Cryptocurrency Services in Malta

Cryptocurrency Services in Malta

Being the first country to have its regulatory framework for Blockchain technology, Malta can be considered at the forefront for embracing this revolutionary innovation.

Cryptocurrency in Malta

The cryptocurrency-friendly jurisdiction that Malta has created has already attracted major cryptocurrency exchanges in the world who are to set up offices on the island. The stable system and the forward approach that the island has to offer is creating the ideal setting to attract further investment.

Blockchain Regulations in Malta

On the 4th of July, the Maltese Parliament passed three bills into law, giving any interested investor a clear picture of the legal framework required to set up a legitimate cryptocurrency business in Malta. These are the Malta Digital Innovation Authority Act, the Innovative Technological Arrangement and Services Act, and the Virtual Financial Asset Act.

ICOs

An Initial Coin Offering, or ICO, is a fundraising mechanism in which new projects sell their underlying crypto tokens in exchange for bitcoin and ether. It’s somewhat similar to an Initial Public Offering (IPO) in which investors purchase shares of a company.

Malta has introduced a clear regulatory framework for ICOs, tokens as well as cryptocurrencies. Malta has also gone a step further by clarifying that if a token is classified as a Utility Token, then such tokens are not regulated in terms of law. For clarity sake a utility token is one which does not give the token holder any rights or obligations. In order to determine the type of digital asset (DLT Asset) which an issuer will be undertaking the Malta Financial Services Authority (“MFSA” or “Competent Authority”)  has devised a financial instruments test, which is a mandatory requirement for:

  • companies seeking to set up an ICO in or from within Malta;
  • companies which issued DLT assets overseas but wish to carry out a related activity in or from Malta; and
  • all other entities which shall be dealing with DLT-assets.

The Test will determine whether the DLT asset will be:

  • exempt from any regulations;
  • regulated under the Investment Services Act in line with MiFID; or
  • regulated under the VFAA.

The Test will be applicable prior to the submission of the:

  • whitepaper to the competent authority; or

application for admission to trading on a VFA exchange or the provision of a VFA service.

Stage 1: Does the DLT Asset qualify as a VT under the VFAA?

  • If it is a VT (i.e. cannot be exchanged outside of its platform), it will be exempt from regulation. If the answer is no, one must move on to Stage 2

Stage 2: Does the DLT asset qualify as a financial instrument under Section C of Annex 1 to MiFID?

  • If it is a financial instrument, it will be regulated by MiFID and corresponding national regulation.

If the answer is no, then the DLT asset would be considered a VFA and caught under the VFAA.

Any issuers shall co-operate with the MFSA and shall refer to the relevant rules, Maltese laws and regulations as well as guidance notes issued by the Competent Authority from time to time. Issuers shall also comply with any relevant EU laws, guidance notes, statements and industry best practices (where applicable).

The following fee shall apply:

  Application/Notification Fee Annual Supervisory Fee
Whitepaper Registration €8,000 €2,000 upon submission of compliance certificate
VFA Agent:
Appointed in terms of article 7 of the Act (Setting up an ICO) €12,000 €12,000
Appointed in terms of article 14 of the Act (License for VFA service) €10,000 €10,000
 Appointed in terms of both articles 7 & 14 of the Act €15,000 €15,000

VFA Agent

In order to apply to the Competent Authority in relation to an ICO, a Malta VFA Agent shall be engaged. The VFA Agent shall undertake the Financial Instruments Test to ascertain whether the underlying nature of the coin or token to be issued is a virtual financial asset, a virtual token, electronic money or financial instrument. Such test will be important to determine which laws, rules and regulations will apply for the issue and the classification of such assets.

A Malta VFA Agent shall ensure that the client has a robust and significant business plan and shall also guide the client on the requirements, information and disclosures which are required to be included in the whitepaper before such are submitted to the MFSA for approval. Thus, a Malta VFA Agent, shall be acting as a gatekeeper responsible for the protection of the public interest by ensuring that it is content with the client, his background, operational setup, and ability to deliver the proposed business plan as tabled within the application documentation to the MFSA.

The Malta VFA Agent shall be the MFSA’s main point of liaison and contact, and such Agent shall be required to keep all necessary documentation as well as other information on the issue/s made. It would need to furnish such to the MFSA or other relevant competent regulatory organisations during onsite and offsite compliance monitoring. This puts an emphasis on the Agent to ensure that all necessary due diligence documentation is in place and kept up to date in accordance with relevant anti-money laundering law and regulations. the Agent itself shall be subject to Chapter 373 to the Laws of Malta and the relevant subsidiary legislation.

Nevertheless, the role of the Malta VFA Agent does not stop here. The Agent shall on a yearly basis ensure that an annual compliance report is submitted to the MFSA.

Crypto Exchanges

A Class 4 VFAA license will be required to set up a Cryptocurrency exchange. Persons seeking to attain a license under the VFAA in order to set up a VFA Exchange in or from Malta will need to undertake a fit and proper test.

The MFSA will need to be satisfied that the applicant will comply with and observe the requirements of the VFAA and any other rules issued thereunder.

Governance Arrangements

A VFA Exchange must have certain governance arrangements in place concerning the safeguarding of the customer’s assets. To this effect a subject person (VFA Exchange) shall appoint a single officer of sufficient skill and authority with specific responsibility for matters relating to the compliance by the subject person with its obligations regarding the safeguarding of customer assets.

The subject persons shall decide whether the appointed officer is to be dedicated solely to this task or whether the officer can discharge responsibilities effectively whilst having additional responsibilities.

External Reporting requirement

A VFA Exchange shall ensure that its external auditors report at least annually to the Competent Authority on the adequacy of the subject person’s arrangements which shall form part of the annual report to be submitted to the Competent Authority in terms of Article 50(6) of the Act.

VFA Class 4 Fees

  • Licence holders authorised to operate a VFA exchange and to hold or control clients’ money, virtual financial assets and, or private cryptographic keys and custodian or nominee services solely in relation to the operation and activities of such VFA exchange.
  • Application Fee €24,000
  • Annual Supervisory Fee
  • For revenue up to €1,000,000 = €50,000
  • Further tranches of €1,000,000 up to a maximum of €100,000,000 = €5,000 per tranche

VFA Services

The Virtual Financial Assets Act, defines a VFA service, as any services falling within the Second Schedule to the Virtual Financial Assets when provided in relation to a DLT Asset which has been determined to be a virtual financial asset. A license will be required for the provision of a VFA Service.

The Second Schedule to the Act describes the types of VFA Services which may be offered in terms of the Act:

Reception & 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 against proprietary capital resulting in conclusion of transactions in one or more virtual financial assets.

Portfolio Management: Managing assets (one or more virtual financial assets or the arrangements) belonging to another person having discretion to invest any of those assets in one or more virtual financial assets.

Custody or Nominee Services: Acting as custodian or nominee holder of a virtual financial asset and, or private cryptographic key; or holding a virtual financial asset and, or private cryptographic key as nominee, where the person acting as nominee is so doing on behalf of another person.

Investment Advice: Giving, offering or agreeing to give, to persons in their capacity as investors or potential investors or as agent for an investor or potential investor, a personal recommendation in respect of one or more transactions relating to one or more virtual financial assets.

Placing of virtual financial assets: The marketing of newly-issued virtual financial assets 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.

Operations of a VFA Exchange: An exchange where only Virtual Financial Assets may be transacted.

Obtaining a VFA Licence

In order to be able to provide the above services an applicant would need to obtain a VFAA Licence as described hereunder.

VFAA Class 1

  • Licence holders authorised to receive and transmit orders and, or provide investment advice in relation to one or more virtual financial assets and, or the placing of virtual financial assets.
  • Application Fee €6,000
  • Annual Supervisory Fee
  • For revenue up to €50,000 = €5,500
    Further tranches of €50,000 up to a maximum of €1,000,000 = €700 per tranche

VFAA Class 2

  • Licence holders authorised to provide any VFA service and to hold or control clients’ money, but not to operate a VFA exchange or deal for their own account.
  • Application Fee €10,000
  • Annual Supervisory Fee
  • For revenue up to €250,000 = €9,000
  • Further tranches of €250,000 up to a maximum of €5,000,000 = €800 per tranche

VFAA Class 3

  • Licence holders authorised to provide any VFA service and to hold or control clients’ money, but not to operate a VFA exchange.
  • Application Fee 147,000
  • Annual Supervisory Fee
  • For revenue up to €250,000 = €12,000
    Further tranches of €250,000 up to a maximum of €50,000,000 = €800 per tranche

VFAA Class 4

  • Licence holders authorised to operate a VFA exchange and to hold or control clients’ money, virtual financial assets and, or private cryptographic keys and custodian or nominee services solely in relation to the operation and activities of such VFA exchange.
  • Application Fee €24,000
  • Annual Supervisory Fee
  • For revenue up to €1,000,000 = €50,000
  • Further tranches of €1,000,000 up to a maximum of €100,000,000 = €5,000 per tranche

Our Services

As a leading Services Provider in Malta, CSB Group is able to provide further information and assistance on what Malta has to offer in relation to blockchain and cryptocurrencies. Backed with years of experience in company incorporation, tax advisory and regulatory and compliance, our team can give complete solutions to anyone wishing to set up a fintech operation in Malta.

Our Services include:

  • Accounting & Booking Keeping Services;
  • Assistance with MFSA Application Process (ICO, Crypto Exchange, VFA Services);
  • Assistance with setting up of local presence & substance (office space and personnel);
  • Assistance with MFSA meetings, forms and due diligence requirements;
  • Assistance for the attainment of EMI/PSPs & MiFID Licences;
  • Bank Account Opening;
  • Company Formation;
  • Company Re-domiciliation;
  • Drafting of legal documents;
  • Drafting or Review of ICO White-Paper;
  • Drafting or Review of Business Plans;
  • Drafting Policies, Website T&Cs, GDPR compliance;
  • Financial Instruments Test;
  • Financial Projections;
  • Licence Advisory Services;
  • Legal opinions;
  • Ongoing Monitoring;
  • Tax and VAT Services;
  • VFA Agent Services.

 For any assistance required please do not hesitate to contact us on [email protected] or +356 2557 2557.

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CSB Group
[email protected]

+356 2557 2557