Cryptocurrency Licence in Malta
Malta was the first country in Europe to adopt legislation on cryptocurrency at the national level, attracting to the island the world’s largest cryptocurrency exchanges.
Malta has developed a legal framework to regulate various forms of virtual financial assets (VFA) and services related to virtual financial assets (also referred to as VFA services. Cryptocurrency companies are governed by three laws:
- Law on Innovative Technology Agreements and Services (ITAS Law), which provides for registration of technology service providers and certification of technology agreements.
- The Virtual Financial Assets Act (VFAA), which is responsible for regulating VFA service providers, the primary supply of coins (ICO) and VFA agents.
- Malta’s Digital Innovation Act (MDIA Act), which regulates the Malta Digital Innovation Authority (MDIA)
As stipulated by VFAA, no organization is allowed to offer VFA services in or outside Malta without a license from the Malta Financial Services Authority.
Requirements for the company
Service providers must meet the following requirements before applying for and obtaining a license to exchange cryptocurrency.
- The applicant’s minimum statutory capital should be 730,000 euros.
- The applicant company has a physical office in Malta.
- Director, top management of the company, KYC/AML officer must comply with the requirements of the regulator
- At least two persons must hold the positions of directors or board of directors of the company.
- Presence of AML/KYC officer
Financial licences are divided into four classes. Cryptovirges fall into the fourth category, which covers all provisions of VFA service and the control or storage of clients’ funds in connection with the provision of VFA service.
Upon application for a cryptocurrency licence in Malta, the company is required to pay a duty of 24,000 euros.
A licensed cryptocurrency company, which assumes the custody of clients’ funds, must appoint a custodian – a credit organization or a bank. All items must be stored in FIAT.
Protection of clients’ assets
Each VFA exchange must implement management mechanisms to protect its clients’ assets. The VFA Exchange must appoint an official with sufficient skills and authority to be responsible for matters related to compliance and obligations to protect the assets of clients.
Taxation of cryptocurrency companies in Malta
The profits derived from crypto activities are the profits of the company. The corporate profit tax on a crypto company in Malta is 35 per cent and is paid to the relevant tax authorities by the licensee on the profits derived from the provision of services. It is important to note that a number of tax exemptions can be applied in each specific case, thereby reducing the corporate tax payable.
Licensed cryptocurrency companies are required to provide an external auditor’s report at least once a year under section 50 (6) of the VFAA Act. The fee for processing the system audit report in MDIA is EUR 3,000.
Annual license fee
The cost of a cryptocurrency exchange licence in Malta also includes an annual surveillance fee. A company holding a cryptocurrency license must pay an annual surveillance fee to MFSA, which will depend on the revenue received by the licensee as follows:
- with a maximum of €1,000,000, the annual supervisory fee will be €50,000.
- with a profit exceeding €1,000,000 – an additional €5,000 for each €1,000,000 profit.
To date, fewer than 20 companies have received cryptocurrency licences in Malta.
Crypto regulation in Malta
Malta takes a very progressive approach to cryptocurrencies, positioning itself as the world leader in the regulation of cryptocurrencies. Although cryptocurrencies are not a legal tender in Malta, the government recognises them as a «medium of exchange, unit of account or savings». In addition to the existing POD/FT legislation, the Maltese Government was the first to enact three Digital Assets Acts (MDIA, ITAS and VFA) as well as blockchain legislation. Malta’s cryptocurrency regulation does not include specific tax legislation, and currently VAT does not apply to transactions for exchange of fiat currency to cryptocurrency.
Cryptocurrency exchange is legal in Malta, and in 2018 the Maltese government passed landmark legislation that defined a new regulatory framework for cryptocurrencies and solved the problems of POD/FT. This regulation of Malta’s cryptocurrency includes several bills, including the Virtual Financial Assets Act (VFA), which sets a global precedent by establishing a regulatory regime applicable to cryptocurrency exchanges, ICO, brokers, wallet suppliers, consultants and asset managers.
VFA (effective November 2018) was accompanied by the Law on Innovative Technologies and Services, which established a regime for future registration and accountability of crypto service providers. The Malta Digital Innovation Authority was also established : MDIA is the government body responsible for the development of cryptocurrency policy, cooperation with other countries and organizations and ensuring ethical standards for the use of cryptocurrency and blockchain technologies.
Malta Cryptocurrency Regulations
No new legislation on money-laundering or cryptocurrency is foreseen, but the Office
Malta Financial Services (MFSA) stated in its Strategic Plan for 2019-2021 that the financial services regulator of the country will actively monitor and manage business risks associated with licensed virtual assets and cryptocurrency business to better combat money laundering and other risks of financial crime. The Maltese Government also indicated that it would focus on integrating AI with cryptocurrency regulation and could introduce specific guidelines for security token proposals.
Current Maltese legislation
The VFA Act establishes a framework for virtual financial assets, including ICOs, and entities that deal with them, such as virtual asset exchanges, investment advisers, custodial purse providers, brokers, and portfolio managers.
Malta has adopted a Financial Instrument Test, which must be conducted by anyone who proposes to issue an ICO in or from Malta to determine the type of asset being created and the law applicable to the ICO and the token itself. If the asset in question is defined as a «virtual financial asset» or «VFA» (defined as any form of digital recording medium that is used as a digital medium of exchange, unit of account or savings other than a financial instrument, virtual token or electronic money) will be governed by the VFA Act.
- Financial instrument – financial instrument is defined in accordance with the EU Financial Services Market Directive ( MiFID ) and the Malta Investment Services Act, while activities related to financial instruments, regulated by the Investment Services Act;
- A virtual token is a token whose utility, value or use is limited solely to the acquisition of goods or services or solely to the distributed registry platform on which or in connection with which it was issued, or within a limited network of distributed platforms registries. Virtual tokens are typically service tokens whose only utility and value is to purchase goods or services on the DLT platform, on which they are released. Actions associated with virtual tokens are not regulated; And finally,
- Electronic money – to qualify as electronic money, a DLT asset must be issued at a nominal value upon receipt of funds by the issuer and can be redeemed at any time only by the issuer. It should be used to make payments and should be accepted by a person other than the issuer as a means of payment.
If the DLT asset can be converted into another type of DLT asset, it will be treated as the type of DLT asset that it can be converted into. Typically, most virtual assets are virtual financial assets.
The main difference compared to Hong Kong is that Hong Kong does not currently have specific legislation applicable to ICOs or virtual assets. However, this will change if the FSTB’s November 2020 proposal to license virtual asset exchanges under Hong Kong’s anti-money laundering legislation is implemented. In addition, there is no strict distinction between different types of tokens in Hong Kong, except where the tokens have the characteristics of a security. Otherwise, all tokens are considered virtual goods.
Requirements for the content of the technical description
The VFA Act does not require issuers to be licensed or registered with the MFSA, but they must issue a technical document that meets the various requirements specified in the VFA Act. This requirement applies to any legal entity that offers (i) to offer a virtual financial asset to the public in or out of Malt or (ii) to apply to trade a virtual financial asset on the DLT exchange. The definition of the VFA issuer refers only to legal persons established under Maltese law. Thus, issuers must be registered in Malta if they wish to host a VFA (i.e. ICO). A technical document is not required if the DLT asset is defined as a virtual token (which is not regulated by VFA). VAIOT announced the successful registration of its technical document with the MFSA in October 2020, becoming the first project regulated by the VFA Act.
VFA issuers are obliged to comply with the issuer’s obligations, which, very briefly, relate to the conduct of business honestly and conscientiously, with due skill, care and diligence; communication with investors, conflicts of interest, investor fund protection, administrative mechanisms, Safety and compliance with POD/FT.
Issuers will be liable for compensation to any person who incurs losses as a result of the purchase of virtual financial assets either under the original VFA proposal or in the exchange of DLT on the basis of false information contained in an official document on the webissuer website. or in advertising about virtual financial assets.
This is comparable to the SFC’s approach to regulation, where investor protection measures under the SFC Code of Conduct apply only to the participation of a traditional intermediary, and since the SFC Code of Conduct does not apply to securities issuers, There are no obligations under the Code of Conduct. The behaviour of the issuer in the typical offer of security tokens to ensure the accuracy of the information presented in its marketing documents, as well as to assess the suitability of its tokens to potential buyers. However, an issuer that makes false or misleading statements in its official document may be held liable for fraud, theft or misrepresentation.
Requirements for VFA Agent
In Malta, the issuer of the ICO must permanently appoint a VFA agent approved by the MFSA. Lawyers, accountants and corporate service providers may apply for approval as VFA agent. The VFA agent is responsible for advising and directing the issuer regarding its liability and obligations under the VFA Act and relevant rules and regulations. It should form the view that the issuer has complied with all applicable regulatory requirements regarding the supply of virtual financial assets or their admission to the exchange (as appropriate) and should consider the issuer to be appropriate and appropriate. The VFA agent acts as a liaison between the issuer and the MFSA and must provide all documentation required under the VFA Act and relevant rules and regulations. In particular, it must annually submit to the MFSA a certificate of conformity confirming that the issuer complies with regulatory requirements. VFA agents should disclose any material information regarding non-compliance with MFSA regulations.
Advertising requirements for VFA
The VFA Act lays down the requirements for advertising issued in connection with the original VFA proposal or the admission of VFA to VFA. Any advertisement must be clearly identified as such and the information contained therein must be accurate and not misleading, and must be consistent with the information contained (or contained) in an official document. The advertisement must contain a statement that the official document has been or will be issued, as well as the address and time when copies are or will be available to the public. Advertising related to the VFA service may be issued only by the VFA license holder or another person whose content has been verified and approved by the license holder’s administrative board.
VFA Service Providers
Providing VFA services in Malta or from Malta requires the provider to license MFSA. Examples of VFA services include portfolio management, custodian or nominal holder services, investment advice on virtual financial assets, virtual financial asset placement, VFA exchange management, order reception and transfer, related to virtual financial assets, execution of orders and operations with them. Own account.
An organization applying for a VFA license must appoint a registered VFA agent to apply. MFSA may grant or refuse to grant a license that may be general or limited to the provision of certain VFA services. Granting a license requires MFSA to continuously confirm that:
- The applicant (and its beneficial owner, qualified owner, members of the administrative board or any other person who manages the business of the applicant) is suitable and appropriate for the provision of relevant VFA services, and also comply with and comply with the requirements of the VFA Act and other relevant regulations and rules;
- If the applicant is a natural person, the person is a resident of Malta;
- If the applicant is a legal person, it is either established in Malta, or in accordance with Maltese law or recognized jurisdiction, and has a branch in Malta. Its goals or objectives should be limited to activities as a licensee and performing ancillary or secondary activities, and should not include goals or tasks that are incompatible with the licensee’s VFA services. Incompatible purposes or objects include any activity that requires authorization by the MFSA under any Maltese legislation other than the VFA Act; and
- Its actual activities are compatible and related to VFA services.
A license may be granted on any terms and conditions that MFSA deems appropriate and may subsequently be revoked or additional terms may be imposed. Decisions by MFSA to grant or refuse a license will be based on its objectives of protecting investors and the public, protecting Malta’s reputation, promoting innovation and competition, and sustaining and reputating the applicant and related parties.
There are a number of other grounds on which MFSA may refuse to grant a license, including if it considers that the applicant lacks sound and reasonable management, reliable administrative arrangements and adequate internal controls or security mechanisms, or that the applicant for a relationship with a person or persons who prevent him from exercising effective supervision of the applicant or that the granting of a license to the applicant may pose a risk to investors, the general public, the reputation of Malta and the promotion of innovation or competition.
MFSA may suspend or revoke a license for reasons that include, but are not limited to, the following:
- The licensee shall not start providing the service to the WFA within 12 months from the date of issue of the license;
- The licensee ceased operations as a result of the merger; iii. If the licensee is declared bankrupt, liquidates or makes a settlement agreement with its creditors or is otherwise dissolved; or
- at the written request of another competent regulatory authority regulating the license.
License holder’s responsibilities
The VFA Act imposes standards of conduct on licensee holders, including requirements that they act fairly, fairly and professionally; comply with the VFA Act and any related rules and regulations; and have fiduciary responsibilities towards their customers. License holders must maintain secure access systems and protocols to high standards.
Market abuse prevention
The VFA Act criminalizes insider trading, market manipulation and the unlawful disclosure of internal information with respect to virtual financial assets that are allowed to be traded on VFA, whether they are carried out in or outside Malta:
- Insider transactions – knowingly recommending or encouraging another person to participate in insider transactions is an offense. Insider transactions occur when a person possesses insider information and uses that information, at his or her own expense or at the expense of a third party, directly or indirectly, to the virtual financial assets to which that information relates. This also occurs when a person possesses insider information and, on the basis of that information, recommends or induces another person to acquire or dispose of the virtual financial assets to which the information relates, or another person to revoke or amend an order relating to the virtual financial asset to which the information relates,
- Unlawful disclosure of insider information where a person possesses insider information and discloses that information to any other person, except where disclosure is permitted under the VFA Act and regulations or rules issued pursuant thereto. Incitement, aiding and abetting
or instigating such a crime is also an offense.
- Market manipulation is defined as manipulating or attempting to manipulate a virtual financial asset or benchmark through an abusive strategy.
VFA exchanges must have effective systems, procedures and mechanisms to monitor and detect abuse in the market and must report any suspicion of abuse in the market to MFSA.
License holder audit
The licensee will be required to appoint an auditor who is required to report to the MFSA any fact or decision that may result in a serious disclaimer or denial in the audit report of the licensee’s accounts, or may constitute a material breach of applicable legislative or regulatory requirements, or a +limit of the licensee’s ability to continue to operate. Any person with close ties to such a licensee must also be reported by the auditor to the MFSA. The auditor must simultaneously communicate the information to the board of the licensee if the auditor is not aware of a valid reason for not doing so. The auditor is required to report annually to the MFSA on the security systems and protocols of the licensee.
It is an offense to induce or attempt to induce another person to enter into a VFA agreement through deliberately misleading, false or misleading statements. Any person who deliberately prevents another person from exercising the rights granted by the VFA Act will also be guilty of an offense. Offenses under the VFA Act are punishable by a fine of up to 15 million euros, a fine of up to three times the profit or loss avoided as a result of the crime, or imprisonment for up to six years, or a fine and imprisonment at the same time. Law VFA also imposes obligations to report suspicions of money laundering and terrorist financing. If the official or employee of the VFA issuer, the VFA agent or the licensee believes that the transaction may be related to money laundering or terrorist financing.
COST OF CRYPTOCURRENCY LICENSE
PACKAGE «COMPANY & CRYPTO LICENSE IN MALTA»
- Collection and review of due diligence documents
- Structuring, legal and regulatory advice
- Provision of a legal opinion classifying the legal nature of the service provided
- Drafting of the documents required for application and issue of licence
- Business Plan
- Application Form
- Compliance Procedures Manual
- PMLFT Manual
- Conflict of Interest Policy
- Client Categorisation Policy
- Client Order Execution Policy
- Complaints Handling Procedures Manual
- Personal Transactions Policy
- Reporting of Breaches Policy
- Inducements Policy
- Remuneration Policy
- Business Continuity Plan
- Outsourcing Policy
- Emergency Plan
- Preparation of all the supporting documentation for the application.
At the moment, the main services of our company are legal and compliance solutions for FinTech projects. Our offices are located in Tallinn, Vilnius, and Warsaw. The legal team can assist with legal analysis, project structuring, and legal regulation.