Author: Chief Compliance Consultant global block chain compliance Union, Tahota (Beijing) Law Firm Luo Tao firstname.lastname@example.org
This article will detail the legal regulation of cryptocurrency in Malta.
In 2018, the Malta government and the crypto industry practitioners held multiple public comment meetings and formulated a set of regulations for digital finance, consisting of three complementary bills:
(I) Malta Digital Innovation Authority Act (“MDIA”);
(Ii) Innovative Technology Arrangements and Services Act (“ITAS”);
(Iii) the Virtual Financial Assets Act ("VFAA"),
(Hereinafter collectively referred to as the "Digital Innovation Framework").
Cryptocurrencies are not considered "currency" in Malta. Malta's Digital Innovation Framework lists four distributed ledger technology assets ("DLT Assets"):
(I) electronic money (essentially relying on or utilizing distributed ledger technology);
(Ii) financial instruments (essentially relying on or utilizing distributed ledger technology);
(Iii) a virtual token (commonly referred to as a utility token);
(Iv) Virtual Financial Assets ("VFA")
The four categories of DLT asset classifications are mutually exclusive. Currently, there are no cryptocurrencies supported by the Government of Malta or the Central Bank of Malta, and cryptocurrencies are not considered legal tender in Malta.
After the VFAA is promulgated, cryptocurrencies can be regulated in accordance with VFAA or existing financial services regulations. Available financial services regulations include, but are not limited to, Markets in Financial Instruments Directive II ("MiFID II"), Investment Services Act ("ISA" ) And the Financial Institutions Act, which regulatory regime applies depends on the classification of the underlying asset.
VFAA has introduced a mandatory regulatory regime that regulates DLT assets and related service providers, including ICOs and crypto asset exchanges. VFAA also introduced a new type of intermediary, called a Virtual Financial Asset Agent ("VFA Agent"). The VFA agent acts as the gatekeeper of the Malta Financial Services Authority (MFSA) and is responsible for conducting compliance checks on ICOs and crypto asset exchanges. Individuals or exchanges who want to register for a white paper or apply to become a VFA service provider should pass a registered VFA agent submit application.
In order to determine whether the assets involved are subject to VFAA regulation, MFSA has introduced a financial instrument test through which DLT assets are classified as one of the above 4 types of DLT assets to determine whether DLT assets are regulated by VFAA or existing Financial services are legally regulated or unregulated. This test must be performed on a case-by-case basis. VFAA states that it will be the responsibility of the VFA agent to conduct this assessment of DLT assets (if it is being tested against an ICO, it is the responsibility of the VFA issuer):
(I) the issuer intends to initiate an ICO in Malta or from Malta;
(Ii) the issuer allows VFA transactions;
(Iii) The service provider intends to carry out VFA-related services.
The test will first determine whether DLT assets will be classified as Virtual Tokens that are not under regulatory scope. A virtual token is defined as a form of digital media recording whose utility, value or application is limited to the acquisition of goods or services within the DLT platform (excluding DLT exchanges) that it issues or is related to. If it is determined that the DLT asset is not a virtual token, it must enter the second stage of the test, at which stage it will be determined whether the DLT asset falls under the scope of the existing financial services regulations. If the VFA agent determines that the DLT assets are indeed within the scope of the existing financial services regulations, based on the characteristics of the DLT assets, the issuer or service provider must comply with the regulatory regime applicable to financial instruments or electronic money. If a DLT asset is not covered by the existing financial services laws (or is considered a virtual token as described above), the DLT asset will be considered a VFA and therefore regulated by the VFAA.
If a DLT asset is identified as a VFA, VFA-related service providers will have to comply with VFAA regulations. For example, an issuer offering an ICO in Malta or to the public from Malta must register its white paper with the MFSA, and that white paper must meet the conditions set out in VFAA Schedule 1. In addition, VFA service providers (such as VFA exchanges) that provide VFA services in or from Malta, as listed in Schedule 2 of the VFAA, need to obtain an MFSA license before starting operations.
The sale of cryptocurrencies such as Bitcoin or other tokens may be regulated by securities laws. In order to determine whether the sale of tokens is regulated by securities laws, according to VFAA regulations, each DLT asset must be evaluated to determine whether the DLT asset belongs to (i) existing securities laws or (ii) VFAA or is unregulated. If a DLT asset is classified as a financial instrument after the test is completed, the asset must meet the requirements of the securities law.