On the 11th of September, Joseph Cuschieri, CEO of the Malta Financial Services Authority (the 'MFSA', or 'the Authority' or 'the Regulator') announced that Malta’s three blockchain and crypto Acts will take force of law as of the 1st November 2018. The Acts have already been unanimously approved by Parliament, however, they take the force of law and become applicable in practice upon a notice which shall be published within the Government Gazette on the 1st November, 2018. Over the summer, the MFSA has also taken it upon itself to publish various guidelines to provide further instruction to individuals wishing to issue Initial Coin Offerings, set up exchanges, or set up technology companies in order to service the Blockchain industry.
What impact will this have?
The 1st of November shall be a date not to be missed for various stakeholders.
Giving the force of law to these Acts will not only constitute a significant milestone for Malta as a Blockchain Island, but it will also trigger the applicability of the transitory period set out at in the Virtual Financial Assets Act within which prospective licensees as well as issuers shall need to start preparing the necessary documentation in order to get licensed and/or become fully compliant with the requirements at law. Currently, prospective licensees offering their services, including exchanges, portfolio managers dealing in crypto, crypto brokers etc, as well as issuers which have launched their ICOs in Malta have done so in an unregulated manner which is not in breach of the law. This was a very advantageous position for any operator who sought to operate within a legal framework, but who could not wait and suspend operations until a finalised framework was in place. Under article 62 (1) of the Virtual Financial Assets Act (the VFAA), with the coming into force of the law on the 1st of November, concerned stakeholders have been given clarity with respect to the timeframes within which they need to get compliant.
How will this impact VFA Service Providers?
VFA Service Providers will have 12 months from the 1st November 2018,within which they can apply to attain a license under the VFAA. These entities may continue offering their services to clients in an unregulated manner whilst compiling their application for a license. However, in order to benefit from this transitory period, such entities would need to be offering its VFA service prior to 1st November 2018 when the VFAA comes into force. Here, it is important to note that the Regulator has clarified in a recent consultation paper that incorporation on its own will not be deemed as sufficient, and that such entities would need to be actively operating on the market. In such a case where an entity has been actively operating prior to 1st November, a notification must be sent to the MFSA in order to notify the Regulator that the company intends to attain a license under the VFAA. Following this notification, such entities will have 12 months within which they must submit a complete application to the Regulator to attain their license.
Entities which are not already actively operative by 1st November will need to complete the licensing process prior to operating legally under the VFAA.
The regime outlined in this section shall apply to entities or individuals offering the following services:
1. Reception and Transmission of Orders
2. Execution of orders on behalf of other persons
3. Dealing on own account
4. Portfolio Management
5. Custodian or Nominee Services
6. Investment Advice
7. Placing of virtual financial assets
8. The operation of a VFA exchange
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How will this impact issuers of Initial Coin Offerings?
Issuers of ICOs or persons seeking admissibility to trade their VFA will also be able to launch their ICO prior the 1st of November, and will have a three month transitory period within which they will need to draft a whitepaper which complies with the rigorous requirements set out in the First Schedule of the VFAA, and to register this whitepaper with the Authority. This three-month period within which to get compliant with the VFAA will only apply for such entities which have commenced their offering or applied for admission to trading between the 18th of October and the 1st of November.
Thus, Issuers of ICOs which have commenced their issuing or which have applied for admissibility to trade their VFA prior to the 18th of October will not need to register their whitepaper with the Authority.
Malta’s Efforts to become the Blockchain Island
Malta has been pushing towards officially becoming the centre of excellence in blockchain, crypto and ICOs. In fact, as the Blockchain Island, it was the first to regulate the area, where in July, Parliament has passed the following Acts:
- The Malta Digital Innovation Authority Act – creating the Malta Digital Innovation Authority, which shall be responsible for the certification of technology arrangements as well as the registration of VFA Service Providers;
- The Innovative Technology Arrangements and Services Act – setting out the regime for the certification of the Innovative Technology Arrangements and registration of Service Providers from a technology background.
- The Virtual Financial Assets Act- setting out the framework for ICOs as well as a regulatory regime for services relating to Virtual Financial Asses. This act will also regulate intermediaries, including brokers, crypto or hybrid exchanges, wallet providers, asset managers, investment advisors and market makers dealing with virtual currencies.
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Chetcuti Cauchi Advocates is establishing itself as a leading law firm within the Fintech industry, where senior partner Dr Priscilla Mifsud Parker, as well as head of corporate services, Mr Steve Muscat Azzopardi, have also begun actively advising and assisting clients who wish to set-up shop in Malta, with the hope of operating on the Blockchain Island and a true Fintech hub.
