Introduction
The MFSA has recently published a consultation paper on the Virtual Financial Assets Regulations to be issued under the Virtual Financial Assets Act which presents a draft Legal Notice setting out regulations on: [i] exemptions; [ii] fees; [iii] control of assets; and [iv] administrative penalties and appeals ( see previous article). The MFSA is now preparing a rulebook entitled ‘The Virtual Financial Assets Rulebook’ which is intended to provide further detailed regulation applicable to operators in this field of financial services. The rulebook will be subdivided into three chapters as follows:
Chapter 1- Virtual Financial Assets Rules for VFA Agents
Chapter 2- Virtual Financial Assets Rules for Issuers of Virtual Financial Assets
Chapter 3- Virtual Financial Assets Rules for VFA Service Providers
The MFSA has up till now issued chapter 1 to obtain feedback from the industry. This chapter deals with VFA Agents who are appointed in accordance with the Act and applicants seeking registration as VFA Agents thereunder. The first chapter is further sub-divided into 4 sub-titles which include:
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High Level Principles
Title 1 obliges VFA Agents to act in an ethical manner and in the best interest of Malta, taking into consideration investor protection, market integrity and financial soundness in carrying out their activity. Correspondingly, the duty to act honestly, fairly and professionally are also given prominence. In fact, VFA agents must comply with the provisions of the act and regulations as well as the rules set out in the rulebook.
They are further obliged to cooperate with the MFSA in an open and honest manner and must provide the Authority with any information it may require for a smooth running of the system.
Registration Requirement and the respective Registration Process
Title 2 deals with the registration requirements for applicants wishing to be registered as VFA Agents under article 7 and/or article 14 of the Act, and the applicable registration process. The main requirement is that the VFA agent must be a person registered with the Competent Authority and authorised to carry on the profession of:
a) An advocate, accountant or auditor; or
b) A firm of advocates, accountants, auditors or corporate service providers; or
c) A legal organisation which is wholly owned and controlled by the aforementioned persons.
The last part of the definition also mentions “any other class of persons holding authorisations, qualifications and, or experience deemed by the competent authority as possessing suitable expertise” to exercise the designated functions.
Additionally, a legal person wishing to be registered to provide and exercise the functions of a VFA Agent must be established in Malta and if not established in Malta, such person shall only be eligible for registration if it is established in a recognised jurisdiction, has a registered business office in Malta and at least two representatives who are resident in Malta. The VFA Agent shall also be required to have an initial and on-going capital of EUR 50,000.
This title provides further detail on the requirements and process regarding registration in which it specifies that the registration process is divided into three main phases which are:
i) The Preparatory Phase- in this phase, applicants shall notify the authority of their intention to act as a VFA Agent. The Authority, after receiving the statement of intent shall schedule a preliminary meeting with the applicant. Following this, the applicant will have to submit an application form with any supporting documentation specified and pay the fee.
ii) The Pre-Registration Phase- this phase consists of reviewing of the application and documentation by the Authority.
iii) The Post Registration & Pre-Commencement of Business Phase- in the last phase, registered VFA Agents may be required to satisfy, within the set timeframes, a number of post-registration matters, as determined by the Authority, prior to the commencement of business.
On-going Obligations
Title 3 deals with on-going obligations for VFA Agents such as requirements in relation to governance, insurance coverage, outsourcing, procedures for reporting of breaches, obligations with respect to the on-boarding of clients, conduct of business obligations, the procedure to be followed when more than one VFA Agent is appointed and notification and approval requirements.
Furthermore, this title also lays down rules regarding supplementary conditions for VFA Agents appointed in terms of article 7 of the Act and supplementary conditions for VFA Agents appointed in terms of article 14 of the Act.
Enforcement and Sanctions
This title sets out in detail the administrative penalties and sanctions which the MFSA may impose in the event of any misconduct by VFA Agents registered under the Act. It emphasises that the VFA Agent must at all times observe the rules applicable to it and further endows the MFSA with various sanctioning powers in the event of breaches. Such powers include the right to impose administrative penalties.
In fact, where a VFA Agent breaches or infringes a rule, the MFSA may by virtue of the authority granted to it under article 48 of the Act impose administrative penalties, without recourse to a court of law, up to a maximum of EUR 105,000.
The consultation is open to the public from the 12th of July 2018 till the 31th July 2018. Interested parties are requested to submit their comments and feedback.
