Parliament Releases Three New Bills to Regulate Blockchain Businesses
On the 22 May 2018, the Maltese Parliament presented to the public the much awaited draft bills regulating blockchain technology, cryptocurrencies as well as cryptocurrency exchanges and other intermediary services relating to cryptocurrencies. The draft bills published are the:
i. Virtual Financial Assets Act (VFAA);
ii. Malta Digital Innovation Act (MDIA); and
iii. Innovative Technology Arrangements and Services Act
The publication of these bills makes Malta one of the first countries in the EU 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 robust financial services industry. The publication of these bills puts Malta at the forefront in the global race towards legalizing virtual currencies and as a result, several blockchain businesses such as Binance and Bitmora announced that they will be operating in Malta even before the draft laws were disclosed to the public.
The VFAA is partially the result of industry feedback, received by Malta Financial Services Authority (MFSA) following the consultation papers published earlier on in the year such as the Consultation Paper on the Financial Instrument Test and MFSA’s discussion paper on Initial Coin Offerings (ICOs) in Malta, Virtual Currencies and Related Service Providers as well as the consultation documents issued by the Maltese Government on the Malta Digital Innovation Authority and the Technology Arrangements Service Bill.
A brief outline of the new legislative framework includes – the framework for the management and licensing of initial VFA offerings (ICOs), the drafting of the white paper and all its requirements, 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.
In the VFAA, it is evident that 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). 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’.
In addition if licensed in Malta, an ICO is defined as an initial VFA offering, a crypto-exchange is referred to as a VFA exchange and crypto-services are defined as VFA services. Furthermore, the issue of Virtual Tokens are excluded from the remit of the VFAA.
The VFAA goes into specific details and requirements for businesses wishing to issue a VFA offering (ICO) or an admission of a VFA on a VFA exchange by first submitting a whitepaper. A detailed explanation is found in the VFAA, where an exhaustive list is provided on all the matters that need to be specified in a whitepaper of an issuer and the requirements for its approval and publication.
A person may also apply for admission of its VFA to trading on a VFA exchange, as long as this is done in accordance with the provisions of any regulations made or rules issued under the VFAA and the application is done through a VFA agent.
Any form of advertisement related to a VFA offering or an admission of a VFA to trading on a DLT exchange will have to comply with certain requirements which are provided for in the VFAA, to safeguard investor protection.
An issuer who would like to trade a VFA on a VFA Exchange is required to appoint and have at all times in place, a VFA agent, who shall be registered with the MFSA under the VFAA and comply with the requirements that must be satisfied. The role of the VFA agent is to act as a liaison between the issuer and the MFSA on all matters arising in connection with the registration of the whitepaper or the trading of the issuer’s VFA on a DLT exchange, to ensure that there will be proper communication and monitoring between the issuer and the MFSA.
As stated in the VFAA, a VFA agent must be registered with the MFSA under the VFAA and authorised to carry the profession of an advocate, accountant or auditor or be a firm of advocates, accountants or auditors or corporate services providers or a legal organisation, which is wholly owned and controlled by persons referred to above.
The VFAA also states that the issuer shall be liable for damages sustained by any person who purchases a VFA on the basis of information contained in the whitepaper, website or advertisement which was untrue or misleading.
It is important for any person providing a VFA service in or from within Malta, to obtain a valid license granted under the VFAA by the MFSA. The application for this license can only be made through a VFA agent.
MFSA will be issuing additional guidelines and rules so that there will be further guidance on this new framework.
EMD can assist you with the process of issuing VFAs as well as assist and guide any VFA service providers accordingly. Once the VFAA enters into force, EMD intends to obtain authorisation from the MFSA to act as a VFA agent thus ensuring that we continue providing our clients with any consultancy services in relation to cryptocurrency and blockchain technology under the new regulatory regime.