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CAMA VFA AGENT
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The Dlt Framework in Malta and The Role of the VFA Agent

 Malta’s DLT Regulatory Framework

As early as 2017, Malta set out to be a first mover in the blockchain industry, announcing an ambitious action plan to establish Malta as a hub for innovators, swiftly earning itself the title of the ‘Blockchain Island’ of Europe.
 
Following an industry-wide consultation process, Malta emerged as the first European jurisdiction to introduce a comprehensive regulatory framework for DLT-based assets and DLT-related services. This pro-active approach ultimately resulted in the Parliament of Malta approving Malta’s DLT Regulatory Framework on the 4th of July 2018, with the same officially entering into force on the 1st of November 2018.
 
Malta’s DLT Regulatory Framework is comprised of three primary legislative acts:


The Virtual Financial Assets Act (‘VFA Act’)
 
The VFA Act introduced an entirely new asset class known as ‘Virtual Financial Assets’ or ‘VFAs’. In this respect, the VFA Act regulates two main spheres of activity relating to VFAs, namely, the regulation of capital raising made through ‘Initial Virtual Financial Asset Offering’ (commonly referred to in the market as ‘ICOs’) and the provision of certain investment-type services, such as custody and exchange services, referred to as ‘VFA Services’.


The Malta Digital Innovation Act (‘MDIA Act’)
 
The MDIA Act established a new regulatory authority dedicated to promoting the use and adoption of innovative technologies was established, known as the Malta Digital Innovation Authority (the ‘MDIA’). The MDIA is responsible for, among others, developing and implementing regulatory standards and ethical guidelines relating to the development and use of innovative technologies such as DLT and AI. Its role is to foster innovation whilst safeguarding consumers by ensuring that, in layman’s terms, the technology ‘does what it says it does’.


The Innovative Technology Arrangements and Services Act (‘ITAS Act’)  
The ITAS Act introduces the concept of a voluntary recognition and certification regime for ‘Innovative Technology Arrangements’ and ‘Innovative Technology Arrangement Services’ respectively.
 
 Virtual Financial Assets: legal certainty in a constantly evolving space

The cornerstone of the VFA Act is its practical approach to the classification of DLT-based assets, providing legal certainty in a constantly evolving space.
The VFA Act introduces the so-called ‘Financial Instrument Test’, comprising a step-by-step assessment to be undertaken in relation to assets that are intrinsically dependent upon or utilise distributed or decentralized ledger technologies, referred to under Maltese law as ‘DLT Assets’.
The Financial Instrument Test sets out a multi-dimensional evaluation process, taking into account the following aspects of the DLT Asset being classified:
  • the rights and obligations attaching thereto;
  • the underlying technical protocols, standards, and other technical aspects;
  • the value, utility, features and functionalities thereof.
Most importantly, the Financial Instrument Test deploys a ‘substance-over-form’ approach with the objective of classifying the DLT Asset into one of the four mutually-exclusive DLT Asset classes, namely:
  • Virtual Tokens (‘utility tokens’);
  • Financial Instruments (‘security tokens’);
  • Electronic money (‘e-money’);
  • Virtual financial Assets (‘VFAs’).
In turn, the resultant classification determines the applicable legal and regulatory regime, thus providing legal certainty as to the treatment of DLT Assets under Maltese law.
Practical insights into the Financial Instrument Test and the classification of DLT Assets under the Maltese regulatory regime may be found in our FAQs  section.

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The Role of the VFA Agent

Conscious of the importance of striking the right balance between supporting industry growth and safeguarding market integrity and consumer protection, the VFA Act introduces the notion of the ‘VFA Agent’. As a ‘gatekeeper’ between the various stakeholders, the role of the VFA Agent is to, inter alia:
  1. undertaking a fitness and properness assessment to assess the integrity, competency and financial soundness of prospective applicants;
  2. advising and guiding applicants in complying with the VFA Act, and the rules and regulations issued thereunder, at initial application stage, and in certain instances, on an ongoing basis;
  3. acting as a point of liaison between the MFSA (and, where relevant, other competent national regulatory authorities) and the applicants; and​
  4. formally submitting applications for the registration of whitepapers for VFA Issuers or for the licencing of VFA Service Providers, as the case may be.
In performing this ‘gatekeeping’ role, VFA Agents are the first line of defense in safeguarding Malta as a jurisdiction of good repute, integrity and financial stability.
It is for this reason that the VFA Act imposes certain requirements for VFA Agents, over and above those typically imposed on other advisors and consultants. First and foremost, a VFA Agent may only provide VFA Agent services if it is duly registered to act in such capacity by the MFSA. In obtaining this registration, a VFA Agent is required to demonstrate that it has in place a vigorous system of controls, processes, policies and systems, with good governance, robust due diligence measures, and sector-specific expertise at its core. Furthermore, the VFA Agent has responsibilities not only towards it clients, but also towards the MFSA as the competent authority in the industry.
The VFA Act thus requires that a VFA Agent to be appointed by market players seeking to avail of Malta’s DLT Regulatory Framework as follows:


VFA Agent for VFA Issuers

Applications for registration of whitepapers for VFA issuers who are desirous of launching their VFA, or who wish to have their VFA admitted to trading on a DLT-exchange, are required to appoint, and have in place at all times, a VFA Agent. 

VFA Agent for VFA Service Providers

​An application for a licence to provide VFA Services may only be submitted through the VFA Agent appointed by the licence applicant.
Further details on the role of the VFA Agent may be found in our on VFA Agent Services and FAQs sections.
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