August 16, 20186min792

Malta Regulator Issues Virtual Assets Rulebook – Reaction from Stakeholders Muted or Negative

The Malta Financial Services Authority (MFSA) has now published a Virtual Financial Assets (VFA) Rulebook specifically pertaining to the regulation of Issuers of VFAs under the Virtual Financial Assets Act (VFAA).

However, it seems that the publication of this rulebook has not got down very well with financial services providers who spoke to CCN. Some have lamented that it is onerous and over-cautious in several aspects and makes business slightly more complicated where cryptocurrencies and blockchain are concerned.

Speaking to CCN, Joseph Borg, Partner at WH Partners said that although the publication of the rulebook was a positive step, this needs to be polished to be actually effective.

“I strongly suggest to stakeholders to participate in this consultation in order to help the MFSA come up with a well-balanced regulatory framework that is robust and attractive at the same time. It is clear that some things published in the rule book need to be polished and, in some cases, toned down. However, if sensible responses with workable solutions to the consultation paper are received, I am sure that our regulators will take them on board and fine-tune the framework accordingly”, Borg said.

CCN also spoke to Dr. Simon Schembri, Partner at Ganado Advocates Corporate Department on the rule book who was more circumspect in his comments.

“The two consultation papers relative to the first two chapters of the ‘Virtual Financial Assets Rulebook’ provide a well-defined framework for what will constitute the eventual two chapters of the Rulebook,” he stated. “There are some issues which merit further discussion with the regulator, and in fact, as interested parties in this space, we have already provided our feedback for relative amendments and clarifications within the time frame of the conclusion of the first consultation period relative to the first chapter. We are currently reviewing the second consultation paper relative to the second chapter, issued just two days ago and we will provide with our feedback to the regulator in due course.”

Other stakeholders who spoke on condition of anonymity said that the rulebook needed to be drastically revised to be effective as in it’s current state, it was a ‘no go’.

Binging on Blockchain

Following the positive feedback received on the proposed introduction of a new legislative framework regulating Initial Coin Offerings (‘ICOs’) and the provision of certain services in relation to virtual currencies, the MFSA drafted and submitted to the Government the Virtual Financial Assets Act.

The Act was published on the 20 July 2018 and shall come into force on such date as the Minister for Digital Economy may establish by notice in the Gazette. On 4 July 2018, the MFSA 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 (‘the Virtual Financial Assets Regulations’). This consultation closed on 20 July 2018.

The Authority is now preparing the rules underlying and complementing the Act and the Virtual Financial Assets Regulations. The Rules will provide further detailed regulation applicable to operators in this field of financial services.

As presented in the Consultation Paper on the Virtual Financial Assets Rulebook for VFA Agents which was published on 12 July 2018, the MFSA is proposing the introduction of a rulebook, titled the ‘Virtual Financial Assets Rulebook’, which 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 consultation for Chapter 1 of the Virtual Financial Assets Rulebook closed on 31 July 2018 whilst the consultation for the others closes on 13 August. The scope of this Consultation is twofold: to obtain industry feedback in relation to [i] Chapter 2 of the Virtual Financial Assets Rulebook, which is annexed to this paper; and [ii] the Authority’s interpretation of the transitory provision provided under Article 62(1)(a) of the Act, which is found under section 3 of this Consultation Paper.

It is important to note that capitalized terms within Chapter 2 of the Virtual Financial Assets Rulebook, including the term ‘Regulated Information’, will be defined in the Glossary that will be issued by the MFSA in the coming weeks.

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