Malta's VFA Framework

The Impact of the Virtual Financial Assets Act

Dr. Priscilla Mifsud Parker | 06 Aug 2019

Maltas VFA Framework img

With the launch of the legislation for Virtual Financial Assets (VFAs) in 2018, Malta created a regulatory framework for service providers of virtual currencies and its corresponding technology. 
With directives for anti-money laundering taken into consideration, the Maltese authorities set a number of minimum share capital requirements and governance structures designed to protect the market and avoid undesired operators in an industry already affected by fraud and cyber-attacks. 

Innovation within VFAs 

Many jurisdictions are following suit, with France implementing a legislative framework for VFAs, and Italy drafting a bill to regulate crypto exchanges.  In addition, whilst Estonia have announced plans to strengthen its virtual currency framework, the UK has introduced a consultation paper delving into the usages of blockchain in order to review laws that are already in place.  
An EU harmonised law regulating the industry is likely and would mean that any VFA license issued within the EU is in line with regulation surrounding other sectors within the financial market. Quality would be ensured and a level playing field and passporting services guaranteed across the EU.   Whatever the case, Malta must guarantee high-quality submissions for regulatory approval. 
The framework put into place in Malta ensures service providers issuing digital tokens, or VFA related services, with transparency, as well as permits the reception and transmission of orders; the execution of orders on behalf of other persons, dealings on own account; portfolio management; custodian or nominee services; investment advice; placing of virtual financial assets; and the operation of a VFA exchange. 

Security Token Offerings     

Security Token Offerings (STO), where each token denotes ownership of equity, can be issued in Malta if the prospectus is approved.  The Malta Financial Services Authority (MFSA) identified that issues may arise in the matching of the traditional financial instruments to tokens, and so is working on a policy that will streamline the approval of security tokens. This would increase the island’s success in the sector, as Malta would open doors to the EU capital market from passporting to any other country in the EU member state. 
Another issue would be locating a market where tokens can be issued for the first time and traded in a secondary market. Yet, tokenisation would enhance liquidity, whilst the Malta Stock Exchange (MSE) has entered into joint ventures to generate a Security Token Exchange. 
Malta has proven itself to be pro-business and has been eager to support innovation and emerging sectors by generating legal frameworks and guidelines in such industries, such as the implementation of a sandbox in order to increase investment into the market and create a space for new ideas to flourish.    

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