Malta: Initial VFA Offerings Under The Virtual Financial Assets Act, 2018

The stated purpose of the Virtual Financial Assets Act, 2018 ("VFAA"), currently still in the form of a bill, is to "regulate the field of Initial Virtual Financial Asset Offerings and Virtual Financial Assets and to make provision for matters ancillary or incidental thereto or connected therewith."

This brief note will highlight the salient provisions regarding initial virtual financial asset offerings, or as they are more commonly known, Initial Coin Offerings (or "ICOs"). Article 2(2) of the VFAA defines initial VFA offerings as "a method of raising funds whereby an issuer is issuing virtual financial assets and is offering them in exchange for funds". This definition is relatively straightforward and underscores the central role of initial VFA offerings as a means of raising capital by selling virtual financial assets to investors. It is in this light that one must read the legislator's attempts to regulate initial VFA offerings since such offerings, if not properly regulated, may have a negative impact on investors.

The main part of the VFAA relevant to initial VFA offerings is Part II of the VFAA, specifically articles 3 to 12. Article 3(1) provides, inter alia, that "no issuer shall offer a virtual financial asset to the public in or from within Malta...unless such issuer draws up a whitepaper". As can be noted, this obligation arises when virtual financial assets are offered to the public, which obligation mandates disclosure of information in order to safeguard investors. It is important to note, however, that the VFAA does not delineate the parameters of what constitute an 'offer to the public'. This may create legal uncertainty since virtual financial assets may or may not be considered to be offered to the public without a precise demarcation of the term. Was the intention of the legislator to create such an open-ended umbrella condition to capture all forms of VFA offerings without any de minimis exception? It would therefore be prudent for the legislator to define 'offers to the public', as has been done in other laws, such as the Companies Act.

In reading article 3(1), one must not overlook its proviso which states that if "a DLT asset is determined ... to be a financial instrument or electronic money, the issuer shall be required to comply with the respective applicable laws in lieu of the provisions of this Act." This proviso is important since it underscores the VFAA's intention not to duplicate legislation by regulating products which are already comprehensively regulated.

The rules regarding the whitepaper which must be drawn up in terms of article 3(1) are provided for in article 4 which holds, inter alia, that every whitepaper must "state the matters specified in the First Schedule" of the VFAA. In this connection, the First Schedule lists the information and requirements which must be included in all whitepapers of an issuer for its approval and publication, which information includes, for example, details of the issuer and information about the offer itself, among other things.

Further to the obligation of issuers to draw up a whitepaper in the event of initial VFA offerings, in terms of article 7(1) "an issuer is required to appoint, and have at all times in place, a VFA agent who shall be registered with the competent authority under this Act". The obligation for the issuer to have a VFA agent does not only last during the initial VFA offering, but subsists throughout the whole programme. Article 7 outlines the duties of the VFA agent, which duties include, for example, the duty to ensure that the issuer has satisfied all requirements as prescribed by the VFAA and the duty to advise and guide the issuer as to its responsibilities and obligations to ensure compliance with the VFAA. Importantly, in terms of paragraph (f) of sub-article 7(1), the VFA agent is duty bound to be independent from the issuer and must provide a confirmation in writing of its independence to the competent authority, being the Malta Financial Services Authority.

In pursuance of the above stated objective of the VFAA to regulate initial VFA offerings, article 9 sets out a list of principles which all issuers must uphold. These principles are a mix of high level principles, such as a duty on issuers to conduct their "business with honesty and integrity" as well as with "due skill, care and diligence"; as well as more specific principles such as a duty on issuers to "have effective administration arrangements" and to maintain all "systems and security access protocols to appropriate international standards".

Furthermore, in order to ensure adequate investor protection in the sphere of initial VFA offerings, article 10 provides that the "issuer shall be liable for damages sustained by a person as a direct consequence of such person having bought virtual financial assets, either as part of an initial VFA offering by such issuer or on a DLT exchange, on the basis of information contained in the whitepaper, website or advertisement by reason of any untrue statement included therein". The assessment of the truthfulness of a statement must be read in terms of the proviso to sub-article (1) which holds that a statement is "untrue if it is misleading or otherwise inaccurate or inconsistent, either willfully or in consequence of gross negligence, in the form and context in which it is included". Although the exemptions from liability in terms of sub-articles (2) and (3) of article 10 may provide some refuge for issuers, the latter must demonstrate due caution, specifically by acting in line with the above mentioned principles contained in article 9, since the liability of issuers for damages in terms of article 10(1) may be far reaching.

Finally, it is important to note that article 12 gives the competent authority, certain powers, such as the power to require the inclusion in the whitepaper supplementary information necessary for investor protection as it may specify; the power to require the amendment in the whitepaper of any information necessary for investor protection; the power to suspend, and even prohibit, an initial VFA offering if the in its reasonable discretion, the competent authority, believes or suspects that a provision of this VFAA has been infringed; and the power to make public the fact that an issuer is failing to comply with his obligations under any provision of the VFAA.

From the powers granted to the competent authority in terms of article 12, it can be deduced that investor protection is of central importance to the VFAA, specifically in the area of initial VFA offerings. The goal of investor protection can also be seen in other sections of the VFAA which seek, for example, to prevent market abuse by prohibiting insider dealing and market manipulation.

In conclusion, although the proof of the pudding is in the eating, and only time will tell whether the VFAA succeeds in offering the proper level of regulation for the ever-changing industry linked to virtual financial assets; the proposed bill is certainly a huge leap in the right direction since it will help to bring legal certainty in an area that has, thus far, raised a lot of eyebrows due to the lack of proper regulation. This being said, the VFAA certainly has some room for improvement, for example in defining certain terms such as 'offers to the public' since this will guarantee an even higher level of investor protection by reducing possible instances of discrepancies in interpretation between issuers and investors.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions