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The MGA Sandbox for DLT Based Gaming

Following the first phase of the Malta Gaming Authority (MGA) Sandbox Framework which was launched on the 1st January 2019 and aimed at the acceptance of Distributed Ledger Technology (DLT) Assets by gaming operators, the MGA has announced the launch of the second phase of the sandbox which has the scope of incorporating Innovative Technology Arrangements (ITAs) onto gaming platforms. The sandbox has now been extended to the 31st December 2021.

Phase 1

During the first phase of the sandbox, the MGA was accepting applications from operators wishing to accept  DLT Assets as a means of payment either directly or through third parties. In order to participate in the sandbox, applicants were required to be in possession of a gaming license issued by the MGA, thus the full licensing procedure still needed to be undertaken. The MGA’s Licensee Relationship Management System (LRMS) allowed the following types of applications to be submitted:

  1. New operators could apply for approval through the ‘New License Application’ function; or
  2. Existing licensed operators could apply for approval through ‘New or Change in Payment Methods / Financial Management Information’.

Phase 2

During the second phase of the sandbox, applications will be also be accepted by gaming operators wanting to incorporate Innovative Technology Arrangements (ITAs) including Distributed Ledger Technology (DLT) and smart contracts as the underlying technology of their gaming operation. Similarly to the first phase, applicants are still required to be in possession of a gaming license. The LRMS has been updated to accept the following types of applications:

  1. New operators may apply for the approval of use of DLT assets through a ‘New License Application’;
  2. New operators may apply to incorporate ITAs within their platform through a ‘New License Application’ and upload the relevant technical setup in the ‘Policies and Procedures’ section;
  3. Existing licensed operators may apply for the approval of use of DLT assets through ‘New or Change in Payment Methods / Financial Management Information’; or
  4. Existing licensed operators may apply to incorporate ITAs within their platform through the application type ‘Change in Technical Setup’.

The Guidance Document issued by the MGA sets out certain requirements which operators must satisfy to obtain approval for accepting DLT assets as a means of payment or incorporating ITAs within their platform.

Accepting DLT Assets on a Gaming Platform

Operators must conduct the Financial Instrument Test to determine the legal classification of the DLT Asset, and the respective legal opinion must be submitted together with the application.

If the DLT Asset is classified as a Virtual Financial Asset (VFA), the VFA Act and the regulations issued thereunder are applicable. Furthermore, VFAs must be regulated by the MFSA, an EU/EEA regulator or another regulator in a jurisdiction recognised by the VFA Act.

If the DLT Asset is classified as a financial instrument, e-money, or a virtual token, approval by the MGA is granted on a case-by-case basis.

The wallet storing VFAs must have an address linked to an individual player.

Deposits in VFAs may only occur upon verification of the wallet address, both when withdrawing to and from a wallet.

Fiat currencies and individual VFAs must be segregated and no exchange may take place, neither between fiat currencies and VFAs nor between different VFAs.

Operators may outsource the acceptance of VFAs to third party exchanges while dealing solely in fiat currencies.

Deposits in VFAs are calculated in Euro to combat the volatility of cryptocurrencies.

Incorporating Innovative Technology Arrangements on a gaming platform

ITAs must be audited by auditors registered with the Malta Digital Innovation Authority (MDIA).

Games and game components may be hosted either partially or fully on a DLT platform, however components hosted on separate platforms will be subject to pertinent regulations.

Smart contracts may be executed when the technical setup is partially or fully hosted on DLT, however the Guidance Document sets out minimum criteria which must be observed when smart contracts are executed within a gaming DLT platform to execute transactions, particularly when player’s funds held in escrow are transferred to or from the player’s wallet based on the outcome of a game. Such criteria include:

  1. Verification of the player’s wallet;
  2. Compliance with the maximum deposit amount;
  3. Possibility of revocation or neutering of the smart contract in the case of faults in the code;
  4. Auditing of the smart contract by an auditor registered with the MDIA.

Thus, in order to participate in the MGA sandbox, prospective and existing gaming operators must be in possession of a gaming license, gain approval by the MGA, and satisfy the requirements outlined above. Operators must also be aware of any requirements under the VFA Act and the regulations issued thereunder which might be triggered through the employment of DLT Assets on gaming platforms.

 

Legal Nodes would like to thank Blockchain Advisory for sharing this useful regulatory insight about DLT gaming in Malta. We are looking forward to future regulatory developments in this sphere. 

If you are looking to receive a DLT license or any other service in Malta, we would be delighted to help you.

 

Disclaimer: the information in this article is provided for informational purposes only. You should not construe any such information as legal, tax, investment, trading, financial, or other advice.

Alexia Pollacco, Legal Intern at Blockchain Advisory Limited

 

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