The Malta Financial Services Authority has published a Consultation Paper on the Virtual Financial Assets Regulations to be issued under the Virtual Financial Assets Act (VFAA).
The Regulations are intended to supplement the provisions of the VFAA, providing further guidance to issuers of tokens (particularly those doing an Initial VFA Offering) and offering any services classified as VFA Services under the Act.
The salient features of the Regulations are as follows:
Exemptions to the Act
The Proposed Regulations set out an exhaustive list of persons who shall be exempt from the requirement of a VFA services licence in terms of Article 13 of the VFAA. Whilst it is being proposed that certain exemptions are automatically applicable, others will need to be notified to the MFSA prior to their application, whilst others shall be subject to a determination in writing by the MFSA. A further exemption is proposed from the requirement of Article 29 of the Act which relates to advertising VFA Services.
Fees payable by VFA Services Licensees
The Proposed Regulations set out the different licensing categories that will be possible under the VFAA:
| Licence Category | Licensable Activities | Application / Notification Fee | Supervisory Fee |
| 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 | €3,000 | For revenue up to €50,000 = €2,750
Further tranches of €50,000 up to a maximum of €1,000,000 = €350 per tranche or part thereof |
| 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 | €5,000 | For revenue up to €250,000 = €4,500
Further tranches of €250,000 up to a maximum of €5,000,000 = €400 per tranche or part thereof |
| 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. | €7,000 | For revenue up to €250,000 = €6,000
Further tranches of €250,000 up to a maximum of €50,000,000 = €400 per tranche or part thereof |
| 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 | €12,000 | For revenue up to €1,000,000 = €25,000
Further tranches of €1,000,000 up to a maximum of €100,000,000 = €2,500 per tranche or part thereof |
Rules on the control of assets
In order to provide protection for investors, it is being proposed that persons in possession of a VFA Services Licence under the Act or acting under an exemption from the requirement of such a licence under the Proposed Regulations, are subject to additional requirements when holding and/or controlling clients’ monies and/or assets.
The term “control of assets” is being defined in the Regulations as the holding or control of assets belonging to, or on behalf of a customer, by a subject person acting in the course of rendering a VFA service under the VFAA, and includes custody of assets. For the purposes of the proposed regulations, the terms “hold”, “control”, “safeguard” and “deposit” are deemed to encompass private cryptographic keys used in relation to virtual financial assets.
The term “assets” on the other hand refers to movable and immovable property of any kind and excludes financial instruments as defined in the Second Schedule to the Investment Services Act, whether issued in Malta or not.
Administrative penalties and appeals
The proposed Legal Notice establishes that where persons falling with the scope of the Regulations fail to comply with any provision or rules issued thereunder, the MFSA as the competent authority may, by notice in writing and without recourse to a court hearing, impose on such person an administrative penalty and other administrative measures as set out in the VFAA. The authority may in such cases impose an administrative penalty up to €150,000 for each infringement or failure to comply, as the case may be. A right of appeal to the Financial Services Tribunal is also proposed.
Industry participants and interested parties are encouraged to send their feedback to the MFSA by no later than the 20th July 2018.
For more information on ICOs, Virtual Financial Assets, Blockchain, Smart Contracts and related areas please contact Dr Ian Gauci on igauci@gtgadvocates.com and Dr Cherise Abela Grech on cabelagrech@gtgadvocates.com