Practice Areas > Investment Services, Fintech & Capital Markets > Blockchain & ICOs > VFA Services > Class 3 > Licence Requirements
Incorporation of a Malta company
Who Can Apply for a Class 3 Licence?
Subject to the fulfillment of certain 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, 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 crypto service is ‘VFA Service‘. Under the Virtual Financial Assets Act this term is defined as “a service (…) when provided in relation to a DLT asset which has been determined to be a virtual financial asset“.
Thus, an important requirement for Licence Holders is that only cryptocurrencies qualifying as ‘virtual financial assets’ under Maltese law are transacted in the context of the service for which a licence is sought.
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 VFA service in or from within Malta, or holding itself out as operating a VFA service, 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.
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;
- 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
VFA service providers 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 VFA service provider 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 VFA service’s underlying technology, including the service provider’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 VFA service providers are required to establish and have in place at all times a Live Audit Log in relation to the service’s underlying technology, service providers 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 service provider 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 VFA service;
- 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
Class 3 VFA service providers are subject to an initial capital requirement of €730,000.
Regulatory Costs
VFA service providers 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 Class 3 licence application procedure, including:
- Malta Company incorporation and registration;
- Drafting legal opinions to establish the legal nature of your services and technologies to determine the applicable legal framework;
- Assistance in the collection & preparation of documentation necessary for licence application submission, including business plan, financial projections and internal policies;
- Drafting Maltese-law aligned T&Cs governing the provision of your services;
- Assisting in the identification and appointment of Key Functionaries, including VFA Agent, Systems Auditor or IT Auditor, Money Laundering Reporting Officer (MLRO), Non-Executive Director/s, Auditor, etc.;
- 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.