NEWS
27 Feb 2019
By means of a circular published on the 25th February 2019, the Malta Financial Service Authority published the final version of Chapter 3 of the Virtual Financial Assets Rulebook: Virtual Financial Asset Rules for VFA Service Providers. (‘Chapter 3’). It is aimed at VFA service providers wishing to obtain a VFA Services licence under the Virtual Financial Assets Act, Chapter 590 of the Laws of Malta (‘the VFA Act’).
This article summarises the salient features and obligations which arise out of the Chapter, while also outlining a number of significant changes the MFSA made from the consultation document which led to the final version.
From an aerial perspective, Chapter 3 outlines:
There are four types of licences:
Classes 2, 3 and 4 are allowed to hold or control clients’ assets or money in conjunction with the provision of a VFA Service. Assets held under the control of a VFA service provider, are deemed by law to constitute distinct patrimony and not subject to setting off debts of creditors of the operator. VFA service providers can only deal with FIAT and VFAs. They cannot deal with financial instruments, electronic money or exchange between FIAT currencies.
An applicant for a licence, must demonstrate to the MFSA that it has sufficient integrity, competence and solvency to run the operation. This assessment shall be applicable to every:
A consolidated list of the policies and procedures which are required by the VFA Service Provider is as follows:
Licensees are also required to make every effort possible to take out and maintain a professional indemnity insurance covering any loss or damage.
The Rule book adds a section dealing specifically with VFA Service Providers operating under the transitory period. VFA Service Providers benefitting from the transitory provision under the VFA Act remain under an obligation to comply on a best effort basis. Such VFA Service Providers shall apply for a VFA Services License within 12 months from the date of the coming into force of the VFA Act, namely the 1st of November 2018.
It lists some requirements specifically:
Exchanges are required to abide by the listing criteria prescribed in the rules issued by the MFSA, that include:
Interestingly, Chapter 3 now requires that all licence holders must be legal persons. The Rulebook now disallows Investment Advisors falling under Class 1 from being natural persons.
Chapter 3 adds that Licence Holders shall not perform services in relation to any VFAs which have an inbuilt anonymisation function, unless the holder and transaction history of that VFA can be identified. Privacy and anonymity-oriented VFAs are considered a pervasive and often contentious topic. As a result, the MFSA has cast a distrustful eye on such protocols, rightfully averting the potentiality of a new medium for illicit and illegal activity.
The final version of "Chapter 3 of the Virtual Financial Assets Rulebook: Virtual Financial Asset Rules for VFA Service Providers" can be viewed here.