ICOs/Initial Virtual
Financial Asset Offering

Legal, Tax, Advisory, Corporate

ICOs/Initial Virtual Financial Asset Offering

The Virtual Financial Assets Act (Act XXX of 2018 ) (VFAA) creates a framework for the regulation of ICOs, cryptocurrency exchanges and other intermediary services related to cryptocurrencies. Moreover, the Innovative Technology Arrangements and Services Act (ITAS) which goes hand in hand with the Malta Digital Innovation Act (MDIA) creates a framework for blockchain, distributed ledger technology (DLT) and smart contracts – along with an authority which will regulate, monitor and supervise the industry.

The three Acts make Malta one of the first countries around the globe to provide a sound and robust legal regime relating to the blockchain industry. This will contribute to the continuous growth and technological innovation which Malta aims to achieve in its already robust financial services industry. The publication of these Acts puts Malta at the forefront in the global race towards legalizing virtual currencies and DLT. As a result, the world’s largest cryptocurrency exchange Binance and the world’s second largest cryptocurrency exchange, OKEx, will set up its operations in Malta.

The new legislative framework under 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 and the powers granted to the MFSA and the financial services tribunal to guarantee proper execution of crypto related activities.

The Maltese authorities have opted to remove the word ‘cryptocurrency’ to avoid any possible negative connotations associated with the use of the word and instead created the notion of a Virtual Financial Asset (VFA). 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’.

MFSA Publications

The rulebook, titled the ‘Virtual Financial Assets Rulebook’ is made up of three chapters. Chapter one sets out the rules regulating VFA Agents, chapter two focuses on Issuers of VFAs and chapter three sets out the VFA Rules applicable to VFA service providers.

In order to limit exposures in case of failure, the MFSA is considering the possible introduction of a maximum investment amount for an Initial VFA Offering of Euro 5,000 per investor per issue over a period of 12 months, applicable to retail investors as defined by MiFID.


The VFAA provides a legislative framework for the registration of ICOs, the formalities of the white paper and all the requirements that need to be met, for there to be a valid white paper. Under the VFAA, the term ICO is defined as an Initial Virtual Financial Asset Offering.

The VFAA specifically states that an issuer cannot offer a virtual financial asset (VFA) to the public in or from within Malta or apply for a VFA’s admission to trading on a DLT exchange unless such issuer draws up a whitepaper. This whitepaper must be dated, include all the prerequisites found in the First Schedule of the VFAA and provide a statement by the board of administration, confirming that the whitepaper complies with the requirements in the Act.

Furthermore, a whitepaper shall be issued or published only if ten working days before the date of its circulation in any way whatsoever, a copy thereof, has been delivered to the MFSA by the appointed VFA Agent for registration. The white paper must be signed by every person who is a member of the issuer’s board of administration and the VFA Agent who must confirm that the whitepaper is in compliance with the VFAA.

Any form of advertisement related to an initial VFA offering will have to comply with certain requirements which are provided for in the VFAA, to safeguard investor protection.

An issuer of an initial VFA offering must appoint and have a VFA agent on an ongoing basis who must ensure that the initial VFA offering has satisfied all the requirements prescribed in the VFAA and any regulations or rules published there under. Furthermore, amongst other functions, the VFA agent must also advise and guide the issuer as to its responsibilities and obligations to ensure compliance with the VFAA, provide any information or documentation required by the MFSA and act as liaison between the issuer and the MFSA on all matters arising in connection with the registration of the whitepaper.

The whitepaper shall be drafted in English and will remain valid for six months after its registration by the MFSA, for offers to the public. The MFSA will only register the whitepaper if it has satisfied all the requirements provided for in the VFAA.

The whitepaper shall include a summary which must be written in brief, non-technical language providing key information in relation to the offering. The format and content of the summary shall provide appropriate information about essential elements of the initial VFA offering concerned in order to aid investors when considering whether to invest in such initial VFA offering. Further details as to what information the whitepaper should contain, may be found under Schedule 1 of the VFAA.

The Financial Instrument Test

The MFSA also published the Financial Instrument Test in accordance with Article 47 of the VFAA as well as corresponding guidelines which are applicable to issuers offering DLT assets to the public, in or from within Malta, issuers applying for admission of a VFA asset on a DLT exchange as well as to persons providing services in the context of the VFAA

The purpose of the test is to determine whether a DLT asset qualifies as electronic money, financial instrument, virtual financial asset or virtual token – provided that this test will need to be undertaken prior to the submission of the whitepaper to the MFSA, the admission of a VFA asset of 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.

The VFAA affirms that a DLT asset is defined as:

  • A Virtual Token
  • A Virtual Financial Asset
  • Electronic Money; or
  • A Financial Instrumen

That is intrinsically dependent on, or utilises, DLT.

When a DLT asset is a virtual token it does not fall under any form of legislation and is therefore exempt. When a DLT asset is a Virtual Financial Asset (VFA) then it is regulated by the VFAA. Electronic money is regulated by the Financial Institutions Act. A DLT asset classified as a financial instrument is regulated by MiFID. In fact, when looking at MiFID II, Annex I, Section C - “transferable securities” are listed as one of the financial instruments. A transferable security is defined as those classes of securities which are negotiable on the capital market, which means that a security token is deemed to be classified as a financial instrument. Where a DLT asset is categorised as a financial instrument, an issuer has to comply with the relevant existing EU legislative framework which may include: the Prospectus Directive, the Markets in Financial Instruments Directive (“MiFID”), Alternative Investment Fund Manager Directive and national legislation.

Regulatory Fees

Any person shall, upon submission of a whitepaper for registration, irrespective of whether the whitepaper is registered or whether the application is eventually accepted or not, pay:

Application/ Notification Fee €8,000
Annual Supervisory Fee €2,000 upon the submission of the certificate of compliance

For further information kindly contact EMD, Vaults 13 - 16, Valletta Waterfront, FRN 1914, Malta
Tel: (+356) 2203 0000 Fax: (+356) 2123 7277 Email: info@emd.com.mt www.emd.com.mt

The above information is intended to be of a general nature and is not intended to address the circumstances of any individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. EMD Advisory Services Ltd, its officers, staff, associates and related/associated companies/firms shall not be responsible or liable for any action taken on the basis of the above information, or for any errors or omissions contained herein. Professional advice should be sought before any decision based on any matter referred to above is taken.