralised apps deploy tokenised models, and Golem is one of the most popular examples. Golem grants people remote access to its supercomputers for work in many different computing fields such as cryptography. To keep the Golem network working at optimum levels, it draws computing power from its users’ computers, servicing the processing needs. To incentivise this, Golem rewards tokens to those who allow the Golem software on their computer to aid the network, which users can then use on Golem services.

The Musicoin dApp issues tokens that can be purchased in exchange for coins which then allow the user to activate certain features of the Musicoin platform. With a token, users can stream and listen to music hosted by Musicoin, working as a digital version of the old jukeboxes which required customers to insert a specific token before being able to select the song that they wanted to be played.

Tokens are also being used as vessels that represent products and items of the physical world. While Ripple is a recognised coin service, providing fast and low commission transactions as well as its own coin, it utilises tokens within its network as representatives of monetary values. The Ripple token starts as a form of joker card which can represent almost any value of a transfer of cryptocurrency or fiat currency across the network. WePower works similarly, with users able to purchase and sell tokens which denote values of electricity on the WePower blockchain.

Coins versus Tokens

To state a rough coverall distinction between coins and tokens; the primary purpose of a coin is to make a payment or monetary exchange while tokens are put to use by consumers looking to activate features of a decentralised app within a blockchain that has a native coin and features smart
contracts. However, coins can be multifunctional, such as Ethereum’s Ether coin which acts as fuel for smart contracts, and tokens take more forms than just granting users access to products and services offered by a dApp. Some tokens work as assets or equities, while others are also used for payments. The primary difference is that tokens tend to be dApp-specific, whereas coins are mostly used as money.

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The Evolving World of Distributed Ledger Technology Regulations

The global need for Distributed Ledger Technology (DLT) Regulations.

There are two primary reasons behind the governments around the world being rather coy about establishing legally binding regulations for distributed ledger technology and the resulting debate as to the legitimacy of such regulations: a lack of knowledge concerning the function, application, and potential of the new industry; the perception that regulations negate the goals of the blockchain.

Many governing bodies have taken the ‘wait and see’ approach to distributed ledger technology, allowing more data to be revealed before they fully analyse what needs to be regulated and how they will go about applying regulation. However, this has left the affected businesses in a state of limbo, not knowing if they are acting illegally, or if their activities will soon be deemed illegal, in certain countries where the topic is debated but not regulated. The problem for many blockchain purists with the regulation of distributed ledger technology is that it contradicts the original purpose of the technology. The Bitcoin blockchain was designed and implemented to be self-governing and eradicate the need for government control and regulations, leaving hesitance within the community to submit themselves to laws and regulations enacted.

Creating the legal framework and regulations for distributed ledger technology presents many unique challenges, including establishing accountability; the application of contract law to smart contracts; the area of regulation; and the security of personal data in the case that blockchains can be decrypted in the future. Due to the rapid growth and application of the still budding technology, there has not been enough time to see all of the main issues emerge. On the 11th of May 2017, members of the European Parliament met to discuss the future of blockchain regulation and if governments should begin to intervene. Due to the lack of clarity as to the consequences of the new technology, possible issues that may arise, and a need for it to have the freedom to develop, governments quelled their desire to apply regulation.

On the 4th of July 2018, Malta became the pioneer of Distributed Ledger Technology Regulation, dismissing the ambiguity that blockchain companies had been coping with in the years prior.

Malta becomes the ‘Blockchain Island’.

Malta made history by enacting regulatory bills concerning distributed ledger technology, blockchain-based businesses, cryptocurrencies and initial coin offerings, and blockchain-based service providers. The Maltese Parliament brought three laws into power in order to establish a governing body, create a system of registration and certification of distributed ledger technologies, and to regulate initial coin offerings.

The Malta Digital Innovation Authority Act established the Malta Digital Innovation Authority (MDIA) as the governing body to support the development and implementation of the guiding principles described in the Act and to promote consistent principles for the development of visions, skills, and other qualities relating to technology innovation, including distributed or decentralized technology, and to exercise regulatory functions regarding innovative technology, arrangements and related services and to make provision with respect to matters ancillary thereto. The primary aim of the MDIA is to promote the new technology and its innovations by developing and implementing key guiding principles. Regarding the regulation of such technologies, the Innovative Technology Arrangements and Services Act provides the MDIA with its regulatory functions, which includes providing technological arrangements for distributed ledger technology companies, as well as, the methods of certification and registration of such companies. The Virtual Financial Assets Act governs cryptocurrency wallets, cryptocurrency exchanges, and lays out clear criteria regarding the requirements for an initial coin offering.

The three acts established by Malta created the benchmark for governing bodies all over the world to follow, allowing for the expression of innovation while presenting clear regulations for the use of the developing technology. Many companies utilising distributed ledger technology were seeking legal clarification, which made Malta’s newly established regulations very desirable. Soon after the bills were enacted, a slew of high-profile companies announced their move to Malta. Binance is one such example, which opted to escape Asia’s purge on virtual currencies and move to the more open-minded regulations of the European island nation. Other cryptocurrency exchanges including OKEx and ZBX have followed suit.

Malta’s desire to adopt and grow the distributed ledger technology industry was demonstrated by their willingness to establish themselves as the ‘Blockchain Island’ in July 2018. However, the nation has surpassed this creation of the legal framework, with its other authorities integrating blockchain-friendly regulations into their respective industries. In March 2018, it was reported that the Malta Gaming Authority (MGA) aimed to create a licensing system for game developers seeking to accept cryptocurrency as a form of payment, establish a method of calculating exchange rates, and the use of digital currency wallets with games. To do this, the Authority was to engineer a sandbox testing environment to allow game developers to see if their games were in line with their new regulations of the use of cryptocurrencies.

Other distributed ledger technology authorities emerging.

Malta made headlines by becoming the first official regulator of distributed ledger technology to forge the ‘Blockchain Island’. In December 2017, Gibraltar, announced its intention to launch the world’s first licensing procedure and regulations structure for firms using the new technology. On the 1st of January 2018, the Gibraltar Financial Services Commission was established to be the nation’s authority on distributed ledger technology, applying to all businesses using the technology in or from Gibraltar. On the 17th of October 2018, leading Bitcoin exchange Coinfloor became fully compliant with the regulations of the Gibraltar Financial Services Commission, meeting the standards required by their nine regulatory principles.

The European Parliament has recently begun to move towards establishing regulations for distributed ledger technologies by publishing a non-binding resolution. The resolution details an innovation-friendly approach to the new technology, and that instead of regulating the technology, the European Union should remove barriers currently restricting the implementation of distributed ledgers. A focus of any regulation to come from European Parliament will be towards standing European Union legislation, specifically the General Data Protection Regulation (GDPR), with the composition and process of current distributed ledger technology and blockchains seemingly making it difficult for someone to have their personal data and records removed. They stand by their previous comments concerning a lack of understanding as to the potential problems that can be associated with the technology, and so they will require more time to establish measures to counter the major issues that may arise. It is apparent that general understanding of the technology needs to be improved through the education of relevant parties and that doing so could help the European Union to become a world leader in the field of distributed ledger technology: a route that European Parliament intends to pursue. Resolutions set out by the European Parliament are often used as a tool to express intent to create regulations, but resolutions are not legally binding.