By enacting the Virtual Financial Assets Act (VFAA), the Maltese Government has regulated the Blockchain / ICO / DLT industry. The law appoints the Malta Financial Services Authority (MFSA) as the designated authority to oversee this business.
Since this industry has elements of the Financial Service Regulations (namely MiFID), it is important to clearly distinguish one from the other.
In order to ensure a clear difference, the MFSA has sought to further clarify the instances under which the new legislation applies. It has done this by introducing the Financial Instrument Test, which will be analysed below.
B. PURPOSE OF THE TEST
The objective of the Financial Instrument Test (hereinafter ‘the Test’) is to determine whether a Distributed Ledger Technology (‘DLT’) asset falls under:
By undergoing the Test, the DLT asset will be classified accordingly.
C. WHEN TO APPLY THE TEST
The Test will be applied in the following scenarios:
Being the designated authority specifically appointed to oversee this business, the Malta Financial Services Authority (MFSA) is proposing that the Test is mandatory in the above scenarios.
In addition, the MFSA has also proposed that the Test is confirmed by an external reviewer.
It is important to take into account the below definitions:
a) distributed, shared and replicated;
b) public or private or hybrids;
c) permissioned or permissionless or hybrids;
d) protected with cryptography or equivalent forms of encryption; and
Provided that this term shall also include any other technology that achieves the same ends.
a) A Virtual Token; or
b) A Virtual Financial Asset; or
c) A Financial Instrument
That is intrinsically dependent on, or utilises, DLT.
a) Electronic Money;
b) Financial Instrument; and
c) Virtual Token.
Legal definitions of the above are analysed in our brochures:
➢ Malta – ICOs – The New Legislation
➢ Malta – Virtual Financial Asset Services – The New Legislation