Blockchain companies are leaving Malta, as it becomes increasingly challenging to do business on the “Blockchain Island.” The reasons are mostly a tightening in regulations and the lack of banking services.
Malta had been dubbed “Blockchain Island” in 2018 as blockchain businesses moved to the country to benefit from its crypto-friendly regulations. But a World Bank report is putting the island in a different light: Bar San Marino, Malta is the most challenging place to do business in the EU, says the World Bank’s Doing Business 2020 report published in October.
The report compares the ease of doing business in countries worldwide based on a range of different metrics such as business regulation, access to financing, taxation, and labor market policies. Compared to the 2017 ranking, Malta has moved 12 places lower and now ranks 88th behind Botswana, Panama, and Zambia.
Crypto exchanges are leaving Malta
It seems like the worsening in business conditions has also been noticed by blockchain businesses. As a result of increased international pressure on the government to tighten regulations, several crypto businesses have been shutting down their operations and moved elsewhere.
Three cryptocurrency exchanges have already closed shop within the last three months. Most prominently, Bittrex has relocated from Malta to Liechtenstein. Coinone closed in August, after operating for just ten months, and the Indian exchange Zebpay left in September.
Even Binance, the world’s largest crypto exchange by trading volume and undoubtedly the star of Malta’s crypto industry, is supposedly reconsidering its options. Chief Growth Officer Ted Lin has been advertised as a speaker at this year’s Malta AIBC crypto conference but didn’t show up. In fact not even one Binance representative attended the event.
Regulatory scrutiny and lack of banking services the biggest challenges
Kiran Raj, CEO at Bittrex, explained at an event of Liechtenstein’s Crypto Country Association (CCA) last month that the Blockchain Act was the reason why the exchange had decided to move to Liechtenstein. No other country has yet created this level of legal certainty, which is paramount for Bittrex’s business model, said Raj.
Regulations were the reason why many blockchain businesses moved to Malta in the first place, as the country introduced its Virtual Financial Assets Act in 2018. But now things are slow and there is a cloud of insecurity. 34 financial services providers have applied for a crypto license in Malta, to date, none of these licenses has been issued.
However, the biggest challenge is access to banking services. After Malta had been ordered by the EU to get its anti-money laundering (AML) rules sorted – a report by an EU committee in January 2018 stated, “general and systematic shortcomings” in Malta’s enforcement of AML rules – banks have been forced to terminate relationships with “high risk” clients. After Deutsche Bank has cut ties with the Bank of Valetta, it has even become difficult to process US dollars.
The departure of blockchain businesses to other locations is therefore little surprising. Some of them have come to Liechtenstein and Switzerland, but larger economies have appeared on the radar as well.
As the need for blockchain-specific regulations is increasingly being acknowledged by governments around the world, businesses also start moving to countries like the US or Germany, in the hope that it’s just a matter of time until the regulators will catch up. And that might indeed happen soon, even though the process takes more time compared to smaller countries.