Becoming The Blockchain Island
Up until a few years ago the mention of Malta to foreigners used to be welcomed with blank faces and a quick geography lesson. Today, this European island no longer needs an introduction. Malta has become globally recognized as the ‘Blockchain Island’.
Recently, new legal instruments have ensured that Malta steps forward one of the first countries to provide a clear blockchain and cryptocurrency regulatory framework. This has been done by adopting high-level principles that are inherent in most European Union laws.
To ensure that a high level of legal certainty is attained, and fundamental concepts such as consumer protection and market integrity are upheld, various safeguards were introduced. This is accentuated through the role of the Virtual Financial Assets Agent (‘VFA Agent’).
Who is an VFA Agent?
A VFA Agent is an entity or individual possessing the adequate skills to act as a gatekeeper, responsible for the protection of the public interest. The VFA Agent shall be the Malta Financial Services Authority (‘MFSA’)’s main point of liaison, and shall be expected to have the client’s due diligence documentation in place, whilst keeping abreast with the relevant anti-money laundering law and regulations, which the VFA Agent itself is subject to.
Prior to embarking on the carrying out its functions, the VFA Agent is subject to numerous strict rules and regulations. The Virtual Financial Assets Agent is expected to comply with rules enshrined in both Chapter 590 of the Laws of Malta (the ‘Virtual Financial Assets’ Act, hereinafter the ‘VFA Act’) and the Rules and Guidance Notes issued by the MFSA itself. Such a role may only be taken up by persons who are advocates, accountants, auditors, a group of such, or an organization controlled by the aforementioned persons.
Effectively, any class of persons holding the necessary experience and qualifications in the field, may also qualify on a case by case basis, and provided that such individual is fit and proper, a resident of Malta or residing in Malta, or if a non-Maltese company, operating a branch here in Malta.
Moreover, the Virtual Financial Assets Agent must ensure that when appointed by a client, services are rendered independently and professionally, thus at no point can the VFA Agent be ever considered to be an employee of the said client. The MFSA shall grant the VFA Agent license once it ensures that such VFA Agent satisfies all the necessary criteria, which include but are not limited to, having the required integrity, competence and solvency.
In practical terms the VFA Agent must appoint three ‘Designated Persons’ all answerable to the MFSA following written and oral assessments along with a Money Laundering Reporting Officer (‘MLRO’), which MLRO can be one of the mentioned three Designated Persons.
VFA Agent in terms of Article 7, Article 14, or both?
The above-mentioned high-level principles apply to a Virtual Financial Assets Agent whether acting on behalf of Issuers, Service Providers or both. However, capital requirements vary according to the services the VFA Agent would like to offer as denoted hereunder. The VFA Agent may seek to act as such in accordance with the following requirements:
|VFA Agent Registration||Capital Requirements|
|In terms of Article 7 – Acting as VFA Agent for Issuers||€75,000 + mandatory PII or €150,000|
|In terms of Article 14 – Acting as VFA Agent for VFA Service Providers||€75,000 + PII on a best effort basis|
|Registering in terms of Art 7 & 14 – Acting as VFA Agent for Issuers and VFA Service Providers||€75,000 + mandatory PII or €150,000|
As implied through the capital requirements, it is clear that the Virtual Financial Assets Agent’s role under Article 7 is an ongoing one, and is indeed more onerous than that carried out under Article 14, since the latter’s case, it is quite likely that one-off services are rendered, unless the VFA Agent is appointed as a compliance officer.
In both cases all communications with the Authority must be made through the Virtual Financial Assets Agent. Supplementary conditions for VFA Agents appointed both in terms of article 7 and article 14 of the VFA Act are provided in Chapter 1 of the Virtual Financial Assets Rules for VFA Agents.
In addition to the onerous capital requirements, the Virtual Financial Assets Agent must carry out its function in line with strict policies which outline the way in which the VFA Agent shall carry out outsourcing agreements, ensure that no confidentiality is breached etc.
Additionally, the Virtual Financial Assets Agent must provide the Authority with a robust business plan denoting the manner in which the VFA Agent shall guide clients and adhere to the various policies.
Further VFA agent’s requirements
It is fundamental that the Virtual Financial Assets Agent is competent to carry out its functions which may include: performing the financial instruments test to analyze the qualities of the coin or token being issued, determining which laws, rules or regulations ought to be consulted for such token issuance, and DLT asset classification.
For instance, in terms of Article 7 of the VFA Act, Issuers must be guided by the VFA Agent, on the requirements and disclosures to be included in the whitepaper before submitting for registration.
Moreover, the Virtual Financial Assets Agent is responsible to ensure that the operational setup of the client is in line with the whitepaper already presented. Through the VFA Agent’s diligence, the public is protected by ascertaining that the deliverables contained in the agreement shall come to fruition.
When acting under Article 14 of the VFA Act, and the VFA Agent has been appointed as a Compliance Officer, the VFA Agent must, inter alia, draw up and implement a compliance monitoring plan, whilst advising and assisting the relevant persons responsible for carrying out VFA services to comply with the Licence Holder’s legal and regulatory obligations.
Requirements are as rigorous as they are because the Virtual Financial Assets Agent is ultimately acting as a filter for the MFSA, reducing the number of applications which do not meet the necessary criteria and ensuring that complete and accurate information is provided to the competent authorities.
The VFA Agent’s role, however, should not be seen as a deterring one, but rather as a supportive one. The Virtual Financial Assets Agent shall assist its clients in various matters including; compliance with the provisions of the VFA Act and of any rules or regulations issued thereunder, ongoing liaison with the competent authorities, guidance and advisory services to ensure that the compliance with VFA Act, maintaining adequate records of such and issuing annual compliance report, together with advising on the nature of tokens being traded, and even assisting with the registration of the whitepapers.
Admonisher par excellence!
Essentially the role of the Virtual Financial Assets Agent is to ensure that public interest is at the forefront of the industry whilst ascertaining that innovation is not stifled. Through the VFA Agent, the MFSA is granted peace of mind, ensuring that key players coming to Malta to benefit from the robust framework shall benefit the industry and simultaneously bolster the country’s reputation.
The Virtual Financial Assets Agent provides an opportunity for serious businesses to be licensed here in Malta by assisting clients from token classification, to paving the way for the set-up and licensing of portfolio managers, virtual financial asset exchanges, and those seeking to provide investment advice and portfolio management on digital currencies.
All authorized Virtual Financial Assets Agents will be listed in a public register which will be accessible online and available to the general public.
Blockchain Advisory Limited has applied to register as a VFA Agent, and is currently operating as an MFSA-approved VFA Agent under the transitory period. If you are interested in our services or require any further information, click here to contact us or send an email to firstname.lastname@example.org