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As a leading Corporate Services Provider in Malta, CSB Group is able to provide expert advice and assistance on what Malta has to offer in relation to the Fintech Industry. 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.
Blockchain Regulations 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. 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.
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.
Malta Financial Services Authority (MFSA) & Malta Digital Innovation Authority (MDIA)
The MFSA is Malta’s leading regulatory authority who is responsible for the ongoing oversight and licencing of companies in the digital space, being it blockchain, crypto currencies as well as other innovative technologies which in future may or are already marrying themselves with traditional financial services products, such as banking, insurance, investments services and much more. The MFSA is leading the way by creating its ‘FinTech Regulatory Sandbox’ and FinTech Innovation Hub, thus providing entities with a platform to explore and test their business concepts & solutions, in a contained environment.
The MDIA seeks to promote and develop the innovative technology sector in Malta. It is responsible for providing formal recognition and regulation of relevant innovative technology arrangements and related services. Its main objectives and are the promotion & enforcement with innovative technology arrangements of ethical & legitimate criteria, harmonisation of local standards with international criteria, the promotion of transparency & accountability together with oversight and auditing of innovative technology arrangements. It is also responsible for promoting ease of accessibility, recognition and implementations of the right of exit, removal or expiry of participation from any arrangement.
Regulation has become the cornerstone of any business activity, and as time goes by more and more regulations are delivered for us to follow. In this technological day and age, Regulation and Technology are meeting to address regulatory challenges in order to allow companies to afford greater focus into what they do best, thereby creating more value for their clients. RegTech enables the compliance function to become more effective and efficient increasing, monitoring regulatory change, regulation interpretation whilst, providing regulatory data through automated report.
Regulators around the world, also need to cope with the new rules which they own, whilst providing investors with peace of mind that the various sectors are being adequately supervised.SupTech is the use of technology by regulatory authorities, which support them in their day-to-day regulatory and supervisory work. This is achieved through the digitisation of countless reports and data collection exercises which supervisory authorities necessitate. Such technology allows regulatory bodies to make use of streamlined and efficient reporting systems, giving them real-time date and enabling them to be more proactive in monitoring licenced firms, whilst also reducing the burden on operational licenced entities.
Initial Coin Offering – ICO
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 fees shall apply:
|Application/Notification Fee||Annual Supervisory Fee|
|Whitepaper Registration||€8,000||€2,000 upon submission of compliance certificate|
|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|
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.
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.
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
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 & Bookkeeping 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.