Harmonisation key to future success

As DELTA Summit 2019 takes a closer look at AI, the Internet of Things and further blockchain advances, PAUL COCKS spoke to Dr Ian Gauci, Managing Partner of GTG Advocates, Afilexion Alliance & Caledo Group, to determine how the FinTech industry, among others, is preparing itself for changes to come

Dr Ian Gauci
Dr Ian Gauci

You are Managing Partner of GTG Advocates Afilexion Alliance and Caledo Group. What are the two companies' main functions?

GTG Advocates is the legal arm of our group and its primary practice areas relate to the life sciences sector commercial law, competition law, corporate law, data protection and privacy, e-commerce, intellectual property, technology law and crypto law, policy and regulatory advise, litigation and alternative dispute resolution, tax, and consumer law. The firm’s founders have also founded sister company Afilexion Alliance (which provides corporate and advisory services to the technology, FinTech, DLT and gaming sectors) and Caledo Group, a joint venture between Afilexion Alliance and Wyzer which acts as a one-stop shop for all services related to blockchain and virtual currencies, including legal, technical, corporate, economics and marketing services.

How big of a foreign client-base do you currently offer your services to?

Our foray into the technology sector as well as FinTech space coupled with Malta’s proactive approach to Blockchain legislation has seen us attract clients from around the world and we pride ourselves in having a sizeable foreign client portfolio.

Why would a foreign client need the services provided by your group?

Malta aims to become a major player for blockchain and crypto based businesses and the jurisdiction of quality and choice for world class fintech companies. Bringing professionals who understand and embrace technological innovation together with some of the island’s best legal minds, Caledo can bridge the gap between regulators and innovators by speaking the language of both.  Our highly skilled professionals and the unique blend of joint expertise enables us to provide  a full range of services to our clients, from the regulated VFA sphere, the corporate side, the legal, regulatory and business advisory, litigation as well as required assistance and audits from the technical side.

What are the major challenges that companies like these face?

Blockchain will undoubtedly bring about innovative facets in several industries such as gaming, financial services, payment services and intelligent and legitimate funding through ICOs. Fintech companies however have met and will continue to meet a number of challenges. For instance, the lack of harmonised regulation throughout the globe may create certain grey areas for both operators and authorities. When cryptocurrencies are used in a way where there is omission of an individual’s name, address, identification number and where coin mixers are used, this will make it harder to track each of the transactions made, source of funds and the individuals behind them. This also means that it will be difficult to comply with anti-money laundering regulations. Furthermore, there continues to be a lack of ecosystem backing a DLT-economy with specialised service providers lacking in quantity and existing ancillary service providers such as banks providing a cautious approach. This is also coupled with certain operational limitations because of the nascent DLT and blockchain deployment; as well as transaction costs, network speeds and security issues.

With the onset of Distributed Ledger Technology (DLT), the FinTech sphere is changing. What does a company need to do to place itself as a major player in this sector?

Technology is an enabling factor on many fronts. In order to stimulate and actually help us to innovate, we must make sure that we can exploit its maximum potential, but above all we must aim to achieve a level of trust. Trust for me is the most important element, particularly in a world where algorithmic systems are becoming increasingly ubiquitous, and the algorithm, taken individually or as part of a system, can be involved in decision-making processes. To this end it is necessary to have a technology that is first of all reliable.  Secondly, it is crucial for companies to instil a culture of trust as DLT continues to be a sector in which trust is lacking and players who can distinguish themselves based on trustworthiness will have an edge.

How do you imagine DLT will change FinTech in the years to come?

It is my view that DLT will impact FinTech in various ways. Firstly, we shall see more instances in which cryptocurrency will replace fiat currency as a payment mechanism, particularly in cases of currency volatility. Secondly, the decentralised nature of DLT Technology could see the removal of centralised structures and a newly found transparency that can create new markets and achieve new accuracy levels. Finally, DLT will also result in an increased automation in financial services, with fintech start-ups taking on established markets, leading with customer-friendly solutions developed from the ground up and without needing to carry the burden of legacy systems.

Malta is a major player in the gaming industry and is being promoted as a “blockchain island”. However, industry players are complaining about the obstacles faced when it comes to basic ancillary services, such as banking, transport and education. How big of a problem is this? And what do you advise your clients who have these concerns?

With respect to the banking situation, I largely feel that this issue has been exacerbated in Malta due to the fact that as a country it has installed a regime to cater for blockchain as well as cryptocurrencies, thus attracting the largest amount of innovators and operators to its shore. These operators like any other industry, need bank accounts to manage their operations. We have seen a slight opening from certain banks however the number remains somewhat minimal. In this aspect, the Financial Intelligence Unit and the MFSA must be commended for their pro-active approach to this particular issue.

In June 2019 both authorities issued guidelines aimed at assisting credit institutions with obtaining a better understanding of the risks posed by fintech companies. Whilst it is clear that this issue is far from being resolved, I believe that as the industry and its regulatory regime continue to develop and gain acceptance throughout the financial services community, banks will be more receptive to this new industry. Malta is also currently seeking to directly address issues related with its transport infrastructure and educational system in order to ensure an optimum business and social environment.

What do you expect will be the biggest challenges the local financial services sector will face in the next 10 years?

Firstly, I believe that as technology continues to develop, it is important that Malta keeps up with the pace of innovation and continues to offer a robust regulatory framework which is both unique and scrupulous. As the application of fintech in financial services continues to increase, calls for harmonisation will persist, and it is important that Malta continues to uphold its reputation in this sector in order to avoid contributing to a “regulatory race to the bottom.” Hopefully, any harmonised regulation will not diminish Malta’s standing as an early innovator in this field and will continue to enable the jurisdiction to offer a standout regulatory regime within the approved boundaries of a potential unified body of standards and principles.

The European Commission is also pushing to harmonise tax legislation across the European Union. Malta’s taxation policy is not simply a means of collecting revenue but a tool to attract investment, stimulate growth and overcome its disadvantages of smallness and peripherality. However, the magnitude of such a proposal on the Maltese economy is difficult to determine and Malta needs to continue focusing on offering new areas of growth and specialisation to attract foreign clients.

Why is Delta Summit important?

The DELTA Summit has served as a point of departure in initiating discussions on visionary and futuristic ideas, in meeting operators and investors, as well as presenting the regulators and the complete ecosystem which would make Malta a natural choice for innovative projects. This year’s DELTA Summit will further the discussion on the future of this industry in Malta and create further awareness on the ways in which innovative technology is shaping our day to day lives. This particular point is crucial given the Maltese Government’s launch of its national AI strategy, which will help tech businesses ‘springboard’ to global success.

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