Frequently Asked Questions with regards to Crypto Regulation Malta
including ICO’s, wallet providers and exchanges
Company Formation Malta – Frequently asked questions with regards to Crypto Regulation Malta
1. What Activities are Regulated by the Act ?
The following activities are regulated by the Virtual Financial Assets Act, 2018 when conducted in or from within Malta:
i. The offering of a Virtual Financial Asset (‘VFA’) to the public by an Issuer;
ii. The application, by an Issuer, for a VFA’s admission to trading on a DLT Exchange;
iii. The activity of a VFA Agent; and
iv. The provision of VFA services.
2. What are the Crucial Definitions and classifications under Maltese Legislation?
Article 2 of the Act.
”DLT asset” that is intrinsically dependent on, or utilities, Distributed Ledger Technology means :
a) virtual token;
b) virtual financial asset;
c) electronic money;
d) financial instrument
(a) Virtual Token (‘VT’) – form of digital medium recordation where utility, value or application is restricted solely to the acquisition of goods or services, either solely within the DLT platform in relation to which it was issued or within a limited network of DLT platforms.
The definition also provides two provisos as follows:
(i) for purposes of the definition the term “DLT platform” as referred to therein shall exclude DLT exchanges; and
(ii) that a virtual token which is or may be converted into another DLT asset type shall be treated as the DLT asset type into which it is or may be converted.
If a DLT asset is determined by the Test to be a Virtual Token, any activity performed in relation thereto would remain unregulated.
b) Virtual financial asset or “VFA” means 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 –
(i) electronic money;
(ii) a financial instrument; or
(iii) a virtual token
The Act and the VFA Framework would apply where such a DLT asset qualifies as a VFA.
(c) Electronic money shall have the same meaning assigned to it under the Third Schedule to the Financial Institutions Act
(d) Financial instrument shall have the same meaning assigned to it under the Second Schedule to the Investment Services Act, whether or not issued in Malta.
If a DLT asset is determined by the Test to be a financial instrument or electronic money, the respective framework would apply.
For instants, DLT assets which qualify as financial instruments can only be traded on trading venues falling within scope of MiFID.
The Maltese Authority – MFSA has issued the standardized Test (beta version) and the guideline, which shall be used in or order to determine classification of a DLT asset.
3. When the Test is applicable ?
The Test is applicable to (i) issuers offering DLT assets to the public or admission of such DLT assets on a DLT exchange in or from within Malta; and (ii) persons providing any service and/or performing any activity, within the context of either the VFA Act or traditional financial services legislation, in relation to DLT assets whose classification has not been determined for any reason whatsoever, including inter alia because the offering of the said DLT asset was conducted abroad.
4. Who shall perform and endorse the test ?
The Test shall also be signed by one of the following persons:
– the VFA Agent in case of Issuers of initial VFAs offerings;
– the compliance officer in case of licence holders under either the VFA Act or traditional financial services legislation; or
– the VFA Agent or legal advisor, as applicable, in case of unlicensed persons.
It should be noted that the responsibility of the assessment with respect to the classification of a DLT asset rests with the person conducting the Test and the respective person endorsing the Test in compliance with the Guidelines.
5. Will there be a public register of the determined DLT assets ?
Yes, the MFSA intends to hold a public register of DLT assets including classification.
6. What is the compliance process ?
There is a requirement to appoint a VFA Agent in order to conclude the registration process.
The Authority has imposed high level principals towards VFA Agents, thus shall be treated as ”a goalkeepers”. Therefore it is expected that all VFA Agents will need to have robust Know Your Client (‘KYC’) procedures, systems and controls in place in order to address and mitigate the money laundering/funding of terrorism risks pertaining to the specific business model of the Customers.
VFA Agent must also conduct a fit and proper test on the applicant taking in account also risk assessment of particular business model. It is also emphasized that VFA Agents shall have in place appropriate KYC tools which would enable proper compliance.
VFA Agent is also expected to keep records in relation to clients that it has decided not to on board. VFA Agents should also ensure that any processing of personal data is conducted in accordance with the current Regulations in force.
Systems Auditors who are applying for registration as a VFA Agent in additionally, should not impinge on exercising independent professional judgement.
In addition the respective chapters of the VFA Rulebook stipulate that VFA Agents, Issuers and Licence Holders must appoint a Money Laundering Reporting Officer.
It is also important to note that the Maltese regulatory framework renders as ‘obliged entities’;
VFA Agents, Issuers of virtual financial assets for offer to the public and VFA Service Providers, including also exchanges and service providers involved in VFA-to-VFA transactions. Furthermore, to the extent that a DLT asset does not qualify as a VFA but as either a financial instrument or electronic money, related service providers would fall to be considered as obliged entities on the basis of the already existing AML/CFT framework.
7. What means an Issuer under Maltese regulation ?
Article 2 of the Act
“Issuer” means a legal person duly formed under any law for the time being in force in Malta which issues or proposes to issue virtual financial assets in or from within Malta.
It is important to note that no issuer shall offer a virtual financial asset to the public in or from within Malta or shall apply for a virtual financial asset’s admission to trading on a DLT exchange” unless a whitepaper for the particular VFA is registered with the MFSA.
Chapter 2 of the proposed VFA Rulebook puts forward the rules for Issuers. In addition, further issued a Consultation Paper on achieving a Higher Degree of Investor Protection under the Virtual Financial Assets Act will guide the sector.
8. What are the requirements towards a white paper?
Article 4 of the Act inter alia requires that a whitepaper shall state the matters specified in the First Schedule. Whereas paragraph 7 of the First Schedule is titled ‘The offer to the public’, the proviso to this paragraph also makes reference to an application for admission to trading on a DLT exchange. Besides the white paper requires that at least, and to the extent it is applicable, the information lied down by points (a) to (al) must be disclosed in the whitepaper. In this respect, even for a whitepaper for admission to trading on a DLT exchange, the information required by points (a) to (al) must be disclosed in the whitepaper, insofar as same is applicable.
Finally, the proviso to this paragraph further empowers the competent authority to waive or modify any of the requirements put forward within paragraph 7 within the context of a particular initial VFA offering or a particular application for admission to trading on a DLT exchange, as the case to case may be.
Provided that the criteria are meet an Issuer can launch multiple initial VFA Offerings. Thus, the same legal entity can be used for multiple Initial VFA Offerings.
9. With respect to a Virtual Tokens, is an Issuer obliged to draw up and register a whitepaper with the MFSA?
No, a DLT asset which is determined to be a VT is not regulated by the Act.
There is therefore no requirement to draw up and register a whitepaper for a VT.
10. Are there different VFA Service Licence categories?
There are 4 classes of VFA Services Licences. These are detailed in the VFA Regulations and Chapter 3 of the VFA Rulebook.
The class of VFA Services Licence required depends wholly on the type of VFA Service which shall be provided.
Find out more: Crypto regulation Malta – General Information, Definitions and Legal Framework.
This document does not purport to give legal, financial or tax advice. Should you require further information or legal assistance.
We hope to help you understand the regulation and comply with it.
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