Incorporation of ITAs within the MGA’s Sandbox Regulatory Framework

by , on Sep 12, 2019 04:03:57 PM

The Malta Gaming Authority (MGA) has announced the launch of the second phase of the Sandbox Framework, following the first phase of the Sandbox was launched on the 1st January 2019, where the MGA was accepting applications for the acceptance of DLT assets by licensees. This phase was originally intended to last ten months, however the Sandbox has been extended until 31st December 2021. During the first phase, the Licensee Relationship Management System (LRMS) accepted applications by new operators to incorporate the use of DLT Assets as part of a new license application, as well as applications by existing licensees.

What is the second phase of the MGA Sandbox Framework?

The Guidance Note issued by the MGA outlines the requirements for accepting DLT Assets on gaming platforms. The Financial Instrument Test must be conducted prior to submitting an application to the MGA for approval. If the DLT Asset is classified as a Virtual Financial Asset (VFA), the regulatory requirements under the VFAA are applicable and the VFA must satisfy requirements pertaining to the financial value, technological value, scalability, market conditions and the economics of the VFA. If the DLT Asset is classified as a virtual token, a financial instrument or e-money, its use is approved by the MGA on a case-by-case basis. The Guidance Note also sets out specific requirements regarding wallets storing DLT Assets. Such requirements include separate treatment of fiat currency and VFAs, which effectively prohibits gaming platforms from serving the function of an exchange.

How will the second phase of the Sandbox Framework impact gaming operators?

The second phase of the Sandbox Framework will allow gaming operators to apply to the MGA to incorporate Innovative Technology Arrangements (ITAs) including DLT and smart contracts. The LRMS has been updated to allow both prospective and existing licensees to apply for approval to incorporate ITAs. The Guidance Note lays out specific requirements for incorporating ITAs, including auditing of ITAs by auditors registered with the Malta Digital Innovation Authority (MDIA). Games and game components can be hosted fully or partially on DLT, and other essential components may be hosted on DLT if any applicable regulatory requirements are adhered to. The Guidance Note also specifies the minimum criteria which must be satisfied to deploy a smart contract, including verification of the player’s wallet, the possibility to revoke the smart contract in case of faults, and also execution of CDD on players when smart contracts are used to automate withdrawals.

How can gaming operators participate in the sandbox framework?

In order to participate in the Sandbox Framework, applicants must be in possession of a license issued by the MGA, obtain approval by the MGA and also satisfy other regulatory requirements which may be applicable under the VFAA.