Authors: Joseph F Borg, Galyna Podoprikhina - WH Partners

The Malta Financial Services Authority (MFSA) recently published two important regulatory discussion documents in the digital assets sector: a Consultation on the Tokenisation of Financial Instruments and Real-World Assets (Ref: 02-2026) and a Discussion Paper on Decentralised Finance (Ref: 03-2026). WH Partners submitted formal responses to both. This article summarises our main positions.

The Overarching Theme: Malta Must Move First

Malta was the first EU country to pass the VFA Act in 2018, which attracted investment, skilled workers, and licensing activities, making it a leading hub for digital assets. . Malta’s early regulatory approach also contributed to the wider European debate that ultimately shaped the EU’s Markets in Crypto-Assets Regulation (MiCA). Now, there’s a similar chance with tokenisation and DeFi – if Malta acts quickly, it can set the standard and lead the way for the EU to follow. By doing so, Malta can keep its position as a leader in this field and make the most of the opportunities that come with it. This strategy is all about being ahead of the game and letting others follow.

The European Commission is currently reviewing MiCA, and this is a chance for change. So far, no country in the EU has developed a comprehensive plan for DeFi, and no regulator has figured out what decentralisation really means. However, this window of opportunity may narrow once Brussels makes a decision.

Our responses are not exclusively technical. They support both regulatory ambition and restraint: publish guidance now, extend existing legal frameworks where possible, and avoid prescriptive rule-making that has limited the EU’s DLT Pilot Regime to only a few authorised market infrastructures after three years.

On Tokenisation: Start with Real Estate, Use What Already Exists

In determining which assets should be prioritised, our position is that Malta’s first tokenisation pilot should focus on units of real estate funds already set up in Malta, rather than tokenising land ownership directly. This approach makes sense because Malta has a thriving property market, many individual investors, and a solid framework for funds and securitisation that can support tokenised real estate without requiring new laws. By using existing funds, Malta can tap into its strengths and make the most of its current market conditions, which is a more practical and efficient way to start tokenising assets.

We proposed a three-phase pilot:

* Phase 1: a single income-generating property fund with smart-contract rental distribution, open to retail investors at modest ticket sizes.

* Phase 2: a multi-property portfolio with wider EU retail distribution, making use of the EU DLT Pilot Regime once made permanent.

* Phase 3: a place where people can safely buy and sell tokenised units, allowing those who invested early to get a fair price when they decide to sell.

The goal is straightforward: to allow people from Malta to invest small amounts of money in professionally managed, MFSA-supervised real estate funds. Normally, these kinds of funds are only available to large institutions or wealthy individuals. By doing this, we are helping achieve the financial inclusion goals the MFSA discussed in their Consultation. This would support the financial inclusion objectives identified by the MFSA by widening retail access to investment opportunities that have historically been difficult to access.

Regarding regulatory architecture, our main point is that most barriers to tokenisation are interpretative rather than statutory. The MFSA does not require new primary legislation to proceed. It should confirm that Token Registries can serve as operative records of beneficial ownership within existing SPV, AIF, and SCC structures; that DLT-based transfer orders on MFSA-recognised systems receive settlement finality protections; and that smart contract terms implementing offering documents are enforceable under Maltese law. Guidance can address all these points.

For international benchmarking, the UAE’s approach of layering a regulated SPV and token registry over existing property law, rather than rewriting land legislation, is the preferred model. Luxembourg’s Control Agent concept under Blockchain Law IV addresses the single-custodian bottleneck. Malta should adopt both approaches and avoid the size caps and eligibility restrictions that have limited the EU’s DLT Pilot Regime.

On DeFi: Clarify the Law, Attract the Market, Lead the EU Debate

Our DeFi response is built around four substantive proposals.

We are suggesting a new way to define decentralisation that’s more practical and has two main parts. Instead of just saying something is either decentralised or not, we think it is better to have a step-by-step test. The first part of the test looks at whether there is a specific person or organisation responsible for the activity and for dealing with users. If we cannot find anyone in charge, then it does not have to follow the same rules as other decentralised systems, according to MiCA’s Recital 22. The second part of the test only runs if we can’t find anyone in charge, and it looks at who controls the technical side, how decisions are made, and who’s in charge of the money. It also considers whether the system relies too much on certain people or organisations for information, and whether there are any clear leaders or promoters. We recommend that Malta should publish this framework , along with some examples to help illustrate how it works, before the European Securities and Markets Authority (ESMA) does. This will help provide clarity and guidance for everyone involved.

We recommend a DeFi-specific extension of the SCC framework. Malta’s Segregated Cell Company legislation is among the most advanced cell-based corporate instruments globally. Extending it to DeFi structures, where cell-level separation corresponds to the modular architecture of on-chain ecosystems, is a legislative step Malta can take efficiently. The MFSA should clarify that voluntary adoption of a Maltese SCC for liability management and governance does not, by itself, constitute evidence of centralisation for MiCA purposes. Without this clarification, the SCC’s benefits are lost for the operators who would benefit most from the framework.

We strongly supported the MFSA’s proposal to develop a legislative framework for software-based organisations, including, but not limited to, DAOs, and urged the Authority to promptly move from discussion to drafting. The framework should be opt-in and enabling, not a compulsory registration regime. Malta can be the first EU jurisdiction to provide a credible legal home for these structures. The operators currently sitting in legal grey zones offshore are precisely the market Malta should be seeking to attract. We also think it is a good idea to have rules that help software-based companies. We agreed with the MFSA’s plan to create laws for these companies, including DAOs, and we want them to do it quickly. These rules should be flexible and helpful, not strict and forced. If we do this, Malta can be the first EU country to provide these companies with a safe and legal place to operate, potentially attracting companies currently based elsewhere.

We think it is better to have guidance-led engagement rather than using sandboxes. Traditional sandbox models, particularly those imposing time limits or restrictive eligibility requirements, risk creating a two-tier market and may signal uncertainty regarding the broader regulatory framework. The problem with sandbox regimes that impose time limits or restrict who can participate is that they can create two separate markets, which is not fair. It also makes it seem like the people in charge do not have confidence in the rules they have put in place. On the other hand, if we adopt an open engagement model, in which we work with industry groups and run public-private pilots, we can learn and improve regulation without these problems. This would support a shared understanding of regulatory expectations and allow the effectiveness of the framework to be evaluated in practice.

We also identified two material issues that are not addressed in sufficient detail in the Discussion Paper. First, how should regulators treat the people who develop strategies for DeFi vaults? Specifically, if someone updates the rules for a pooled strategy, are they basically managing a portfolio under MiCA? Second, what about companies that help users interact with decentralised protocols – how do they fit into the MiCA CASP rules? These are big concerns for people running these systems, and they need guidance from the MFSA.

The Shared Message

Across both responses, the firm’s position is consistent. Regulation is a means, not an end. Protecting consumers is crucial, but we should do it with rules that are fair and focus on specific problems, rather than being too cautious and pushing activities to places with less oversight. Regulatory competition among jurisdictions such as Malta, the UAE, Luxembourg, Switzerland and Singapore can encourage the development of clearer, more effective and innovation-friendly frameworks. Technology should change how we handle finances, but it should not change how much we protect the people using these services.

Malta is well-placed to take the lead in the EU in tokenisation and DeFi, thanks to its experience in regulating these areas and the laws it has in place. The fact that it is holding these consultations shows it is serious about making progress, and we hope our input will help make that happen.

WH Partners’ Fintech team advises issuers, CASPs, funds, DeFi operators, and protocol developers in Malta and the UAE. For more information, contact Joseph F. Borg at [email protected] and Galyna Podoprikhina at [email protected]