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What’s a security, anyway? Malta proposes new test for ICOs

Malta has proposed a new test which could potentially define when assets derived from an ICO constitute securities.

When ICOs have faced legal scrutiny, there’s a good chance that legislative concern has centered around the debate as to whether the assets derived from a cryptocurrency project constitute a security or not. Now, shortly after the announcement that unveiled the European Blockchain Partnership, Malta has proposed a new test to distinguish whether cryptocurrency assets constitute securities.

Released as part of its bid to create a warmer climate for cryptocurrency investment, the Malta Financial Services Authority (FSA) is seeking public feedback on its newly proposed Financial Instrument Test.

The Financial Instrument Test would arrive under the wing of the Virtual Financial Asset Act (VFAA), and would be underpinned by a three-stage process.

The Act would firstly seek to verify whether an asset derived from an ICO can be identitied as a ‘virtual token’, which, by definition, operate similarly to a utility token.

Digital assets that could be traded in a secondary market would accordingly move to a second phase of a test, which would then see European regulators apply various securities definitions to the token in question.

Finally, should any token struggle to meet easy definition in the second phase, the third and final process would see cryptocurrency assets regulated under the VFAA under a hybrid legislation comprised of both existing European regulations as well as Maltese law.

The Financial Instrument Test is now open for public comment until May 5th and, upon its introduction, would govern all ICOs conducted in Malta.

The move is significant for the fact that several cryptocurrency exchanges such as Binance and OKEx recently resettled their business operations in the territory.

More broadly, the Financial Instrument Test may well empower other members of the newly composed European Blockchain Partnership to determine how to legislate ICOs and, accordingly, cryptocurrency assets.

A recent release to the press indicated that the Partnership would introduce a “vehicle for cooperation amongst Member States to exchange experience and expertise in technical and regulatory fields and prepare for the launch of EU-wide [Blockchain] applications across the Digital Single Market for the benefit of the public and private sectors”.