Malta: Malta – Virtual Financial Asset Services - The New Legislation

A. INTRODUCTION

Blockchain technology has revolutionized the way of doing business globally. In fact, similar to Investment Services, a number of ancillary business activities are now connected to the industry, ejecting the Blockchain technology to endless fields of everyday life.

Instead of shying away from the technological challenge, the Maltese government has adopted legislation that regulates the offering of certain services (known as Virtual Financial Asset Services) to cryptocurrencies, which includes the operation of platforms to exchange such cryptocurrencies, portfolio management and providing investment advice amongst others. This makes Malta a pioneer in this sector and offers legal certainty, to such an extent that following such a commitment from the Government, crypto-giants are already relocating to Malta, seeking to benefit from a regulated environment and a beneficial tax rate.

This publication in fact seeks to give an overview of the recent laws and regulations relating to the Virtual Financial Asset Services (i.e. VFA Services).

The scope of this brochure is restricted to VFA Services. Information relating to Initial Coin Offering (ICOs) is discussed in our brochure: "Malta – ICOs – The New Legislation".

B. TO WHOM DOES THE NEW LAW APPLY?

The legislation applies to any person who intends to provide a Virtual Financial Asset (VFA) Service in or from within Malta.

In order for a person to provide a VFA Service, the following must be met:

  1. A Licence, which is duly issued by the Malta Financial Services Authority (MFSA);
  2. To have at all times a VFA Agent, duly authorised by the MFSA.

At this stage, it is crucial to point out that as of the time of the publication of this brochure, the new legislation and relevant rules of the MFSA are still in draft form.

C. DEFINITION OF VIRTUAL FINANCIAL ASSET (VFA)

By way of a definition, a VFA is 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 one of the following as defined below:

  1. Electronic Money;
  2. Financial Instrument; and
  3. Virtual Token.

Legal definitions of the above:

Electronic Money means electronically, including magnetically, stored monetary value as represented by a claim on the issuer which is issued on receipt of funds for the purpose of making payment transactions (as defined) and which is accepted by a natural or legal person other than the financial institutions that issued the electronic money.

Financial Instrument includes the following:

  • Transferable securities, including shares and bonds;
  • Money market instruments such as treasury bills and certificates of deposit;
  • Units in a collective investment scheme;
  • Options, futures, swaps and any other derivative contracts relating to securities, currencies interest rates, yields, commodities or those that are traded on a regulated market etc.;
  • Derivative instruments for transfer of credit risk;
  • Rights under a contract for difference;
  • Instruments which confer property rights;
  • Foreign exchange held for investment purposes; and
  • Emission allowances under EU Emissions Trading Scheme.

Virtual Tokens have been defined as a form of digital medium recordation that:

  1. has no utility, value or application outside of the DLT platform on which it was issued; and
  2. may only be redeemed for funds on such platform directly by the issuer of such DLT asset.

Electronic money is excluded from this definition.

The MFSA is proposing a compulsory Financial Instrument Test in order to determine whether an asset is a Financial Instrument or not.

The process is a two-fold test, being:

  1. Does the VFA qualify as a Virtual Token as defined under the new laws? If it does, having in mind its restricted definition as per the new laws herein specified, then it is exempted under the new VFA Law and the licencing requirements do not apply.
  2. If it is not qualified as a Virtual Token, then one has to determine whether this qualifies as a Financial Instrument under MiFID (Section C, Annex 1) considering all the categories of Financial Instatements as identified above. If the answer is negative, then the asset is caught under the VFA Law and its licensing procedure must be followed.

In summary

If a cryptocurrency qualifies as a Virtual Token as defined in the new law and does not qualify as a Financial Instrument or Electronic Money, then it is exempted from the ambit of applicability of the new law and the licensing requirements are not needed for its issuing or trading.

D. DEFINITION OF VIRTUAL FINANCIAL ASSET SERVICE

In order to determine whether the relevant service is regulated, one has to analyse the definition of a VFA Service. This is crucial to determine the requirement or otherwise of a licence.

VFA Services have been defined by the legislation as being:

  • Reception and transmission of orders - The reception from a person of an order to buy, sell or subscribe for virtual financial assets and the transmission of that order to a third party for execution;
  • Execution of orders on behalf of other persons - Acting to conclude agreements to buy, sell or subscribe for one or more virtual financial assets on behalf of other persons;
  • Dealing on own account – Trading by using own funds to conclude transactions in one or more virtual financial assets;
  • Portfolio Management – Managing assets belonging to another person if such assets include a VFA or the manager has discretion to invest any of the assets in a VFA;
  • Custodian or Nominee Services of a VFA or private cryptographic key;
  • Investment Advice and recommendations to buy / sell / subscribe for / exchange / redeem etc. to potential investors in connection to a VFA;
  • Placing of VFA - The marketing of newly-issued VFA or of virtual financial assets which are already in issue but not admitted to trading on a DLT exchange, to specified persons and which does not involve an offer to the public or to existing holders of the issuer's virtual financial assets;
  • Operation of a VFA Exchange.

To read this Report in full, please click here.

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
Similar Articles
Relevancy Powered by MondaqAI
Kinanis LLC
Kinanis LLC
 
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
 
Similar Articles
Relevancy Powered by MondaqAI
Kinanis LLC
Kinanis LLC
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