The Malta Financial Services Authority (“MFSA”) has on the 31st August, 2018 issued the final chapter for consultation in relation to Virtual Financial Assets Service Providers. What do these draft Rules State.
Transitionary Period
The Rule book commences by stating that any person who is providing a VFA service in accordance with the Second Schedule to the Virtual Financial Assets Act (the “Act”) in relation to a DLT Asset determined to be a Virtual Financial Asset shall within twelve months apply for a licence with the competent authority in terms of Article 14 to the Act.
Such a transitionary period is subject to:
i. A notification to the MFSA including:
a. Details of entity;
b. Services to be Offered;
c. Legal Assessment stating the activity under the VFA Act.
ii. The entity operating actively prior to the coming into force of the Act.
Highlights of the Consultation Document
The consultation document re-affirms previous announcements made by the MFSA that there will be four licence categories and that an applicant for any one of such licences shall require to appoint a VFA Agent. This also applies when a Licence Holder would want to amend or upgrade its licence. The consultation document outlines the need to appoint a Systems Auditor as well as the criteria which shall be taken into consideration for the granting of a licence.
The consultation document identifies that the business of a VFA Service Provider is to be guided by at least two individuals in order to pursue the dual control principle and that VFA Service Providers will require a Compliance Officer, Money Laundering Reporting Officer and Risk Manager (if applicable).
The Board of Administration together with Senior Management shall be composed of individuals of sufficient good repute, possess sufficient collective knowledge, skills and experience and commit sufficient time to perform their duties and be able to understand the licence holder’s activities, including the main risks. All members shall need to be deemed fit and proper and satisfy initial and ongoing capital requirements for each VFA Licence as outlined in the table hereunder.
| Class | Licence Activity | Capital Requirements |
| 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. Class 1 Licence Holders are not authorised to hold or control clients’ money. | €50,000 or €25,000 with PII Cover |
| 2 | Licence holders authorised to provide any VFA service but not to operate a VFA exchange or deal for their own account. Class 2 Licence Holders may hold or control clients’ money in conjunction with the provision of a VFA Service. | €125,000 |
| 3 | Licence holders authorised to provide any VFA service but not to operate a VFA exchange. Class 3 Licence Holders may hold or control clients’ money in conjunction with the provision of a VFA Service. | €730,000 |
| 4 | Licence holders authorised to provide any VFA service. Class 4 Licence Holders may hold or control clients’ money in conjunction with the provision of a VFA Service. | €730,000 |
The consultation document places emphasis on matters such as corporate governance, risk management and compliance as well as the safeguarding of clients’ assets and the need of having adequate Professional Indemnity Insurance. The draft rules included in this consultation document also outline the ongoing obligations which VFA Service Providers must adhere to from an organisational, operational and prudential aspect, including conduct of business obligations as well as adequate recording keeping (for a minimum of five years), reporting and disclosure requirements.
Virtual Financial Asset Exchanges shall also be subject to a number of supplementary conditions, which inter alia include but is not limited to the assessments on the quality of Virtual Financial Assets, from a technological, AML/CFT and cybersecurity measure.
Passporting into the EU
The consultation document also indicated that the VFA Service Provider may passport its services to another EU Member state subject to such entity notifying the MFSA of its intention to Passport its VFA Services to another Member State. This will be subject to the Host Member state laws and such a notification must be accompanied by an internal assessment carried out by the VFA Services Provider including a legal opinion from a lawyer or legal firm knowledgeable of the laws of such Host Member State.
About the Author
This article has been authored by Nicholas Warren – Senior Manager Financial Services and Blockchain. He holds over 16 years of consultancy experience to international clients on the various possibilities presented by Malta as a Financial Services Centre.
For more information please do not hesitate to contact our Fintech Team at info@csbgroup.com.mt or +356 2557 2557.
