Europe is rebuilding financial markets. Malta must decide whether to lead or follow, writes Ian Gauci
Europe is quietly restructuring how financial instruments are issued, recorded and traded. All is visible from our shores and the countries doing the work are not waiting for the rest to catch up.
Germany enacted its Electronic Securities Act in 2021. France started legislating distributed ledger registers for securities back in 2017 and has spent the years since building out the detail, including dedicated legislation on pledging digital assets passed just last year. Luxembourg has run four successive blockchain laws since 2019, each extending the framework further, and its regulator authorised the first tokenised UCITS fund in October 2024. These are not pilot programmes but permanent legal infrastructures.
The question Malta now must answer is whether it joins that group deliberately or arrives reactively once the window for shaping the outcome has passed.
The MFSA published a consultation on the tokenisation of financial instruments and real-world assets on May 15. Responses are due by June 30. It is a serious document and it deserves a serious response. But this article is not about the legal technicalities. It is about what is actually at stake and why the timing matters.
Tokenisation, at its core, means representing the rights in a financial instrument as a digital token on a distributed ledger. The token is not a new asset. It is the same bond, the same fund unit, the same secured lending interest, now held and transferred through a different infrastructure. Settlement can happen in seconds rather than days.
The token carries its own compliance logic. Fractional interests in assets previously accessible only to institutional investors become technically straightforward. The plumbing of capital markets gets rebuilt from the ground up. The technology here is not the hardest part. The hardest part is the law. And this is where Europe is currently mid-journey.
The European Commission acknowledged in its latest Market Integration Package last December something that practitioners have known for years. Both the Settlement Finality Directive and the Financial Collateral Directive were written for traditional account-based systems and do not clearly accommodate tokenised infrastructure.
The proposed Settlement Finality Regulation intends to fix this by facilitating the designation of distributed ledger systems under the settlement finality regime and extending the collateral framework to instruments issued or recorded on distributed ledgers. Until it enters into force, these gaps carry real legal consequences for anyone building tokenised collateral arrangements today.
So, the backdrop at the European level is that the European Commission is legislating. The ECB has committed to providing central bank money settlement for distributed ledger transactions through its Pontes initiative, with a pilot planned for later this year and full production targeted for 2028. The EU Pilot Regime for distributed ledger market infrastructure has its first authorised operators. The architecture is being built around us. The most advanced member states however already have domestic legal frameworks in place.
Malta has a credible offer to make. It needs to make it clearly and it needs to make it soon - Ian Gauci
Malta is not at the back of the field. That would be too harsh and too inaccurate. It has real assets in this space. The Trusts and Trustees Act and the fiduciary obligations framework in the Civil Code provide a functioning beneficial ownership architecture that several EU jurisdictions have had to construct from scratch.
The Malta Digital Innovation Authority gives Malta a technology assurance mechanism that most competitors simply do not have. The MFSA has supervisory experience in digital finance going back to 2018. These things matter to institutional investors choosing where to structure and domicile products.
What Malta has not yet accomplished is to convert those assets into the specific legal certainty the market needs. The collateral equivalence question, the priority of on-chain records against off-chain registers, the statutory confirmation that distributed ledger registration satisfies existing book-entry requirements: these are not philosophical debates.
They are the questions a legal opinion must resolve before any live transaction proceeds. Other member states have resolved them by legislation. Malta can do the same and it does not require a decade of reform. It requires targeted, deliberate steps taken in the right sequence.
The MFSA consultation is a genuine opportunity to establish what those steps are. The June 30 deadline is close enough that industry needs to engage with it seriously right now. The people who will shape Malta’s tokenisation framework are the people who respond to this consultation, not those who observe from a distance and comment afterwards. This also matters well beyond Malta. The questions the MFSA is asking about classification, custody, smart contracts, settlement finality, collateral and investor protection are the same questions every European supervisor is working through.
Institutional investors are making decisions about where to locate tokenised fund structures right now. Legal certainty is the product they are buying. Malta has a credible offer to make. It needs to make it clearly and it needs to make it soon.
Article by Dr Ian Gauci
This article was first published in The Times of Malta of the 24 May 2026.
Photo credits: Times of Malta
