On the 29th January 2018, the Malta Financial Services Authority (MFSA) announced the publication of sector-specific regulations applicable to Professional Investor Funds (PIFs) wishing to invest and trade in Virtual Currencies (or ‘crypto-funds’). The said regulations are contained in dedicated Supplementary Conditions which have been added to the MFSA Rulebooks and are the result of the recent Consultation process in respect of the Proposed Regulation of Collective Investment Schemes Investing in Virtual Currencies, launched on the 23rd October 2017.
This effectively means that the MFSA is now accepting applications for the establishment and licensing of crypto-funds in Malta.
the MFSA is now accepting applications for the establishment and licensing of crypto-funds in Malta
The new rules broadly aim to foster the technological innovation inherent in crypto-funds within a robust, fit-for-purpose regulatory framework that seeks to ensure investor protection, market integrity and financial soundness with regard to such funds.
To this end, the new Supplementary Conditions applicable to Collective Investment Schemes Investing in Virtual Currencies introduce specific requirements both during application stage as well as on an ongoing basis thereafter and cover the following main requirements which will now be incumbent upon Malta-licensed crypto-funds:
- Competence – key individuals involved in the crypto-fund and its management must have sufficient knowledge and experience specific to information technology, virtual currencies and their underlying technologies, including distributed ledger technology.
the MFSA has confirmed that the publication of these Supplementary Conditions is merely the first step taken by the Maltese regulator towards achieving a comprehensive regulatory framework covering the provision of any services in relation to virtual currencies
Risk Warnings – the fund’s offering documentation must contain appropriate risk warnings in relation to proposed investment in VCs.
- Quality Assessment – the person/s responsible for the management of the crypto-fund must ensure that appropriate research is carried out in order to assess the “quality” of the VCs in which the fund is proposing to invest.
- Risk Management – prior to investing in any VC, a cryto-fund and/or the person/s responsible for its management must assesses the risk profile of the given VC and confirm that it falls within the scope of the fund’s risk management policy.
- Valuation – appointed service providers must have the business organisation, systems, experience and expertise necessary to conduct the required verification and valuation of the fund’s investments in VCs.
The regulation of crypto-funds in Malta represents a significant regulatory development, rooted in the confirmed legislative commitment to develop a broad national strategy that will see Malta embracing blockchain innovation across the board. To this end, the MFSA has also confirmed that the publication of these Supplementary Conditions is merely the first step taken by the Maltese regulator towards achieving a comprehensive regulatory framework covering the provision of any services in relation to virtual currencies in its broadest sense.