After two years of heavy research and observation of the crypto markets and in the light of the new Maltese Virtual Financial Assets (VFA) regulations we have branched out to give back to the community through our knowledge and passion for the space.
Introduction about our Firm’s Virtual Financial Assets & Fintech Department in Malta:
Michael Kyprianou Fintech Partners Ltd is a licenced VFA Agent (virtual financial assets agent) Maltese entity composed of a team of dedicated experts who provide services such as advisory, licensing and registrations of activities related to Fintech, Cryptoassets, Blockchain and other ancillary services including company incorporations and banking. MK VFA Fintech Partners is an entity which forms part of the group of companies belonging to the Michael Kyprianou & Co LL.C (https://www.kyprianou.com/en/index.html). Michael Kyprianou is a top Tier International Legal Consultancy Firm with offices in various jurisdictions such as Cyprus, Dubai, London, Greece, Ukraine and Malta. The firm is Top ranked in the Legal 500 and according to Gold Magazine is the 3rd Largest in size in Cyprus.
We are constantly keeping up to date with movements in the industry and market, often participate and speak at events conferences held all over the world and regularly write and publish topical pieces on our website and also other reputable Crypto related websites such as Medium and Cryptovest.
Together with our partners we provide a one stop shop service. Our carefully picked, friendly smart team of experts have varied backgrounds which include areas such as Financial Services, Banking, Technology and Investment Services. Our crypto dedicated team are not just lawyers but are also true firm believers of the Crypto movement and paradigm shift the world is currently facing. Due to relationships with lawyers usually lasting for a long period of time we firmly believe that choosing a lawyer is like choosing a partner in marriage and therefore it is essential you pick the right partner. One of our most core values is ensuring that we have a good personal relationship with our clients, and therefore use open communication channels during the process of guiding clients reach their goals and make their desired business operations materialise.
Fintech in Malta
Malta is presenting itself as a Fintech Centre of the Mediterranean. Malta is the world’s first jurisdictions to have launched a solid legal framework in Blockchain and Cryptocurrency, and at the same time providing a new framework for start-ups and well-established entities that wish register and certify their (DLT) Distributed Ledger Technologies. Our little island also encourages start-ups to test their products and systems in a sandbox environment. This has been seen happening particularly in relation to Gaming Companies following approval by the Malta Gaming Authority (MGA). The (MFSA) Malta Financial Services Authority is currently in the process of creating its own sandbox and Business Incubator, similar to the one produced by the FCA in the UK. The (UOM) University of Malta, together with the (MITA) Malta Information & Technology Agency has also released its own innovation centre. There are numerous big players such as OKEX and Microsoft who have chosen Malta as their hub due to Malta being so welcoming and taking the initiative needed to regulate and validate this space.
The Blockchain Island
Malta is small but mighty! It is one of the first country in the World to have produced a legal framework for Crypto and Blockchain. It is at the forefront of promoting innovation and adoption.
On the 4th of July of 2018, the Maltese Parliament passed three bills which become hard law in November 2019. This move granted interested players (be them token issuers or service providers) some legal certainty and sheds light on how they should set up and if their activities fall under a licensable activity. The reason one should opt for a legitimate set up and apply for registration or a licence for certain activities/services is to protect all investors and third parties involved and maintain market integrity. The industry is still maturing and needs protection. Competent authorities will ensure that companies and business offering such services have the correct set up (eg competence, capital and good governance procedures) which will in turn validate the industry.
The three new relevant acts are;
- The Malta Digital Innovation Authority Act
- The Innovative Technological Arrangement and Services Act – which provides that technological arrangements (smart contract, DLT, Blockchain) should be audited and certified to ensure technologies people are promising in their whitepaper and business plan. (TECH FIRST APPROACH)
- The Virtual Financial Asset Act – Includes legal processes for registering and issuing new tokens on the market and licensing of crypto service providers (such as exchanges, brokers, custodians).
But First – Why Malta?
Malta has been perceived as a crypto friendly attractive jurisdiction from the very start. This is because the Maltese Government and Prime Minister have been working behind the scenes with a team of experts since 2015 on drafting a Top A Class Crypto & Blockchain Tripartite Regulatory framework. For this reason Huge Innovators and Early Influential Pioneers in this space such as Binance, Microsoft and Okex chose Malta as a base to set up shop from.
Let us go down memory lane a bit to explain this historical revolutionary regulatory set up. The reason why this misconception evolved is twofold:
Firstly is that from months before the new Virtual Financial Assets Regulations actually came into force (hard law) consultation papers leading to the enactment of legislation were being published and many local as well as international Media players and participants working in this space started spreading the news like wildfire which resulted in a massive hype type atmosphere all around the world. So when the actual law came into place Last November 2018 (and therefore just a few months ago) people expected that everything was already in place and set up and ready to go from new authorities to new specialised needed persons such as VFA Agents being licenced and specialised Systems Auditors being registered (will expound on VFA Agent and Systems auditor below)
Secondly to explain a bit better and in order to understand and get the full picture; the new the law requires that two sets of key persons are in place before issuers can register Whitepapers to issue tokens on the market and Service Providers can get certain licences (which I will be defining below).
So first the Virtual Financial Assets (VFA) Agent: Anyone who would like to do or apply for any crypto/blockchain related activity or licence must do so through a VFA Agent. Therefore certain classes of persons such as Lawyers, Accountants and Auditors with proven sufficient knowledge, background and experiences who would like to service clients in the crypto/blockchain space first had to/have to, go through a licensing process which entails, written and oral exams, business plans, high fees and more!
Secondly Systems Auditors: The new ITAS regulation highlights that technological arrangements (wallets, blockchains, smart contracts ect) being promised in whitepapers, prospectus papers and business plans need to be checked/audited and certified by persons known as Systems Auditors. Any persons/company who feels qualified and experienced enough to check technical arrangements must apply with the new Malta Digital Innovation Authority to be registered as such a person to offer such service which incidentally is a sin a qua non with licensing and registration of crypto/blockchain based activities.
If the technology being promised in whitepapers and business plans is flawed or non-existent then so is the token or service you are offering and promising flawed or non-existent! The idea is to ensure that all those products and services being offered from Malta and Licenced in Malta are meeting the markets expectations. Malta is slowly gaining a strong reputation in the industry for being one of the best jurisdictions to launch or get licensed from as its positive ‘Tech First Approach’ attracts quality persons (Quality over quality!)
Today there are a number of Licenced VFA Agents, Systems Auditors registered with the MDIA and certain new Crypto / Blockchain / Fintech related authorities and registries were created and are now fully set up and equipped in terms of knowledge and resources. Things are finally taking off, licence applications are being submitted, whitepapers are being registered, techies are all flocking over and all those building blocks who form part of the movement from governments to service providers to entrepreneurs and crypto enthusiasts in general are all very excited and are enjoying being a part of the foundation being built.
Firstly Malta’s efficient favourable corporate tax rates – After applicable tax rebates are deducted corporate tax on profits/dividends is reduced to 5% for trading companies and 0% for Holding Companies.
Secondly Malta is a Bilingual Jurisdiction with its second language being English! Therefore the English Language will be used to communicate with persons such as authorities, regulators, service providers, lawyers etc.
A third benefit is the Maltese competent authorities’ attitude and approach. They are known for being open, friendly, and helpful. Meetings with them are actually not the normal intimidating stern encounter one would expect. Dealing with a regulator in relation to a project or licence is an ongoing long term situation whereby face-to-face meetings and countless e-mail exchanges come in to play so this decision is actually more important than one may thing and should not be taken for granted.
Another plus of choosing Malta is the big international talent pool it provides as well as the authorities being in favour of businesses bringing in (relocation) persons from abroad be them from the EU or non EU so long as they prove to positively contribute to Malta’s talent pool and have proven sufficient knowledge.
Safety First! – Malta is a very safe place to live, and probably one of the safest in all Europe or the world. Besides maybe for maybe just a couple of roads, any person of any age can walk at any time anywhere on the island with no worries at all.
An obvious or perhaps surprising fact is that Malta forms part of the European Union (EU) machine, therefore it is easy to passport business activities across all countries of the EU with a simple notification procedure.
Last but not least which may not be a benefit per se but maybe a bonus is the 300 days of sunshine we get each year.
Another plus which is also worth mentioning is that due to a heavy presence of many crypto, Blockchain and Fintech players on the island there are many meet ups and events continuously being organised to keep the community acquainted and give people a forum to pick each other’s brains.
Our Services Include:
A Legal Opinion could be requested for a number of reasons such as a token issuer would want to list on an exchange/trading venue. Since till now there is no consensus between Member States as to token classification, sometimes definitions may differ. For this reason an exchange located in a particular jurisdiction may request a legal opinion from a Maltese Lawyer.
The Maltese regulator (MFSA) has provided us with a Financial Instrument test (or rather as I prefer to call it a token classification test) in order to see which of the four categories your token classifies as.
These four categories are the following:
- E-Money Token (falls under EU definition of Electronic Money)
- Virtual Token (tokens which cannot be traded on secondary markets),
- Financial Instrument (Security tokens) or
- Virtual Financial Asset token (i.e none of the above by default – such as Bitcoin).
In our legal opinion we would state that the opinion is based on this test which was conducted to correctly classify your token according to Maltese law and will also explain the different above mentioned token categories.
An ICO is a method which allows issuers to raise Finance through private placement or crowdfunding platforms or both. Due to all the scams and bad apples which gave the industry such a bad name unless a Whitepaper is registered with a reputable competent authority thereby ensuring that certain practices and procedures were thought of and adhered to, many potential investors/token buyers might not feel as comforted in purchasing the said token and many exchanges may not list the said tokens.
An IEO is essentially an ICO launched through the facilitation + incubation style of help offered by certain reputable Exchanges (the exchange plays a similar role to a sponsor or investment bank in an IPO). Exchanges have seen a window opportunity whereby they can play a part and use certain expertise they have to guide chosen vetted issuers launch their ICO together with other key partners such as Lawyers and developers. No man or issuer in this case is an Island and in such an immature industry sometimes it is more beneficial for key players to work together to achieve success.
In order to launch your ICO from Malta some of the key features which are needed and which we would take care of for you include:
- Formation and Incorporation of a Maltese Entity
- Taking the Financial Instrument i.e token classification test
- Whitepaper Drafting or vetting (Your Whitepaper is your most important Marketing Tool!)
- Whitepaper Registration with the authority
- Systems Auditor referral – To check and certify technological arrangements promised in your Whitepaper.
- Ongoing assistance until all milestones are reached (including compliance and KYC oversight during crowdfunding sales)
- Appointing key persons needed: Anti Money Laundering Officer (MLRO), Custodian (Bank for fiat currencies).
We could also form part of your advisory board and take care of roping in the right partners from our excellent network in order to provide you with a full service and therefore extending to partners such as; tokenizer (techies needed to assist in creating tokens, wallets, blockchain), primary markets platform (marketing + crowdfunding), AML/KYC partners and more.
Investment capping: Token Buyers/Investors who are not deemed to be professional/accredited persons may purchase up to 5,000euro in tokens. Professional/accredited persons have no limit. This capping is in place in order to protect retail investors since the market is largely made of newbees.
More Details in an article written by one of our experts here -> Article
STO’s have certainly gained a lot of traction over the past few months amongst both start-ups and also established successful companies. An STO is very different to an ICO. Unlike an ICO, a security token represents an investment contract into an underlying investment asset, such as stocks, bonds, funds or commodities.
Malta has taken the same stance as ESMA (European Securities and Markets Authorities) in that Security Tokens are essential traditional securities with the difference being that the rights and obligations linked to the security are embedded on a token and recorded on a Blockchain or a DLT.
The Maltese legislator (till now) has decided to regulate STOs in a similar manner to IPOs and therefore much of the traditional EU securities regulations such as MIFID and the prospectus document exemptions found in the Prospectus Directive will still apply. Therefore although there are some different legal applications and processes between traditional securities and STOs we would advise that companies already have some sort of a track record before they start preparing to do an STO.
Malta has published a consultation paper providing some guidance when it comes to Security tokens and how capital market players should approach shifting their operations to DLT or blockchain. A couple of key points which were covered include the type of Blockchain or DLT application which should be used (permissioned or permissioned DLT) and whether Security Token Issuers Companies need to have 3 years financial history.
Security Token Offerings include: Equity Tokens, Bond Tokens and Commodity Tokens.
Some key benefits are: better retail investor reach, more liquidity, fractional ownership, and faster settlements.
The process/requirements which we will assist you with include the following:
- Corporate structuring or re-structuring
- Drafting of a Prospectus document together with our partners (unless an exemption applies in which case an Offering Document will suffice) to be registered and approved by the relevant authorities
- Liaising with Primary Markets partners (sponsors/investment bank)
- Listing on Exchanges (Secondary Markets)
Latest STO news: The Maltese Stock Exchange (MSE) has signed a Memorandum of Understanding (MOU) with OKEX stating that they are launching an STO Exchange. This is huge news for STO enthusiasts since this move adds another player and layer for the infrastructure for Capital Market players looking to move into tokenisation and Blockchain/DLT.
Various international players such as the Swiss Stock Exchange, Australian Stock exchange and a French based CSD have all confirmed that they have shifted to DLT. This shows how the ecosystem is slowly forming and the different players needed to complement each other in this new ecosystem have started to make the shift. These players will give issuers the comfort they need to also make the shift and in time important components such as liquidity will be satisfied!
The emergence of stablecoins are also interesting in the realm of capital markets since they could satisfy and replace banks when it comes to the post trade settlement layers. Read more on what stablecoins are in article written by one of our experts here -> https://medium.com/@justinescerriherrera/the-good-the-bad-and-the-stable-could-the-emergence-of-stablecoins-cause-financial-instability-e16f7c193027 .
We could form part of your advisory board and take care of roping in the right partners from our excellent network in order to provide you with a full service and therefore extending to partners such as; tokenizer (techies needed to assist in creating tokens, wallets, blockchain), primary markets players, AML/KYC partners and more.
Article written by one of our experts in relation if STOs will reshape the Capital Markets: -> Article
Firstly why bother getting a licence?
Due to so many hacks, scams and money being lost over the last few months and years many crypto related service providers are opting for a licence in order to get better validation/reputation and ensure investor/consumer protection.
Some of the licences one may opt and which we could assist you get are:
- Licence for the ‘Reception and transmission of orders +/or provide investment advice in relation to crypto’.
This covers the activity of executing orders in relation to crypto on behalf of third party buyers and sellers. If for example you bring two or more investors together for the buying or selling of bitcoin thereby bringing about a transaction between those investors you would be caught by this licensable activity.
This Class licence does not authorise licence holders to hold or control client’s assets or money.
- Custodian (Wallet Providers) – Licence in order to hold or control clients’ virtual assets.
Acting as custodian or nominee holder of a virtual financial asset and, or private cryptographic keys; or holding a virtual financial asset and, or private cryptographic key as nominee, where the person acting as nominee is so doing on behalf of another person.
This class licence authorises licence holders to receive and transmit orders on behalf of others and also hold or control clients’ assets or money.
Custodians are responsible for ensuring good record keeping and segregation of clients’ assets and must also appoint a compliance officer.
- Dealing on own Account Licence.
This means the ability to trade against proprietary capital resulting in the conclusion of transactions in one or more virtual financial assets.
In other words this means when a firm puts its own books at risk. An example is when it comes to ‘matched principal trading’ – If a firm executes client orders by standing between clients on a matched principal basis (back-to-back trading), it is both dealing on own account and executing orders on behalf of clients. Another example is when it comes to positions arising from client servicing (for example when the firm acts as a systemic internalizer), or position taking which includes propriety trading and positions arising from market-making.
This class licence also allows licence holders to hold or control client’s assets.
- Investment Advice Licence.
Giving, offering or agreeing to give to persons in their capacity as investors or potential investors or as agents for an investor or potential investor, a personal recommendation in respect of one or more transactions relating to one or more virtual financial assets (cryptoassets).
General investment research reports which do not contain a personal recommendation would not constitute investment advice.
- Placing of Virtual Financial Assets on the market Licence.
The marketing / placing of newly-issued virtual financial assets or of virtual financial assets which are already in issue but not admitted to trading on a DLT exchange, to specified persons and which does not involve an offer to the public or to existing holders of the issuer’s virtual financial assets.
Crowdfunding Platforms (Primary Markets) would classify as a service which places tokens/virtual assets on the market.
- Crypto Exchanges
When it comes to Crypto Exchanges one must first state what sort of tokens they would like to list in order to determine what sort of exchange and applicable laws will apply. There are two types of Exchanges: An exchange which lists Security Tokens i.e An STO Exchange or an Exchange which lists non-security tokens (Eg Bitcoin and Ether) which in Malta is called a Virtual Financial Assets (VFA) Exchange. VFA Exchange platforms may be an exchange for: Crypto to Crypto or Fiat to Crypto or Crypto to Fiat.
Class Licence Holders may hold or control clients’ assets or money in addition with any other VFA service.
Licensing Requirements include: Fit and Proper Tests (Shareholders, Directors and Key Persons), Initial Share Capital (730k), some physical presence (Local Registered Office, local Director, local Compliance Officer) and a Business Plan.
Malta’s progressive approach to innovation, fintech, iGaming and crypto has attracted a large number of key players such as E-Money Institutions, IT & DLT experts and is also home to most of the largest iGaming companies in the world.
- Crypto fund Licence
A fund is a vehicle whereby a pool of investors invest into the underlying assets of the fund be them real estate, equity, crypto or a mixed portfolio assets. Professional Investment fund (PIF) and Alternative Investment Funds (AIF) are two popular vehicles used.
These types of vehicles are usually more popular when raising money from professional (accredited) investors as opposed to retail investors. In fact The PIF may be self-managed or managed by a fund manager. PIFs can be only be sold to qualifying investors with a minimum amount of 100k.
Alternative Investment Funds (AIFs) are fast becoming one of Malta’s favoured investment fund vehicles. A key benefit of AIFs is the availability to passport marketing activities introduced by the Alternative Investment Fund Managers Directive (AIFMD), which regulation has incidentally attracted non-EU fund managers to set up shop in Malta. The island’s successful Professional Investor Fund (PIF) regime was however retained offering fund promoters diverse structuring opportunities.
PIFs and AIFs are essentially practically the same with just a few differences: The PIF regime is lighter and more flexible then an AIF however can only be offered to accredited / professional investors and its marketing activities may not be passported. An AIF may be passported across all other EU jurisdictions however when it comes to selling to retail investors certain restrictions do apply (Eg certain borrowing and marketing/passporting restrictions).
Some key Licensing Requirements include:
- Board of Directors
- Compliance Officer
- External Valuer
- Initial Share Capital- 300k
- Offering document
Listing is optional.
We take you all the way!
In order to maximise efficiency and assure the highest quality and service we together with our trusted partners provide a one stop shop service and therefore in addition to guiding you through any desired registration or licensing procedure/s we may also assist you with:
- Company Formation and Incorporations
- Compliance Function
- MLRO Function
- Advisory Board Appointments
- Company Formation and Incorporations
- KYC/AML Providers
- Bank Accounts
- IT / Tech Services
- Tax Advice and Structuring
- Systems Audit referral
- Other Licences (E-Money Licence, or investment services category licences)
Stay Tuned and keep updated on the crypto world and markets by reading and following our latest articles and videos written and featuring our experts in the field!
Dr. Justine Scerri Herrera
Justine is a warranted Maltese warranted lawyer who obtained a Doctorate (LLD) from the University of Malta and a Law Master’s Degree (LLM) from the University of Groningen in the Netherlands. Justine started her legal career in the court room as a Criminal and Civil Litigator but quickly moved on to work in the corporate world where she gained experience in other sectors, namely the Financial Services and Investment Services sector/Capital Markets.