Blockchain technology has revolutionized the way of doing business globally. In fact, similar to Investment Services, a number of ancillary business activities are now connected to the industry, ejecting the Blockchain technology to endless fields of everyday life.
Instead of shying away from the technological challenge, the Maltese government has adopted legislation that regulates the offering of certain services (known as Virtual Financial Asset Services) to cryptocurrencies, which includes the operation of platforms to exchange such cryptocurrencies, portfolio management and providing investment advice amongst others. This makes Malta a pioneer in this sector and offers legal certainty, to such an extent that following such a commitment from the Government, crypto-giants are already relocating to Malta, seeking to benefit from a regulated environment and a beneficial tax rate.
This publication in fact seeks to give an overview of the recent laws and regulations relating to the Virtual Financial Asset Services (i.e. VFA Services).
The scope of this brochure is restricted to VFA Services. Information relating to Initial Coin Offering (ICOs) is discussed in our brochure: “Malta – ICOs – The New Legislation”.
B. TO WHOM DOES THE NEW LAW APPLY?
The legislation applies to any person who intends to provide a Virtual Financial Asset (VFA) Service in or from within Malta.
In order for a person to provide a VFA Service, 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. DEFINITION OF VIRTUAL FINANCIAL ASSET SERVICE
In order to determine whether the relevant service is regulated, one has to analyse the definition of a VFA Service. This is crucial to determine the requirement or otherwise of a licence.
VFA Services have been defined by the legislation as being:
E. LICENCE APPLICATION
The following are the basic steps that need to be satisfied by a prospective applicant in order to apply for a VFA Service licence from the MFSA:
1. Appointment of a VFA Agent
The first step in applying for the licence is to appoint a VFA Agent, who must be duly registered with the MFSA.
In fact, applications for licence shall be made solely through a VFA agent and the VFA Agent shall only submit the relevant application to the MFSA if it is satisfied that the applicant is fit and proper to provide the VFA Services.
The roles of the VFA Agent shall include the following:
It is important to state that the applicant must maintain a VFA Agent at all times throughout the period in which he holds a licence.