Introduction
Following the publication of the Virtual Financial Assets Act, the MFSA has been preparing a rulebook entitled ‘The Virtual Financial Assets Rulebook’ to provide further detailed regulation applicable to operators in this field of financial services. Recently, it has published a consultation paper on chapter 1 of the rulebook entitled the ‘Virtual Financial Assets Rules for VFA Agents.’ The MFSA has now issued another consultation paper dealing with chapter 2 of the rulebook entitled ‘Virtual Financial Assets Rules for Issuers of Virtual Financial Assets’.
This chapter shall apply to Issuers of virtual financial assets. In accordance to the Act, an Issuer is a legal person duly formed under any law for the time being in force in Malta which issues or proposes to issue virtual financial assets in or from within Malta. Such chapter is sub-divided into four titles as follows:
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Title 1: High Level Principles
This title stipulates the high-level principles which should guide Issuers in the provision of their virtual financial asset activity in or from within Malta.
Preliminary, Issuers are under an obligation to act in an ethical manner and in the best interest of Malta, taking into consideration investor protection, market integrity and financial soundness. Correspondingly, they shall also act honestly, fairly and professionally and must comply with all the provisions dealing with this sector. They are further obliged to cooperate with the MFSA in an open and honest manner and shall provide the Authority with any information it may require.
Title 2: Requirements for issuers
Title 2 sets out the general requirements for Issuers including that the Issuer must be a legal person duly formed under any law for the time being in force in Malta. The Issuer’s business must be effectively directed or managed by at least two individuals in satisfaction of the ‘dual control’ principle.
This title also establishes the requirements for the Issuer’s Board of Administration stipulating that the board shall mainly be responsible for ensuring that the Issuer complies with its obligations under these rules and any Guidelines which may be issued by the Authority.
In performing its functions, the Board has an obligation to maintain sufficient knowledge and understanding of the Issuer’s business to enable them to discharge their duties. Moreover, this title further obliges an Issuer to appoint and have at all times in place a System Auditor, a VFA Agent, an Auditor and a Money Laundering Reporting Office. Apart from governing in detail the relationship between the Issuer and the aforementioned functionaries, section 5 of this title further stipulates requirements regarding the Issuer’s Cyber-Security Framework, I.T infrastructure and record keeping including the Issuer’s duty to arrange for Documents to be kept to enable MFSA to monitor compliance with the requirements under these rules.
Title 3: Initial VFA Offerings and Trading on DLT exchanges
Title 3 sets out the initial and ongoing requirements applicable to initial VFA Offerings, which mainly relate to the contents of the whitepaper and the requirements needed to register it. Pursuant to article 3 of the Act, this title makes it clear that no Issuer is to offer a Virtual Financial Asset to the public or apply for their admission to trading on DLT exchange unless such Issuer draws up a whitepaper which complies with the requirements of the Act and is registered with the MFSA in accordance with the Act.
The whitepaper shall serve as a source of information about the Issuer and its proposed activities. Furthermore, detailed rules are provided on the conditions for admissibility to Trading on a DLT exchange including the MFSA’s discretionary powers, rules relating to transactions by restricted persons and with related parties, transactions involving substantial unit holders and regulated information.
Title 4: Enforcement and Sanctions
This title provides detail with regards to administrative penalties and sanctions. First and foremost, it stipulates that the Issuer shall observe the Rules which are applicable to it, as well as the relative requirements which emanate from the Act and regulations issued thereunder.
The MFSA has various sanctioning powers in the event that an Issuer fails to comply with its regulatory obligations including the right to impose administrative penalties. In fact, when an issuer breaches a Rule, the MFSA may impose administrative penalties, without recourse to a court of law, up to a maximum of €150,000. In determining the appropriate penalty, the MFSA shall be guided by the principle of proportionality.
