06/08/2018
Introductions in Maltese FinTech legislation
Three legislative acts designed to regulate the #FinTech industry and distributed ledger technology came into force in Malta, these being the #Malta Digital Innovation Authority Act, the Innovative Technology Arrangements and Services Act, and the Virtual Financial Assets Act. They refer to cryptocurrencies, #blockchain and Initial Coin Offerings (#ICO) - primary placements of tokens. Thus, Malta is in the vanguard of states establishing complex standards in three domains which became a stumbling block between irreconcilable blockchain opponents and strenuous crypto-adepts.
Malta is known as a blockchain hub, popular among FinTech community due to its loyalty to innovations. Many cryptocurrency exchanges and blockchain start-ups (for example, #Binance, #OKEx, #Tron, #Monaco, #DQR, #BigONE) have chosen Malta for their deployment. However, until recently, the "crypto-island" did not have legislation regulating these technologies. Hence, the Maltese authorities have made a real gift to the blockchain enthusiasts by setting transparent and clear rules of game in crypto-sphere.

What prescriptions from now on will be considered by Maltese FinTech community?

The Malta Digital Innovation Authority Act

According to the Act, the newly created body, the Malta Digital Innovation Authority, will be the regulator of the cryptocurrency industry. This agency will be entrusted with the functions of introducing and monitoring FinTech initiatives, as well as supplementary empowering competencies. The Authority will function in the format of the Board of Governors, headed by the Chief Executive Officer.

The Innovative Technology Arrangements and Services Act

The Act establishes a normative procedure for the registration and certification of operators of blockchain platforms and service providers using crypto-technologies. In particular, it contains rules for state registration of cryptocurrency exchanges with Maltese establishment or seeking to become residents of the island. It is assumed that that law will stimulate the influx of cryptocurrency exchanges to Malta.

The scope of the Act encompasses all providers and operators that use or develop software and architecture based on distributed ledger technologies, as well as providing other services utilizing blockchain. In addition, the Law contains regulations on smart contracts and associated digital applications, as well as decentralized autonomous organizations.

The technology or service will be deemed to be subject to registration and certification on the basis of one or combination of the following criteria:
- qualities;
- features;
- attributes;
- behaviours;
- other aspects.
The Malta Digital Innovation Authority will assess compliance with the criteria in each case, and will also issue a more extensive list of criteria based on the above.
Certification will be provided for a period of 2-3 years, and subsequently is subject to renewal.

The Virtual Financial Assets Act

The Act lays down the legal basis for the ICO (Virtual Financial Asset Offerings - offers of virtual financial assets, according to the Act terminology). The concept of virtual assets is quite broad and covers any digital way of capturing information that can be used as a digital medium of exchange and value storage.

The law obliges the companies attracting investments through ICO to publish project descriptions in the form of White Papers detailing their essence. Such a document should be presented in English, contain an actual date, confirmation from the project management on the compliance of the White Paper with the Maltese law, as well as the following information:
- necessary for the investor to make an informed choice, in an accessible form and expedient for analysis;
- summary - description of the project in plain language without the use of technological terms, revealing its main characteristics;
- key information (about risks, the issuer and virtual financial assets themselves);
- names of persons responsible for White Paper, data on the technical component, opportunities to quit from the project, proposed listing, guarantees for investors, applicable legislation, payment methods, bonuses, issuer's governing bodies, etc.

An important guarantee for investors in ICO is the fact that no contract, disclaimer or other instrument that is not explicitly mentioned in White Paper will be mandatory for the investor. Any ICO advertisement should also correspond with the information contained in White Paper. The issuer itself must comply with a number of criteria, including an honest way of doing business and an appropriate administrative structure.

New requirements in the context of financial transparency were introduced as well - the financial history of the issuers of tokens should now be publicly available, the above applying first and foremost to individuals initiating ICO. Web sites for ICO projects will also have to comply with certain rules, the development of which will be entrusted to the above-mentioned Malta Digital Innovation Authority.

Moreover, the issuers will be required to appoint agents for digital assets (VFA agents), which are lawyers, auditors, accountants, their companies and associations registered with an authorized body (not necessarily the Malta Digital Innovation Authority). The agents will be responsible for supporting the ICO in the context of compliance with all regulatory requirements, performing liaison functions, and notifying the Malta Digital Innovation Authority in case of legislative breaches. At the same time, they are to be formally independent from the issuer.

Persons providing services using virtual financial assets, including issuers of tokens, are subject to licensing by the Malta Digital Innovation Authority. The VFA agents are responsible for obtaining such a license. The Authority may appoint inspectors for periodic inspections of license holders, issue instructions for them, terminate or suspend (till the elimination of violations) their activities, impose administrative fines. License holders are required to pay a license fee.

Thinking about migration of your crypto-business to Malta? #QuantumAttorneys will assist you in moving to this jurisdiction with transparent and easy rules guaranteeing a stable business activity within the legal domain. After all, the bet on legislative certainty is that very case when the game is worth the candle!

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