Malta’s Virtual Financial Assets Act: a step ahead of the rest

14 June 2018

Malta, dubbed ‘The Blockchain Island’, is fast making a name for itself in the global cryptocurrency and Blockchain community. Three draft legal bills, which were presented to Parliament in March and subsequently made public for the first time in late May, have been designed to provide regulatory certainty for ICOs, blockchain technology, cryptocurrencies, as well as intermediaries and service providers operating within the sector.

The Virtual Financial Assets Bill, the Malta Digital Innovation Authority Bill, and the Technology Arrangements and Services Bill all seek to provide legal security for operators and investors, whilst ensuring the continued development of the Maltese DLT and cryptocurrency sector.


What’s in the Virtual Financial Assets Act?


Under the definitions of the Act, a cryptocurrency may be classed as a Virtual Financial Asset (VFA) and the Act provides a comprehensive set of rules that will both protect consumers and support the growth of the industry and its stakeholders. The Act will outline stringent requirements for those that are launching cryptocurrencies, as well as other service providers including brokerages, portfolio managers, custodian and nominee service providers, eWallet providers, investment advisors, and perhaps most crucially, cryptocurrency exchanges.

The Malta Financial Services Authority (MFSA) has also developed a financial instrument test that will determine whether a product or service would fall under financial services legislation, or whether it is covered by the scope of the VFA Act. Despite not yet being made official, the MFSA has reiterated the fact that any issuers in Malta must carry out a legal assessment and notify the Authority accordingly should any authorisation be required.

Any entity that offers a VFA or is classified as a VFA service provider is required under the new rules to apply for a license from the MFSA through the guidance of a registered VFA agent. Upon acquisition of a VFA license, these operators will be allowed to facilitate the exchange of virtual financial assets such as tokens or coins, or provide services supporting the VFA sector. In this respect, BDO Malta will be applying for this licence as soon as it is made available.

Another important feature of the new Act relates to Initial Virtual Financial Asset Offerings, commonly referred to as ICOs. A lack of regulation globally has resulted in a situation where the market has become sullied by fraudsters who pose as legitimate entrepreneurs, crowdfund large sums of money, and then disappear, leaving bonafide investors and/or contributors at a loss. Under the VFA Act, exhaustive requirements will be made applicable to legal entities that are offering VFAs to the public, including rules governing its marketing and advertisement, and the determination of any potential liability which might result from the activity therein. The Act also provides clear guidelines on what information a Whitepaper should include, how collected funds may be used, and how due diligence on the individuals behind the fund-seeking entity is to be carried out. BDO Malta would be able to act as advisor to guide your project accordingly to ensure that there is full compliance with any applicable legislation.

Due to come into force in the next few weeks, the VFA Act will create a regulatory environment that will provide much sought after legal certainty and lucidity in both the local and international crypto community.


How can BDO help?


In order to apply for a VFA License, the concerned entity must do so via an agent that has been approved by the MFSA. Here at BDO, not only would we be authorised to apply for the license on your behalf, but we also operate a multi-disciplinary Fintech and Blockchain Advisory Team composed of specialists in different areas to assist in all other related matters.

From tax advisory to choosing an appropriate company structure, legal advice for blockchain start-ups to the launch of DLT platforms, or even ancillary services for ICOs, BDO Malta is able to guide you from start to finish. Forming part of a global network, we are able to liaise with our colleagues abroad should the need arise for assistance with issues outside of Malta, providing you with a one-stop shop for all services.

Whether you are planning on setting up a cryptocurrency exchange, or considering relocating your payment platform to Malta, we are here to offer legal, financial, and corporate services related advice that will make your transition or setup process as smooth as possible.