ICO in Malta – an insider reflects (honestly).

I could not love the Malta Financial Services Authority more. Session after session, seminar after seminar I feel like sitting in the same boat with the people of the MFSA, I feel really included, heard and understood. An authority to touch in all reasonable manner and with all due respect.

Today I went to another awesomely professional seminar, this time it was about the “Financial Instrument Test”.

Yep, you may continue reading:  this is about the new crypto regulation in Malta. The new beautifully crafted piece of law and regulation, edged into the papers of history as the first of its kind. The first-born child of a proud mother Libra.

We spent hours of listening, talking, understanding and learning.

Dangers, rules, offences.

Most of the time we talked about what a token or coin should not be, where you should be careful, where dangers are, risks of penalties, misjudgements and the trouble you’re in, when you advice your client in a wrong way.

Anyone who is not so familiar with the new Malta crypto regulation: it’s tough. A lot of red tape. One crucial element is the classification of the issued /offered token. The regulator has provided a test to determine the asset in question: the financial instrument test. It’s like howie only exact. It gives you one result and that’s it.


Aaaaat least what I thought: Coz apparently, it’s

  1. not finished and
  2. more importantly, it is not the ONE tool to base your classification on.

A 50% pregnancy test

That for me, to be honest, makes the test obsolete. If the result is still up for major interpretation, what do you need the test for in the first place?  Of course, you should not switch your brain off but the test should give you close to certainty.

It’s like a pregnancy test with 50% accuracy.

When  your dear missus screams from the toilet after doing a preggo test, even so you cannot be ONE HUNDRED PERCENT sure that your missus is pregnant and you do the test twice or three times and you visit the doctor afterwards: If you see those two little stripes you can be close to certain that you have a few nice months of mood swings and a bit later a few sleepless nights ahead of you.

Interpretations, opinions, uncertainty.

But more importantly: if the test is not as ‘easy’ as that, then all the work, all the advice and all the interpretation that subsequently will go into it, only to be HOPEFULLY in the right regulation and arguably hopefully in the Virtual Financial Asset category (the new crypto law class), all of that is in my opinion not worth it.

RIP Article 3? (the ICO article)

I do not believe that many “normal” ICOs will settle down in Malta. For the simple reason that the type of “Utility Token’ – ICOs”, that Malta is after the heavily regulated surrounding they will find does meet the reality anymore:

The 3 main reasons whyICOs will now be so strongly regulated do not exist anymore

  1. Simple Online Marketing
  2. Herd-FOMO
  3. Non-Regulation

An ICO is 95% marketing

The main thing what drove blind investors into failing ICOs was greed forged in the fire of online marketing. Yes, I know, there have been cool ones and legit players but still, the main thing, the main driver that created the rush was marketing combined with no regulation seasoned with lack of knowledge.

Facebook, Google and 2017.

All of that gone. Easy marketing gone, hype gone, lack of knowledge gone, non – regulation gone. Any successful ICO these days will need to either

  • Have a working product including a broad client base with community behind it, to market it to.


  • Or massive amounts of cash to build up the penetration of the market and community from scratch.


Both of these examples would probably not decide to setup a company in Malta, which for simple utility token is very heavily regulated, with tons of functionaries and rules and persons and lawyers –ALL of that for the simple issue of a utility token with a 5k EUR cap per retail investor.

Such businesses faced with the prospective amount of headache, administration, expenses and compliance that such regulation creates will probably ask:

Why not just spend a little bit more and just go for the real deal: an STO?

Not only from a pure regulation point of view but also from a commercial point of view: what sells better and creates a stronger bond with the issuer: yes, a token with profit share for example. Or with maturity. For example.

With growing regulation, the knowledge of investors will grow. And when you have the choice to invest into a heavily regulated utility token or a heavily regulated security token: What token will you go for? With dividend or without?

Deregulate simple utility tokens, deregulate Article 3

I am not saying that we should ONLY focus on STOs (even though I think that WILL be the future) and I am not asking to deregulate security tokens. But does it make sense, from a commercial, regulatory and political point of view to regulate STOs and ICOs on one or a similar level?

After all, Malta is not in this for fun but for taxes and fees.

I think the regulation for those “normal” tokens, which are the nice utility tokens that we all love and have should be muchfurther away from the regulatory playing fields of their ‘big’ brothers and sisters: the options, bonds, futures, CFDs, swap and what not.

Otherwise I fear this part of the act will never be utilized to its full potential.

About Philipp M. Sauerborn

Philipp Maria Sauerborn is a certified tax advisor and expert in International Tax & Blockchain. As CEO of Dr. Werner & Partner in Malta, he has already advised over 3000 clients on their tax situation.

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