Fintech and Blockchain

Home Advocates Fintech and Blockchain

The comprehensive legal framework promulgated by Malta makes it one of the leading jurisdictions in the blockchain industry, providing a sound and robust legal regime which gives confidence to operators and investors alike. This has spurred continuous growth and technological innovation in Malta’s already robust financial services industry. The publication of the following three Acts has placed Malta at the forefront of the global race towards establishing a viable framework for the practical and innovative use of virtual currencies and DLT. These include the following:

  1. The Virtual Financial Assets Act (VFAA), Chapter 590 of the Laws of Malta, which creates a framework for the regulation of Virtual Financial Assets (VFAs), including ICOs, cryptocurrency exchanges, virtual tokens and other intermediary services related to VFAs;
  2. The Malta Digital Innovation Act (MDIA), Chapter 591 of the Laws of Malta establishes the authority which will regulate, monitor and supervise the blockchain or distributed ledger technology industry. The MDIA also certifies Distributed Ledger Technology (DLT) platform software;
  3. The Innovative Technology Arrangements and Services Act (ITAS), Chapter 592 of the Laws of Malta, supplement the VFAA creating a cohesive framework for innovative technological financial services, DLT and smart contracts.

 

The VFAA includes the framework for the management and licensing of initial VFA offerings (ICOs), the requirements of the white paper, regulation of the activities of service providers including exchange and trading platforms, the rights and obligations granted to an investor, provisions for the prevention of market abuse as well as the powers granted to the MFSA and the financial services tribunal to guarantee proper execution of crypto related activities.

 

In the Act a VFA has been defined as

‘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 electronic money, a financial instrument or a virtual token’.

 

To provide legal clarity, the MFSA published the Financial Instrument Test (Test) which is applicable to issuers, VFA agents and licence holders. The result establishes the regulation of crypto assets by classifying them under the following:

  1. Virtual token – does not fall under any legislation and is exempt. They are known as utility tokens.
  2. VFA – regulated by the VFAA.
  3. Electronic money – regulated by the Financial Institutions Act; or
  4. Financial instrument – regulated by the Investment Services Act, Chapter 370 of the Laws of Malta, MiFID II and any relevant existing EU legal instrument including: The Prospectus Regulation, AIFMD and national legislation.

 

This Test will need to be undertaken prior to the submission of the whitepaper to the MFSA, the admission of a VFA asset to a DLT exchange or the provision of a VFA service in or from within Malta as the case may be. This test will determine which classification a DLT asset will fall under by considering the main features and characteristics of the asset. This will guide users as to which legislation would apply to that particular class of DLT asset that is intrinsically dependent on, or utilises, DLT.

 

EMD can provide the following services:

  1. Advise and assist issuers with structuring and launching their ICOs, IEOs and STOs;
  2. Advise and assist crypto service providers, including crypto exchanges, with the MFSA application for authorisation;
  3. Advise and assist with the setting up and authorisation of Professional Investment Funds (PIFs) investing in virtual financial assets
  4. Advice and assistance on AMLCFT and KYC matters
  5. Tax advice and compliance
  6. Corporate services
  7. Accounting Services