Malta ICO has been domesticated, IEO? ——A preliminary study on the compliance of the ILO in Malta

Author's note : When the regulatory authorities in Malta have domesticated the ICO into a law-abiding good boy, a child IEO who is similar to the ICO is bravely rushing forward with the burdock. Although ICO has rules in Malta, it may not be applicable to IEO. What are the reasons and impacts? Look together.

The currency circle has never lacked hotspots, even in a bear market, it is IEO that has recently earned the eye of the market. Since Binance and BitTorrent (BTT) have opened a powerful precedent, many well-known or unknown digital currency exchanges are not already being tried, or they are preparing. Try it on the way. Many investors are more eager for the IEO project, lest they miss the rare dividend in the bear market, and the sound of singing and singing in the square is both.

However, there is no accurate definition of what IEO is. It is called Initial Exchange Offering in the market. Although the meaning of IEO is not clear, the corresponding behavior is relatively clear and consistent, that is, the project party issues its own token through the exchange, and publicly raises funds for the users of the exchange (the currency raised includes bitcoin, platform). Coin or other currency) and is circulated on the exchange.

This kind of public fundraising behavior, even if it joins the role of the exchange, enhances the credit of the project party and solves the problem of token circulation, but it is essentially the same as ICO. Therefore, it is prohibited or not for ICO. In a welcome country, it may be difficult for IEO to find a soil that has taken root (such as China and the United States). In a country where ICO has already established an ICO regulatory system (such as Malta), can IEO be legally carried out and blossomed everywhere?

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According to the disclosure of public information, the author notes that in the current few IEO projects, Malta's IEO projects may not be too small, based in Malta-based exchanges (such as Coin, OKex), or in Malta. The institution (such as Bittrex has the exchange Bittrex International in Malta), or the initiator of the IEO, or the followers who are not behind. The application of the ICO regulations in the IEO projects on these exchanges is a more interesting issue.

1. Malta ICO compliance requirements

Under the Malta Regulations, ICO is known as the Initial Virtual Financial Asset Offerings. According to the relevant provisions of the "Virtual Financial Assets Act" (VFAA), the issuer's act of raising funds by publicly issuing virtual financial assets (VFA) to the public constitutes the issuance of virtual financial assets.

According to VFAA, the issuer intends to issue the first virtual financial asset, which mainly meets the following requirements, and it usually takes at least 3 months to complete the entire process.

(1) The nature of the token : The issuer intends to conduct the financial instrument test first (Financial Instrument Test) to determine whether the nature of the first virtual financial asset is the VFA regulated by the VFAA, or the financial instrument, E-money and other types of assets subject to other laws;

(2) Delegate VFA agent : The project party needs to appoint a VFA agent who has already registered with the Malta Financial Services Authority (MFSA), which is responsible for submitting the white paper registration application to the MFSA and communicating with the MFSA;

(3) Issuer's main body requirements : The issuer must be a legal entity established in Malta (may be a private limited company, a public limited company, and may establish a foundation in the future);

(4) White Paper Requirements : VFAA has many requirements for the content and format of the white paper (for example, the information of the VFA agent needs to be listed in the white paper), and the issuer needs to register the white paper with the MFSA before the first virtual financial asset is issued;

(5) Persistent compliance requirements : The issuer must meet the VFAA requirements for continuous compliance, such as establishing a cybersecurity framework, keeping documents and documents for a certain period of time, submitting annual compliance statements and auditor reports to MFSA, etc. Pay regulatory fees to MFSA.

According to the VFAA regulations, if the issuer illegally issues the first virtual financial asset issuance, MFSA has the right to order the issuer to stop issuing and impose a fine of 150,000 euros.

2. Malta's IEO compliance status

It can be seen from the above that the Malta regulatory authorities have established a comprehensive and systematic regulatory framework and operational rules for the ICO. Since the three keywords of VFA, publicity and fundraising show the same characteristics as the ICO, the IEO is incorporated into the regulation of the ICO in Malta. The framework does not seem to have much doubt, but the actual situation may not be the case.

The author notes that according to the audit requirements of the IET project disclosed by Bittrex International, the project token to be issued at Bittrex International needs to be VFA, and the project party is required to provide legal advice from Malta's practicing lawyers on their tokens belonging to VFA. . According to the founder of the relevant media reports, the currency in the currency (including but not limited to the case of IEO) also requires lawyers to issue legal opinions that the token does not constitute securities.

Take the two IEO projects on Bittrex International as an example. OneRaid Pte. Ltd., the issuer of RAID ( a project that uses blockchain technology to disseminate game data ), is a private limited company registered in Singapore, originally expected in 2019. IEO was conducted at Bittrex International on March 15th, but the release was discontinued due to a termination of cooperation with a major partner; another project is VeriBlock, which is scheduled to be launched on April 2, 2019 ( a PoW- based consensus mechanism) The public chain project ), the project's issuer Xenios SEZC is a Cayman company. The tokens to be issued for both projects are VFAs as defined by VFAA, without any equity or bond-like interests (such as voting rights, dividends, redemption rights, liquidation rights, etc.), which are issued at Bittrex International. Users who have an account (except for users in countries such as the US and China).

I have noticed that the issuers of the RAID and VeriBlock projects are not entities registered in Malta (the former is a Singapore company, the latter is a Cayman company), and none of the IEOs have delegated VFA agents ( if delegated, VFA ) Information needs to be listed in the white paper, but the white paper does not mention the relevant information. ) The white paper is not produced in accordance with the requirements of the VFAA ( as mentioned above, if it is a white paper prepared by VFAA , which will contain information about the VFA agent, However, it does not ), the white paper is likely not to apply to the MFSA for registration ( if it is a registered white paper, its content is unlikely to be clearly inconsistent ).

While other IEO projects have been completed on the Malta exchange, although there are few publicly disclosed project compliance information, from the content of the white paper published by the project side, almost no project parties have appointed VFA agents. The white paper is not Produced in accordance with the provisions of the VFAA. In general, except for the financial instrument testing of the nature of the token, almost no ICO regulations under the VFAA have been fully applied to the IEO projects in Malta.

3. Reasons why the ILO in Malta does not apply to the ICO regulations

The author speculates that the current reasons for the Malta IEO project not fully applicable to the Malta ICO regulations may be mainly in the following aspects:

(1) The project party is not an entity established in Malta, so the ICO regulations are not applicable.

(2) Although the effect of the publicly funded IEO is the same as that of the ICO, there is no clear certainty in the law. There is room for interpretation and operation of the ICO regulations.

(3) The role of the exchange has been added to the IEO. The issuance of the token primary market and the circulation of the secondary market can be achieved almost simultaneously. It may not be entirely appropriate to apply the existing ICO rules.

(4) In the case of a company rushing to implement an IEO in the market, both the project party and the exchange hope to head forward and obtain funds and influence as soon as possible. Compliance may not be the primary factor to consider, not to mention the ICO's regulatory requirements. The time required to meet the compliance requirements is long and the cost is high.

(5) The risk and responsibility of project compliance mainly lies in the project side, and the investment risk is mainly in the investor. The exchange will neither endorse the compliance of the project party nor guarantee the loss of the investor. In this regard, the Exchange may not focus on the issuer's legal application when conducting an IEO project screening and review.

4. Malta IEO does not apply to the impact of ICO regulations

For a foreign project party that does not have an entity registered in Malta, for the purpose of public financing, there is an efficient, low-cost, less regulated approach in Malta that can be selected (ie, directly in the ILO in Malta) Not applicable to the Malta ICO regulations), and what are the reasons and motivation to choose a low-efficiency, high-cost, high-regulation distance (ie, in accordance with the Malta ICO regulations, the establishment of a legal entity in Malta, the assignment of VFA agents, production and MFSA registration white paper, continued compliance with MFSA regulatory requirements, and commitment to regulatory fees)?

If Malta's IEO can indeed circumvent the application of the ICO in Malta, Malta's regulation of ICO may be falsified to a certain extent – but if a project can meet the conditions of the IEO set by the exchange, few projects will be Willing to take the initiative to choose ICO, put on the ICO's regulatory shackles. Therefore, the current picture is that the regulatory authorities in Malta have just domesticated ICO into a good law-abiding child. A child who is similar to the ICO is bravely rushing forward with the sire of the newborn.

When more and more IEO projects appear on the land of Malta, especially when problems and risks have arisen in the ICO, how and for how long will the regulatory authorities in Malta remain tolerant of IEO in the future? Perhaps the answer is not far away.

PS: The author is not a practicing lawyer in Malta. He does not make compliance judgments on the existing Malta IEO project. The above observations, analysis and discussion are only one statement. Welcome to correct me.

Author: Zhang Ling, a partner at law firm Han

Disclaimer: This article only represents the author's personal opinion and does not represent the opinions of the organization. The contents of this article do not constitute legal advice and investment advice. To reprint or cite any of the content in this article, please include the author's name.

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