Episode 1 – Kenneth Farrugia

A new podcast series bringing you insight and overviews from creators, commentators and trailblazers in the innovative, disruptive emerging tech sector.

In our first Emerging Tech Talks podcast we chat with Kenneth Farrugia about Malta’s role in establishing a legal and regulatory framework to support the cryptocurrency marketplace. It was a coup for us to kick-off our podcast series with Farrugia who has unique insight into why and how the VFA framework was established.

Guest: Kenneth Farrugia– Chief Business Development Officer – Bank of Valletta plc, Malta; Chairman of FinanceMalta, Malta’s national promotional body for financial services; Chairman of the Malta Funds Industry Association; Chairman of Malita Investments plc (listed on the Malta Stock Exchange).

Requested drink: A good Malbec.

Full script:

M4: Good afternoon and welcome to the mad4digital Emerging Tech podcast. Our aim is to provide you with insights and delight you with our guests from the world of technology. Today I have the pleasure of sharing the microphone with Kenneth Farrugia. Welcome, Kenneth.

KF: Thank you, I’m delighted to be here so thank you for the invitation and the opportunity.

M4: Kenneth is the chairman of Finance Malta. For those of you who don’t know, Finance Malta is a public and private initiative set up to promote Malta as a global international financial centre.

I know you’re only in London for a few days, Kenneth, so I’m really delighted that you’ve managed to squeeze me in to your very busy schedule. I know you have a fantastic CV – 9 years at Finance Malta, Bank of Valleta p.l.c. for many years, and 8 years in Malta Investment p.l.c.  – that’s impressive.

My first question to you, as a traditional finance person, do you think that crypto/digital currency has a mainstream future in the global financial ecosystem and if you do how far do you think it will go?

KF: Undoubtedly it has and I think if you look at what Malta has managed to achieve in these last 12-14 months it revolves very much around developing a legal and regulatory framework to support this new sector. I think what we have developed so far was motivated by a number of reasons. First of all we identified a gap in the market and I look at the sector and operators in this space as nomads – having no real home to go to with a proper regulated environment where they can operate. I think it is very unfortunate that the sector itself has somewhat been tainted with scandals of ICO going belly up etc, which is not the true face of what the serious operators want to achieve with the technology itself and with virtual financial assets including cryptocurrencies.

We noticed a gap in the market and we moved very quickly, in an agile manner, to put together a legal and regulatory framework – a robust and comprehensive framework – which was developed as a result of what I call a trilogue. A trilogue of discussions between political leaders who are important enablers and important catalysts for this to happen, the regulators which have an important role to play ensuring that the principles around the sector so far as financial stability, investor protection and regulations supporting that is in place. Last but not least the industry operators because ultimately you want to ensure that you have a proper legal and regulatory framework which enables operators to introduce to the market their products and services.

If I look at this industry clearly, the tokenisation of traditional instruments/fiat currency is very high on the agenda of quite a number of innovators in the marketplace who are looking at ways to facilitate the funding of organisations through the issuance of tokens and how to make securities more marketable by tokenising securities. So if you ask me, I think the introduction of virtual financial assets will disrupt the traditional operational and business models that have been around for quite a number of decades. In Malta we did recognise this, as I said, agility is linked to small jurisdictions  that have to punch above their weight to be relevant in the marketplace. We moved very quickly to put together this comprehensive legal and regulatory framework to enable virtual financial assets and technology providers. And we put together an act which saw the set up of a digital innovation authority which will oversee and supervise this sector.

So, in summary, yes I think the future is bright for this. Todays it’s not just the innovators who are pushing forward but we are seeing big banks and regulators entering into the space because that know that VFA space has a place in the industry.

M4: I was really interested to hear you talk about the issues around ICOs, STOs and the whole ‘token economics’. What would you say to the skeptics who say that what you’ve actually done is to make it easier for those people who are not in this for the good, who are in this really to try and make as much money as possible and not use blockchain, DLT and this new emerging technology for what it really could be used for?

KF: You know, our philosophy in Malta has always been driven to create a value proposition which is underpinned by innovation through regulation. If you look at what we have done in the past in the iGaming sector in Malta, this was, again, new sector and was unregulated in the market but really and truly the serious players want to be regulated. You will always find fraudsters in the market, and these are present not only in the VFA space, we have fraudsters in the fiat space as well. So we are used to having these around, and for sure this new sector attracted fraudsters who tainted the industry,  nonetheless you have to look at the wider picture and the big players want to be regulated. A measure of this is the success that Malta has achieved in attracting international operators. When I say international I mean literally in the conferences we organised last November on the DLT and VFA, we had around 8,500 delegates from the US, quite a number European countries, Korea, China, Singapore that flocked to Malta because they wanted to learn more about how they can regulate their business because regulation gives comfort to the investors and shareholders of these businesses and they executives who run these businesses. But more than that it gives comfort to clients because clients want to do business with companies that are properly regulated, that have good governance, risk and compliances policies and procedures within their organisation. So I think the industry is here to stay and the more regulation we see coming in, the more global the market will become in my view.

M4: That’s a very good point you made that those companies that are legitimately looking to do good and have great tech that they want to develop and provide investment and value back to those people who have placed their confidence in them will absolutely happen. I was interested to hear you talk  about the actual impact that Malta has had on the gaming and gambling industry and that has been phenomenal over the last 10-15 years. Do you think with what your doing now with VFA is going to be on a similar scale?

KF: We are driven by three thrusts: to grow, to induce innovation in all that we do, and the ambition to participate and enter into a new sector in an agile manner. I think what we did with the iGaming sector we’ve seen gradual growth which contributes to around 12% of our GDP from ground zero 13 years ago.

I think the interest in this sector – in the DLT and VFA space –  overwhelmed all of us because we never expected this level of interest from operators from all over the world to come look at Malta, because we were trailblazing the market and creating this framework within which they could operate. And I think, as I said, serious operators want this, they want comfort of having a regulated environment, of having a serious regulator,  but having a practical regulator as well.

The approach we did in drafting our regulation was not simply shoehorning existing regulations applicable to financial instruments and traditional streams and applying them to VFAs because it doesn’t work. So a lot of groundwork was done in understanding the needs of the market, in understanding financial operators in understanding these assets and in creating a bespoke test which we called the Financial Instrument Test on the basis of which the regulator and the operator will determine whether this will fall under mainstream regulation or under the VFA Act – which will regulate VFAs – to give clarity to the market. This was well received by operators and we have these results today because we interacted closely with the industry – the regulator and the policy maker engaged a lot with the industry through consultation papers and numerous meetings over these last 14 months and we’re enjoying the fruits of our labour.

M4: Thank you, no question that Malta is trailblazer and all of the people who are behind this industry are grateful and thankful for that.

For next time I am really looking forward to sharing the mic with Shane Kehoe who is co-founder of SVK Crypto. Shane and his team have been responsible for one of the most active crypto communities in London. Shane will be with me in a couple of weeks time.

Thank you very much Kenneth for sharing the mike with me today.