Initial Coin Offering, known as “ICO”, is a relatively new phenomenon that has quickly become the main player in the Financial Services and Crowdfunding industries, as well as being the key subject of discussion in the Blockchain communities. In essence, it is one of the most advanced methods of raising finance from the public and is becoming increasingly popular to fundraise start-ups.
While all jurisdictions are shying away from regulating this industry, Malta has recently introduced a specific regulatory framework for ICOs and has become the first jurisdiction worldwide to regulate ICOs and Blockchain Technology.
This publication in fact seeks to give an overview of the recent laws and regulations relating to ICOs.
Information relating to any ancillary services to cryptocurrencies, including the operation of platforms to exchange such cryptocurrencies, portfolio management and providing investment advice amongst others, is discussed in our brochure: “Malta – Virtual Financial Asset Services – The New Legislation”.
B. TO WHOM DOES THE NEW LAW APPLY?
The new legislation applies to anyone who will offer to the public Virtual Financial Asset(s) (VFA) as these are defined in the new legislation. Hence, if the asset that is offered to the public is not a VFA, the new legislation does not apply.
In order for a person to issue a VFA, the following must be met:
At this stage, it is crucial to point out that as of the time of the publication of this brochure, the new legislation and relevant rules of the MFSA are still in draft form.
C. DEFINITION OF VIRTUAL FINANCIAL ASSET (VFA)
By way of a definition, a VFA is any form of digital medium recordation that is used as a digital medium of exchange, unit of account, or store of value and that is not one of the following as defined below:
Legal definitions of the above:
Electronic Money means electronically, including magnetically, stored monetary value as represented by a claim on the issuer which is issued on receipt of funds for the purpose of making payment transactions (as defined) and which is accepted by a natural or legal person other than the financial institutions that issued the electronic money.
Financial Instrument includes the following:
Virtual Tokens have been defined as a form of digital medium recordation that:
a. has no utility, value or application outside of the DLT platform on which it was issued; and
b. may only be redeemed for funds on such platform directly by the issuer of such DLT asset.
Electronic money is excluded from this definition.
The MFSA is proposing a compulsory Financial Instrument Test in order to determine whether an asset is a Financial Instrument or not.
The process is a two-fold test, being:
If a cryptocurrency qualifies as a Virtual Token as defined in the new law and does not qualify as a Financial Instrument or Electronic Money, then it is exempted from the ambit of applicability of the new law and the licensing requirements are not needed for its issuing or trading.
D. ISSUING OF A VFA – REQUIREMENT OF A WHITEPAPER
The new law prescribes that a whitepaper which will be registered and in effect approved by MFSA is compulsory in order for an issuer to:
Ten days before being circulated, the whitepaper has to be:
Most importantly, the whitepaper shall have the contents specified in Annex I of this publication. Non-observance with any of such requirements will automatically disqualify the whitepaper from being registered / approved.