The Malta Financial Services Authority (MFSA) has released a feedback statement, unveiling industry answers to questions regarding offerings of security tokens within the country.

In the document published Tuesday, the EU nation's financial regulator summarized two months of feedback received from market participants over how challenges arising from security token offerings (STOs) "can be tackled in a manner that does not stifle innovation."

Beginning in July 19, 2019, the consultation process set out to establish "legal certainty" and identify challenges for blockchain-based securities within the Maltese financial markets. Consultation ended on September 16, 2019, with the MFSA having received feedback from 18 industry participants hailing from national agencies, consultancy and law firms, as well as technology providers.

The MFSA focused on the implications of STOs within the framework of European Union legislation, including the Markets in Financial Instruments directive and the Market Abuse Regulation, among others.

The regulator notes in its conclusion that digital ledger-based settlement could provide a "workable solution." However, it adds a number of the respondents said that unless there are changes at the EU level relating to central securities depository (CSD) rules, there are obstacles to the introduction of the tech.

Regulations require transferable securities listed at a trading venue must be recorded in the books of a CSD. The means that the ambitions of security token projects to remove the CSD middleman are not possible without "optimizing" the legislation for distributed ledgers, the regulator said.

It also flagged that while respondents provided much feedback on the securities part of transactions, not much was said about the cash side of settlement. "Certain issues would need to be resolved before secondary market trading for security tokens can take off," the authority believes.

Tuesday's release of the feedback comes days after the MFSA published a statement declaring crypto exchange Binance, which proclaimed Malta to be its new home two years ago, was not regulated or licensed to operate as an exchange in its jurisdiction.

According to Decrypt, the feedback statement came in response to an article in the Times of Malta, which said Binance was still headquartered in the nation. The exchange says it currently employs only a few customer service agents in Malta but has been listing the jurisdiction at the top of press releases as recently as this month.

It looks likely Malta is looking to shed its reputation as a hub for money laundering. Over the past two months, its prime minister has stepped down due to his alleged involvement in the cover-up of the murder of Maltese journalist Daphne Caruana Galizia.

Since then, the MFSA has announced the addition of new leadership, including three U.K. nationals "with vast experience" in banking supervision, financial crime compliance and conduct supervision.

Part of the shuffling is aimed to help Malta fall more in line with European Central Bank recommendations, according to a press release shared last week.

The MFSA has also been warned it could be placed on the Financial Action Task Force's "grey list," potentially facing legal sanctions, said Chris Buttigieg, MFSA chief officer for strategy, policy and innovation.

"We need to raise the bar and ensure that there are certain standards and we need to convince our peers and international institutions that we're serious in the way we carry out our supervisory financial processes and our enforcement," he said last week, according to MaltaToday.

Read the full document below: