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Originally published Tuesday, 30 January 2018
After the Malta Financial Services Authority's ("MFSA") consultation process on the Regulation of Collective Investment Schemes Investing in Virtual Currencies and the subsequent feedback statement issued on such matter, the MFSA has published Supplementary Conditions applicable to Professional Investor Funds ('PIFs') investing in Virtual Currencies ('VCs'). Coupled with the recent discussion paper on Initial Coin Offerings, Virtual Currencies and Related Service Providers, it is clear that the MFSA is seeking to create a strong regulatory framework and ensure high levels of investor protection and market integrity in the ever-expanding digital economy.
The supplementary license conditions have introduced new requirements targeted at PIFs seeking to invest in VCs at both the application stage as well as on an ongoing basis following the attainment of such licence. The MFSA has recently confirmed that such regulatory framework shall also extend to PIF's who only have a limited exposure to VCs.
Primarily, the prospective licence holder must ensure that the key players involved in the PIF's structures have the relevant knowledge and experience in the field of information technology and VCs aswell as its underlying technology. Furthermore, applicants must also include adequate risk warnings associated with both direct and indirect investment in VCs. It is also necessary that the scheme's investment manager conducts the necessary assessments on the type of VCs which are being invested into. Such investment manager must also ensure that the risk profile of each proposed VC investment is in line with the risk management policy of the PIF prior to any investment. The MFSA is also insisting that appointed service providers have the necessary qualities to conduct adequate valuations of the Scheme's investments in VCs.
It is to be noted that whilst the newly issued supplementary license conditions relate solely to PIFS, in a recent feedback statement the MFSA has confirmed that it is currently considering extending its regulatory framework to include Alternative Investment Funds ("AIFS") and Notified AIFS investing in VCs within the coming months.
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