Malta was amongst the very first group of jurisdictions which opted to create an ecosystem for DLT related projects to flourish and grow. However, the objective was not that of simply putting in place a framework which would provide a legal back-bone for operators and issuers to seamlessly carry out their activities – an approach taken by many other countries vying to become the ‘place to be’ for anything having to do with blockchain and cryptocurrencies.
The legislator instead focused on putting in place a long-term strategy – one which would also put the safeguarding of investors and general public at the top of its agenda. The consummation of these efforts was in the enactment of three important pieces of legislation, namely the Virtual Financial Assets Act, the Malta Digital Innovation Act and the Innovative Technology Arrangements and Services Act. Together, these Acts provided the necessary framework for the regulators to step in and work on putting in place a functional system in which operators, be it issuers of tokens or service providers, would be able to register their whitepapers or obtain a licence to render such a service respectively.
This was no easy task by any stretch of the imagination. Contrary to several other jurisdictions which opted to allow for their existing legislation to cater for such an industry; Malta created a completely new and separate framework which would address this sector in a holistic manner. This is in its own right, recognises the fact that this industry, still in its infancy, requires an ecosystem which would allow it to put its primary focus on innovation, without then having to worry about the uncertainty surrounding the legal position of its activity.
This is one of the issues emanating from jurisdictions that have alternatively attempted to amend their existing legislation to provide a quick solution in order to attract international investment. The complexity which surrounds such innovative technologies makes it impossible for existing laws to coincide without leading to discrepancies, as a result of the legislator not being aware of such an industry at the time of drafting the same.
Where is Malta now?
Since 1st November, 2018 – the date on which Malta promulgated the above three Acts, the regulators have been working endlessly to ensure that what is sought out under these laws is put into effect.
The MFSA following such date has embarked on the process of vetting and registering several VFA Agents. The latter will be at the forefront of the industry, ensuring that all issuers of VFAs and service providers are fit and proper to carry out such an activity and thus, safeguarding the integrity of this new emerging sector. The VFA Agents will be responsible for liaising on behalf of the applicant with the MFSA, and to advise the applicant in relation to all the responsibilities and obligations which arise from the law. It is expected that the first batch of VFA Agents will be registered in the next few weeks. CS Fintech Services Limited, which forms part of CSA Group, was amongst the first to submit its application to become registered as a VFA Agent.
Once the VFA Agents will be registered, the MFSA will then go on to start accepting applications for VFA Service Providers, as well as allowing issuers to register their whitepapers. Following the enactment of the aforementioned Acts, persons in Malta were not allowed to carry out such activity, bar for a number of exceptions which were put in place by the legislator. This includes those service providers which would have been granted a 12-month transitory period, as well as certain issuers which would have started their public offering prior to the coming into force of VFA Act.
The regulator has also indicated that a policy is being worked upon which would also provide some clarify in relation to Security Token Offerings, refer to those public offerings of DLT assets that would qualify as a financial instrument through an assessment carried out under the Financial Instrument Test. In the meantime, Malta’s traditional laws have continued to cater for issuers wanting to carry out a private placement of DLT assets or exempt public offerings, with the latter not having to register a prospectus with the Registry of Companies.
The MDIA has also been formed and it has opened its doors for the submission of applications by persons keen on becoming licensed System Auditors. The latter would be responsible for expressing opinions on whether the description of a technology arrangement would be fairly represented by its Client, and whether the controls included in the same description would be suitable designed to meet the applicable criteria. The System Auditor will also be allowed to issue a Reasonable Assurance Report containing the same opinions as expressed above, but which would also include an opinion on the operating effectiveness of the controls during the period covered by the audit.
The System Auditor will play a crucial role; both when persons are interested in having their technology arrangement certified by the MDIA, as well as when issuers and service providers would be required to provide assurance that their infrastructure and technology arrangements meet certain criteria during their registration or licensing process respectively. Scerri & Concise Limited, which forms part of CSA Group, has submitted its application to become a licensed System Auditor. Until then, it is still able to provide the services indicated above under the Acts, as well as additional ones such as the development of technology arrangements including smart contracts and dApps.
How can CSA Group help?
Our group of companies have positioned themselves in a way which would cater for the needs of our clients through a one-stop solution. With a team of professionals coming from different specialised areas, we take a pragmatic approach towards ensuring that the expectations of our clients are realistically met. Ranging from lawyers, tax advisors, accountants, auditors, developers and more, our group has positioned itself as one of the leading advisory firms within this space, which will continue to value quality over quantity every step of the way, whilst striving to provide the best customer-experience to all of our clients.