The countries of the European Union hold a patchwork of individual attitudes towards cryptocurrency regulation, but all of them also fall under the jurisdiction of the EU Commission. For EU regulations, please visit EU Laws Related to Token Sales, Blockchain, and Digital Proof.

Malta has positioned itself as a country of choice for cryptocurrency companies, coming to be known as the “world’s first blockchain island”. In fact, on July 4, 2018, Malta’s government passed 3 laws so companies can easily issue new cryptocurrencies and trade existing ones:

1. Malta Digital Innovation Authority Act (MDIA Act): establishes the Malta Digital Innovation Authority and certifies DLT platforms. This law will focus on internal governance arrangements and will outline the duties and responsibilities of the Authority to certify DLT platforms to ensure credibility and provide legal certainty to users wishing to make use of a DLT platform.
2. Innovative Technology Arrangement and Services Act (ITAS Act): deals with DLT arrangements and certifications of DLT platforms. This bill is primarily concerned with the setting up of exchanges and other companies operating in the cryptocurrency market.
3. Virtual Financial Assets Act (VFA Act): establishes the regulatory regime governing ICOs, cryptocurrency exchanges, wallet providers, etc.

Cryptoassets

In July 2018, parliament has introduced a financial instrument test, which classifies a DLT asset as electronic money, financial asset, a virtual financial instrument, or a virtual token.

As of March 2018, cryptocurrencies are unregulated under Maltese law and exchanges of cryptocurrencies (for other cryptocurrencies or for fiat currency) are deemed equivalent to commodity trading. A company utilising virtual currencies is currently not required to obtain a licence from the Malta Financial Services Authority (MFSA) unless it qualifies as a collective investment scheme or carries on the business of a financial institution or payment service provider, in which case the company would need to be appropriately licensed in terms of the Financial Institutions Act. Moreover, digital coins are not considered as being investment instruments under the Investment Services Act at present, and so investment activities related to cryptocurrencies would not trigger any licensing requirements in terms of this act. It is worth noting that the MFSA has recently issued a consultation document in relation to the proposed regulation of the investment in cryptocurrencies by specific legal entities.

With respect to legal perspectives, investors should be wary of potential pitfalls such as fraudulent crowdfunding schemes or ICOs and securities fraud. The fact that transactions involving cryptocurrencies cannot be reversed once executed (at least at this stage) coupled with the anonymity enjoyed by parties to such dealings regrettably present attractive opportunities for illegal activity. Another issue which may further complicate matters in relation to cross-border cryptocurrency transactions would be the potentially different classification and regulatory requirements to which such transactions may be subject.

Blockchain

In July 2018, Malta Financial Services Authority (MFSA), opened a consultancy to make sure all the stakeholders in the blockchain community understand what its three blockchain and crypto laws passed recently mean.

Malta is arguably the first country that has created a custom made regulatory system for blockchain-based ventures in July 2018. The VFA Act introduced a new regulatory body that would look upon the sector, the Malta Digital Innovation Authority Act (MDIA), Innovation Technology Agreement and Services Act (ITAS). The country’s parliament has also introduced a financial instrument test, which classifies a DLT asset as electronic money, financial asset, a virtual financial instrument, or a virtual token. The publication of these laws in the country’s gazette has to wait as the regulators are working on a framework to implement them. The MFSA, meanwhile, has been seeking stakeholder opinions on the same. These relate to the exemption of fees and administrative penalties under the VFA Act. This consultation period is set to end on 27th July. After that, the MFSA will be regulating the final rules and regulations for the VFA Act.

In 2018.12.18 ##STRUCTURE OF THE ISSUER OF THE ICO The regulations stipulate the following general requirements which must be met at all times by the Issuer of the VFA. In essence, by law, it is important that the Issuer:

1. Is a legal person (i.e. a company) duly incorporated in Malta.
2. Has its business managed by a minimum of 2 individuals with sufficient knowledge and understanding (i.e. fit and proper) of its business.
3. Starts its activities within 6 months from date of registration of whitepaper with MFSA.
4. Applies the Financial Instrument Test prior to offering a DLT asset to the public that must be endorsed by the VFA Agent.
5. Prepares a Whitepaper (see Annex I for the details) and registers this with the MFSA.
6. Pays the relevant MFSA fees upon the submission of the Certificate of Compliance (see Annex II for the amount of fees).
7. Has a Board of Administration.
8. Has the following duly qualified and approved Functionaries: a. VFA Agent b. Systems Auditor c. Auditor d. Money Laundering Reporting Officer (MLRO) e. Custodian (optional)
9. Has the following I.T. and Record Keeping systems: a. Establishes a ‘Cyber Security Framework’ b. Has robust Record Keeping Facilities. c. Has I.T. Infrastructure.

##REQUIREMENT OF A WHITEPAPER The law prescribes that a whitepaper which will be registered and in effect approved by MFSA is compulsory in order for an issuer to:

1. Offer a VFA to the public in or from within Malta; or
2. Apply for a VFA’s admission on a Distributed Ledger Technology (DLT) Exchange. Ten days before being circulated, the whitepaper has to be:
3. Signed by every member of the board of administration; and
4. Signed and approved by the duly appointed VFA agent; and
5. Delivered to the MFSA, which shall register the whitepaper if it is satisfied that the requirements have been duly complied with. the Issuer is required to appoint the following Functionaries:
6. VFA Agent
7. Systems Auditor
8. Auditor
9. Custodian
10. Money Laundering Reporting Officer The regulations stipulate that the Issuer needs to have in place the following systems:
11. Cyber Security Framework
12. Record Keeping Facilities
13. I.T. Infrastructure

Sources

• Laws Related to Token Sales
• BTC Wires, Malta Regulator Opens Consultation
• Have a Cryptocurrency Company? Bermuda, Malta or Gibraltar Wants You
• Forbes, Maltese Parliament Passes Laws That Set Regulatory Framework For Blockchain, Cryptocurrency And DLT