The Malta Financial Service Authority (MFSA) has recently published a consultation document on the Virtual Financial Assets (VFA) rules for VFA providers. This consultation, published on 31 August 2018, is part of an ongoing series of consultations leading to the introduction of a “Virtual Financial Assets Rulebook”. This rulebook will be divided into three chapters covering the Virtual Financial Assets rules for (1) VFA agents, (2) Issuers of Virtual Financial Assets and (3) VFA service providers. This latest consultation paper is concerned with the rules for VFA service providers.
This consultation document therefore deals with Chapter 3 of the VFA rulebook concerning VFA service providers and their licencing and regulation according the VFA Act (“the Act”). The document proposes to divided this chapter in four sections consisting of (1) The high-level principles guiding VFA service providers in the provision of their VFA activity in or from within Malta, (2) The licensing requirements and respective licensing process for VFA service providers, (3) The ongoing obligations that VFA Service Providers must adhere to, and (4) Enforcement and misconduct by VFA Service Providers. The document makes note of Article 62(1)(c) of the Act which provides for transitory provision in respect to VFA Service Providers. This article states that any person providing a VFA service with the meaning found under the Act must apply to the competent authority for licence within twelve months from the date that this Act came into force.
The proposals for the high-level principles require VFA service providers to act in an ethical manner, and in the best interest of Malta. They are required to act honestly, fairly, professionally and in full compliance with the Act and all relative regulations, rules, laws and regulatory requirements, while co-operating the MFSA openly and honestly, providing it with the information it may require.
The second set of proposals, concerned the licensing requirements for VFA Service providers outline, among other things, the four licence classes, the requirement to appoint a VFA agent, the possibility that the MFSA may require the appointment of a Systems Auditor, the criteria taken into consideration by the MFSA prior to granting a licence, as well as initial capital requirements. It also outlines processes for the application for, revision, suspension and surrender of a licence, together with the approval and departure of appointed persons.
The third section deals with ongoing obligations that VFA service providers must adhere. Among these are (i) organisational requirements, [ii] prudential requirements; [conduct of business obligations], together with [iv] record-keeping, reporting and disclosure requirements. This section also sets out supplementary conditions for VFA exchanges.
The last set of proposals covers enforcement and sanctions, including administrative penalties and other sanctions. Where a VFA agent breaches or infringes a rule, the MFSA has, by virtue of the authority granted to it under Article 48 of the Act, can impose administrative penalties, without recourse to a court of law, up to a maximum of EUR 150,000. In determining whether to impose a penalty and the one to the case, the MFSA shall be guided by the principle of proportionality.
The Consultation paper can be found here. The MFSA are encouraging those interested to provide their feedback to the Malta Financial Services Authority by no later than the 14th of September 2018.