Regulatory framework for Blockchain technology in Malta
Malta has enacted three acts of law in relation to Blockchain, ICOs & Virtual Financial Asset Services including the crypto exchanges, advisors, portfolio managers and custodians. The main law in relation to ICOs, and Virtual Financial Asset Services is the Virtual Financial Assets Act (“Act”), whereby within the Act a number of important definitions have been highlighted.
The main thrust of the Act is to ensure that the industry and investors at large are well protected, and it includes requirements for the prevention of market abuse activities such as insider dealing, market manipulation and unlawful disclosure of insider information by licence holders.
Virtual Financial Assets
The law defines a Virtual Financial Asset (VFA) as a digital medium of recordation which is a digital medium of exchange, unit of account or store of value. It also outlines what a VFA is not, namely:
- electronic money;
- financial instrument; or
- a virtual token.
The Act puts into perspective the regulation of ICOs, Crypto Exchanges and also introduces a novel concept, that of the VFA Agent.
A VFA Agent shall be an entity supervised by the Malta Financial Services Authority (“MFSA” or “Competent Authority”) which Agent shall be responsible among other things to ensure that the requirements under the Act are satisfied, but even more importantly to guide the issuer in respect of his obligations and responsibilities. The VFA Agent should always be independent from the issuer and such independence must be confirmed in writing to the Competent Authority.
The Act also regulates VFA Exchanges and DLT Exchanges. The difference between a DLT Exchange and a VFA Exchange is that a DLT Exchange is a trading venue, where any form of DLT Asset that is intrinsically based on DLT can be traded, whilst a VFA Exchange is an exchange where only Virtual Financial Assets may be transacted.
The world of crypto, ICOs and crypto related services is highly unregulated around the world, which leads to confusion, uncertainty and there have been cases to loss of investment. Malta is the first jurisdiction world wide to have introduced a clear legal and regulatory framework. Such regulation does not only provide certainty on the type of crypto asset one is dealing with but it also allows peace of mind for investors alike.
The fact that as a founder, being it in respect of an ICO, Crypto Exchange, Broker, Manager or Advisor, you are now in a position to select an EU based jurisdiction rather than an offshore one, reflects the credibility of your project and the importance placed on reputational risk.
Working with a reputable jurisdiction allows you to have better access to banks and other institutions which would otherwise outright refuse to work with companies located in offshore jurisdictions. The fact that large crypto exchanges such as Binance, OKeX and ZBX are setting up in Malta also shows that Malta is providing the right legal & regulatory framework within which to operate. Also, the fact that such a niche industry is being backed by the Prime Minister of Malta and the Minister for Digital Innovation and Financial Services shows that Malta is actively working to make this a successful industry.
For any assistance required please do not hesitate to contact our Fintech team on [email protected] or +356 2557 2557.