Practice Areas > Investment Services, Fintech & Capital Markets > Blockchain & ICOs > Crypto Exchange Licensing > Requirements
Incorporation of a Malta company
Who Can Apply for a Crypto ('VFA') Exchange Licence?
Subject to the fulfillment of certain Malta crypto exchange licence requirements, including the submission of a licence application with the Malta Financial Services Authority (‘MFSA‘), any legal person may issue virtual financial assets. As such, as per the Chapter 3 of the VFA Rulebook on VFA Service Providers, a person wishing to be licensed to operate a VFA Service, including a crypto exchange, must be a legal person established in Malta. Typically, an integral part of the registration of a whitepaper with the MFSA will be the incorporation of a Maltese company.
Gonzi & Associates, Advocates, together with its related company, GA Corporate, may assist with the incorporation of a Maltese company.
Cryptocurrency Determination
'Financial Instrument Test'
The legal term for a Malta-licensed crypto exchange is ‘VFA Exchange‘. Under the Virtual Financial Assets Act this term is defined as “a DLT exchange operating in or from within Malta, on which only virtual financial assets may be transacted in accordance with the rules of the platform or facilty, which is licensed by the competent Authority (…) to provide such services“.
Thus, an important requirement for Malta licenced crypto exchanges is that only cryptocurrencies qualifying as ‘virtual financial assets’ under Maltese law are transacted. As such, DLT assets in the nature of other traditional financial instruments may not be transacted on crypto exchanges licenced under the Virtual Financial Assets Act. It rests with the crypto exchange in question to ensure that only Virtual Financial Assets are transacted on its platforms.
Our team of expert lawyers at Gonzi & Associates, Advocates is well suited to assist you in analysing the features and characteristics of your token to determine it’s legal class under Maltese law. By providing legal opinions on the nature of the DLT asset in question, our Firm undertakes ‘Financial Instrument Tests‘ to establish whether the cryptocurrency considered for admission to trading qualifies as a ‘Virtual Financial Asset‘ and not as other excludable categories which are: E-money, Transferable Securities or Virtual Tokens. The latter categories are regulated under other specific financial or investment Services laws whilst Virtual Tokens are unregulated.
Furthermore, Gonzi & Associates, Advocates, is well suited to advise how your cryptocurrency may be structured to qualify as Virtual Financial Asset.
Licence Application
Submission of a Licence Application Requirement
Any person operating a crypto exchange in or from within Malta, or holding itself out as operating a crypto exchange, must be in possession of a valid licence granted by the Malta Financial Services Authority (‘MFSA‘) issued under the Virtual Financial Assets Act, Chapter 590 of the Laws of Malta. Thus, a person wishing to operate a crypto exchange shall be required to apply for a Class 4 ‘VFA Services Licence‘
Business Plan & Financial Projections
Applicants are required to submit a detailed business plan containing information about the following matters:
- Anti-Money Laundering (‘AML‘) and Know-Your-Customer (‘KYC‘) – Details about the applicant’s AML policies and procedures and Money Laundering Reporting Officer as well as details about the applicant’s due diligence systems and controls in relation to client onboarding and KYC;
- Compliance – Details about the applicant’s policies and procedures in relation to the management of compliance and the person appointed to undertake the compliance function;
- Risk Management – Details about the applicant’s policies and procedures in relation to the management of risk, including the person appointed to undertake the risk management function;
- Prudential Measures – Details about the applicant’s prudential measures, including own funds and initial capital, internal capital adequacy assessments and measures to comply with any liquidity requirements;
- Governance – Details about the applicant’s governance arrangements, board of directors, responsibility of senior management, operational reporting lines, and operational structure;
- Financials – Including anticipated level of business, summary of financial standing and projections, audited financial statements and budgeted financial forecast;
- Business strategy – Including marketing plan and target clients;
- Applicant strategy – Details about the rationale behind the VFA Services Licence class sought;
- Applicant details – Details about the applicant, including unit-holding and group structures;
- Safeguarding Clients’ Assets – Details about the applicant’s measures to safeguard clients’ assets, including details about proposed reconciliation measures;
- Conduct of Business – Details about the applicant’s measures in relation to the management of conflicts of interest, sales processes and selling practices and record keeping and reporting;
- Special Exchange Information – Details about the applicant’s exchange listing criteria, order matching, pre-trade and post-trade transparency, client record keeping, reporting of suspicious transactions, system resilience, settlement and bye-laws.
- Other Information – The applicant’s business plan must contain other information such as details about the applicant’s business continuity process, details about any outsourcing arrangements and/or white label arrangements, details about the applicant’s Key Functionaries such as VFA Agent and Systems Auditor, details about the applicant’s ‘Live Audit Log’, and details about other policies and procedures that may be applicable to the business model;
Fitness & Properness
Integrity, Competence and Solvency
Crypto exchanges seeking autorisation are required to meet the fitness and properness requirements both during authorisation stage as well as on an ongoing basis thereafter. In assessing whether a person is a fit and proper person, the MFSA will require three criterion to be satisfied:
- Integrity – The persons subject to the ‘fit and proper test’ must be able to demonstrate that they are of good repute and that they intend to act in an honest and trustworthy manner.
- Competence – The persons subject to the ‘fit and proper test’ must be able to demonstrate that they have an acceptable level of knowledge, professional expertise and experience.
- Solvency – The persons subject to the ‘fit and proper test’ must be able to demonstrate that they are financially sound.
The fitness and properness assessment shall be applicable both to the applicant as a company as well as to every person holding a qualifying holding in the applicant company, its beneficial owners, members of the Board of Directors, senior managers and senior officers (including its MLRO and Compliance Officers).
Board of Directors
'Dual Control' Principle
Pursuant to the ‘dual control’ principle, the business of a crypto exchange must be effectively directed or managed by at least two persons who must be capable of demonstrating sufficient knowledge and understanding of the applicant’s business. The applicant’s Board of Directors would also be responsible for ensuring that the applicant complies with all obligations under the VFA Act, the VFA Regulations and the VFA Rulebook.
Key Functionaries
Appointment of Key Functionaries
A Class 4 applicant must appoint, and have at all times in place, the following Key Functionaries:
- A VFA Agent – Responsible for submitting the applicant’s licence application and to act as the applicant’s main point of contact for all communication with the MFSA;
- A Systems Auditor – Responsible for reviewing and auditing the crypto exchange’s underlying technology, including the exchange’s cyber security arrangements, and for drawing a ‘Systems Audit Report’ confirming that the controls of the technology employed by the Issuer are suitably designed to meet the applicable MDIA-issued standards;
- A Technical Administrator – As crypto exchanges are required to establish and have in place at all times a Live Audit Log in relation to the exchange’s underlying technology, crypto exchanges must appoint a person with the necessary seniority skills, knowledge and experience to ensure that any request for information regarding legal compliance and the operational behaviour of the underlying technology can be acted upon satisfactorily;
- A Custodian – A crypto exchange may appoint a custodian for the safekeeping of its assets and any virtual financial assets held for the account of its clients;
- An Auditor – Responsible for carrying out his functions as auditor of the company operating the exchange;
- A Money Laundering Reporting Officer – Responsible for ensuring the Issuer’s compliance with the applicable anti-money laundering laws, regulations and rules.
Capital Requirements & Costs
Initial Capital Requirements
Crypto exchanges are subject to an initial capital requirement of €730,000.
Regulatory Costs
Crypto exchanges are subject to a one-time application submission fee and an annual supervisory fee.
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How we can help
Gonzi & Associates, Advcocates, has extensive experience in this field and is able to provide specialised assistance to your business at all stages of the Malta Crypto exchange licence application procedure, including:
- Malta Company incorporation and registration;
- Drafting of legal opinions on the legal nature of your service and technology employed to determine the applicable legal framework;
- Collection & preparation of documentation necessary for submission of an Malta crypto exchange licence application, including internal policies;
- Assistance in the drafting of the company’s business plan for submission with the licence application;
- Drafting website T&Cs relevant to your services;
- Assisting in the engagement of Key Functionaries, including VFA Agent, Systems Auditors, Money Laundering Reporting Officers (MLROs), director/s, auditors, and so on;
- Providing post-registration follow-up assistance, including advising on applicable annual compliance exercises;
- Registration of your trade mark in the Malta trade mark register and the register of the European Union Intellectual Property Office as necessary;
- Providing general legal advice and assistance as required.