Malta’s financial regulators explained last week that Binance, the world’s largest digital asset exchange by improved trading volume, is not permitted “to operate in the cryptocurrency sphere” within the island nation.

The Malta Financial Services Authority (MFSA) has not yet published operational licenses to any crypto-related company. The statement from the country’s regulatory authorities seems to imply that its relations with crypto industry participants might not be as excellent as they were earlier.

The change of tone may be due to the departure of Joseph Muscat, the nation’s former prime minister, and the appointment of his successor. But it seems that Malta’s crypto industry had been undergoing difficulties even before Muscat left.

Nevertheless, Malta’s new government approved its plans to work as a “blockchain island.”

Back in 2018, prime minister Muscat had individually embraced Binance to Malta (by Twitter), saying: “Welcome to Malta, Binance.”

Changpeng Zhao, CEO at Binance, replied to Muscat’s welcome message, by writing that he was confident about the exchange’s overall business opportunities and for crypto, in general, in the island nation.

Additional foreign crypto firms such as BitBay and OKEx, which had been headquartered in Poland and Japan respectively, also shifted their operations to Malta.

The country’s low corporate tax rate for international firms in the EU was one of the principal reasons why these firms stated they were going to Malta.

The country also launched a set of blockchain laws, following the VFA Act, in 2018, which requires crypto-related firms to get permission from the MFSA if they intend to raise funds through trade crypto assets, initial coin offerings (ICOs), or offer digital wallets and brokerage services.

Christopher P. Buttigieg, the chief officer who manages strategy, policy, and innovation at the MFSA, explained:

“The role of the VFA Agent under the VFA Act is primarily that of gatekeeper,” or to act as the first line of defense.

The agency published licenses to the first VFA agents in May of last year, which was six months after the act became valid. At present, there are reportedly 20 licensed VFA agents working in the island nation.

There are no firms, though, that have acquired licenses under the VFA framework (as of yet), even though it’s been over a year since it was introduced.

Jan Sammut, the founder at ICO Launch Malta, stated, “This is disappointing for the hundreds of companies which were lured to the country on promises of a friendly, understanding regulatory environment.”

He further noted:

“My impression is that the government at the time prioritized primacy to market ahead of operational readiness. Subsequently, what initially started as an understandable desire to ‘get things right’ and not put the country’s reputation at risk in the event of a scandal, seems to have devolved into the double whammy of an absolute overkill of a regulatory package, along with a total operational complacency in issuing actual licenses.”

Daniele Bernardi, CEO at Malta-based financial advisory firm Diaman Group, noted, “The banks in Malta don’t open any account for crypto companies, due to their fear of breaking the AML policy.”

Wayne Pisani, the partner at Grant Thornton, which is prominently one of the 20 registered VFA agents in Malta, clarified:

“It was never the intention to create a soft touch regulatory framework as this would have run counter to internationally accepted principles of regulatory certainty and transparency. Indeed, the framework regulating the financial application of DLT is closely modeled on EU regulatory principles and follows ESMA guidelines.”