MFSA’s Virtual Financial Assets rules for issuers of VFAs
Doing business in Malta
Issuers of Virtual Financial Assets (‘VFAs’) in terms of the Virtual Financial Assets Act (the ‘VFAA’) are subject to Chapter 2 of the Virtual Financial Assets Rulebook.
This Chapter is sub-divided into four titles; namely, (i) the high level principles which should guide Issuers in the provision of their VFA activity, in or from within Malta; (ii) the requirements for Issuers and their respective obligations towards the functionaries that they must appoint; (iii) the initial and ongoing requirements applicable to Initial VFA Offerings and trading of virtual financial assets on DLT exchanges; and (iv) enforcement and sanctions in the event of misconduct by Issuers.
1. High-level Principles
Title 1 obliges issuers to act in an ethical manner and in the best interest of Malta, taking into consideration investor protection, market integrity and financial soundness in carrying out their activity.
Further, it requires them to act honestly, fairly and professionally, to cooperate fully with the Malta Financial Services Authority (‘MFSA’) in an open and honest manner and to provide it with any information it may require. Issuers are also obliged to refer to, and where applicable comply with the applicable Maltese and European Union legislation.
2. Requirements for Issuers
Title 2 sets out the requirements for Issuers and identifies the functionaries which an Issuer must appoint. It also establishes the obligations of the Issuer towards the said functionaries.
One of the requirements is that an Issuer is a legal person duly formed under the laws of Malta. Furthermore, its business should be effectively directed or managed by at least two individuals in satisfaction of the ‘dual control’ principle.
This Title also establishes the requirements for the Issuer’s Board of Administration along with an obligation to appoint and have in place, at all times the following functionaries:
(i) a Systems Auditor;
(ii) a VFA Agent;
(iii) an Auditor; and
(iv) a Money Laundering Reporting Officer.
This title also governs the relationship between the Issuer and the aforementioned functionaries, as well as any custodian which is appointed by the Issuer for the safekeeping of its assets and investors’ funds.
Ultimately, requirements regarding the Issuer’s cyber-security, record keeping and I.T. infrastructure are also set out.
3. Initial VFA Offerings and Trading on a DLT Exchange
Title 3 sets out the initial and ongoing requirements applicable to Initial VFA Offerings, which mainly relate to the contents of the whitepaper and the requirements needed to register it. Amongst other things, the whitepaper shall convey factual information about a business in words and figures, and shall serve as a source of information about the Issuer and its proposed activities.
This title also sets out the conditions for admissibility to trading on a DLT exchange, rules relating to transactions by restricted persons and with related parties, transactions involving substantial unit holdings and regulated information.
4. Enforcement and Sanctions
Title 4 enables MFSA to impose administrative penalties and/or sanctions on Issuers in the event of misconduct. It inter alia provides the principles which guide the MFSA when imposing an administrative penalty and/or sanction and provides for aggravating and mitigating circumstances. Ultimately, an Issuer on whom penalties and/or sanctions are imposed shall have a right of appeal to the Financial Services Tribunal.