Malta Proposes Compulsory Financial Inst. Test For Crypto Companies

April 16, 2018 by Cameron Bishop

The Financial Services Authority of Malta has published a report regarding cryptocurrency regulation process. The 40-page document defines financial instruments under the European law and explains how it applies to cryptocurrencies. Notably, it also reveals that the cryptocurrency related service providers have agreed to undergo a compulsory financial insturment test to determine the legal status of their projects.

The report is a follow up of the previous discussion paper, published by the regulatory authority on November 30, 2017. The previous consultation paper had suggested a mandatory test for those who offer virtual currencies, ICO, and related cryptocurrency services. In particular, the “Financial Instrument Test” would be the basis of deciding whether a DLT-related company, asset, or service is “is encompassed under (i) the existing EU legislation and the corresponding national legislation, (ii) the proposed Virtual Financial Assets Act or (iii) is otherwise exempt.”

According to the report presented last week, the cryptocurrency related companies have broadly agreed to the proposed mandatory test, but insisted on the need for clarity and legal certainty. The document has also posed 19 questions for industry participants to review and respond before May 4.

Question 1
Do you agree with the purpose and scope of the Financial Instrument Test?
Question 2
Do you agree that the Financial Instrument Test should be a mandatory requirement under the proposed legislative and regulatory framework?
Question 3
Do you agree with the MFSA’s proposed methodology of the Financial Instrument Test?
Question 4
Do you agree with the MFSA’s definition for Virtual Tokens?
Question 5
Do you agree that Virtual Tokens which can be exchanged for legal tender, bank credit or other DLT assets should fall within the scope of the Virtual Financial Assets Act?
Question 6
Do you agree with the proposed checklist for Virtual Tokens?
Question 7
Do you agree with the MFSA’s interpretation of transferable securities, as defined under MiFID, within the DLT context?
Question 8
Do you agree with the proposed checklist for determining whether a DLT asset qualifies as a transferable security, as defined under MiFID?
Question 9
Do you agree with the MFSA’s interpretation of money market instruments, as defined under MiFID, within the DLT context?
Question 10
Do you agree with the proposed checklist for determining whether a DLT asset qualifies as a money market instrument, as defined under MiFID?
Question 11
Do you agree with the MFSA’s interpretation of units in a Collective Investment Scheme, as defined under the ISA within the DLT context?
Question 12
Do you agree with the proposed checklist for determining whether a DLT asset qualifies as a unit in a Collective Investment Scheme, as defined under the ISA?
Question 13
Do you agree with the MFSA’s interpretation of C(IV) to C(X) financial instruments, as defined under MiFID, within the DLT context?
Question 14
Do you agree with the proposed checklist for determining whether a DLT asset qualifies as a C(IV) to C(X) financial instrument, as defined under MiFID?
Question 15
Should DLT assets be allowed as a means of payment within the context of cash settlement under MiFID?
Question 16
Should transfer of ownership of an underlying through the updating of a ledger maintained using DLT be deemed as physical settlement under MiFID?
Question 17
For the purposes of the Financial Instrument Test, what should in your opinion be deemed as appropriate standard delivery periods within the DLT context?
Question 18
Do you agree with the MFSA’s interpretation of emissions allowances, as defined under MiFID, within the DLT context?
Question 19
Do you agree with the proposed checklist for determining whether a DLT asset qualifies as an emissions allowance, as defined under MiFID?

Malta’s regulator said

“It is envisaged that the test will be applicable both within the context of an Initial Coin Offering as well as during the intermediation of DLT assets by persons undertaking certain activities in relation to such assets in or from within Malta.”

Malta is not leaving a single stone unturned to project itself as the blockchain technology friendly jurisdiction. However, it wants to make sure that only companies which are willing to work within a legal framework set up shops in the region.

Binance and OKEx are two major cryptocurrency exchanges, which have confirmed their willingness to shift their operations to Malta.

Referring to Binance, which is arguably the larges crypto exchange by daily traded volume, Prime Minister Joseph Muscat said

“They are not saying that they are coming to Malta because they can do what they want. They are saying they are coming because Malta is ready to regulate us, and we are bringing the consumer the peace of mind that there are people regulating this system.”

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Cameron works tirelessly behind the scenes ensuring his many US news stories are factual, informative and brought to you in a timely fashion before most other media outlets have them. He is an investigative journalist at heart who also has a fond interest in the money and business markets too.

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