MFSA simplifies Financial Instruments Test for ICOs

MFSA launches guidelines to facilitate classification of DLT assets via the Financial Instruments Test

Dr. Priscilla Mifsud Parker | Published on 25 Jul 2018


The Malta Financial Services Authority (the ‘MFSA’ or the Authority), has been fully gearing up to provide a set of regulations which shall provide more granularity to the high level provisions set out in the following three acts which have recently completed the process to become laws of Malta:

1.    The Malta Digital Innovation Authority Act (the ‘MDIA’ Act) – which establishes a new authority, the MDIA, which shall be responsible for the proper recognition of Service Providers of Innovative Technology Arrangements, as well as the certification of such technologies. 
2.    The Innovative Technology Arrangements and Services Act (the ‘ITAS’ Act) – which sets out the regime applicable for the registration of Technology Service Providers and the certification of Technology Arrangements. 
3.    The Virtual Financial Assets Act (the ‘VFAA’) – which sets out the regime applicable for anyone seeking to issue an Initial Coin Offering in Malta, including the requirements for a valid white paper. The VFAA also highlights that the operation of a cryptocurrency exchange, among other VFA services, will require a license from the Authority.                              

Financial Instruments Test now Simplified, more Rules to come for Crypto Exchanges

Before issuing the Rules as binding instruments, the MFSA is currently issuing a number of Consultation Papers on various topics which are open to general public who is invited to submit opinions or position papers on the matters in question. 
The Authority so far has issued guidance on who shall be exempt from regulations, a proposed four tier structure on classes of licenses available to individuals or entities seeking to carry out a VFA service as well as the applicable fees and relevant sanctions in case of wrong doing. 

The Authority has also provided guidance to the legal and accounting professionals who shall be assisting entities seeking to set up an ICO in or from Malta, and anyone seeking to offer a VFA service. Such professionals will be known as VFA Agents and shall be the main point of contact between the MFSA and the Issuer or Service Provider. 

Today, the MFSA has followed up on a previous Consultation Document wherein it set out the requirements for the Financial Instruments Test (the ‘Test’), a test which must be carried out by anyone seeking to issue an ICO in or from Malta in order to determine what kind of asset they shall be creating and the applicable law governing the launch and the token itself. The Authority has created an excel sheet which shall facilitate the process for Issuers seeking to determine the nature of their DLT asset as well as VFA Agents who shall need to give their stamp of approval to such a classification. 

The Financial Instruments Test

The Test defines all cryptocurrencies and tokens as DLT assets and classifies them into three categories: virtual tokens, financial instruments and virtual financial assets.

Firstly, the Test will determine whether the DLT asset can be considered as a virtual token and would fall outside the scope of regulation. A virtual token is a token which does not have any value outside of its platform and thus cannot be traded or exchanged outside of its platform. A ‘utility token’ would generally be classified as a virtual token. 

Secondly, the Test will enquire whether the DLT asset qualifies as a financial instrument under MiFID and the local Investment Services Act. A ‘security token’ would generally be captured under the aforementioned legislation. 

Thirdly, if a DLT asset cannot be classified as a virtual token or as a financial instrument, it will be captured by the new Virtual Financial Assets Act once it becomes law, and will be considered a Virtual Financial Asset. Generally, most cryptocurrencies today would be captured under this category. 

Our Fintech Practice

Our lawyers and financial services specialists at Chetcuti Cauchi Advocates provide bespoke solutions to clients by combining the traditional legal fabric with new technologies. Our Fintech Practice strives to assist clients in this burgeoning and evolving sector of law, which is set to reshape the financial services sector as we know it.

If you would like more information as to how the Financial Instruments Test may impact your business once you set up in Malta, or are interested in the setting up of a DLT company, an ICO, a cryptocurrency exchange, or alternatively would like to set up a Crypto Fund in Malta, we welcome you to get in touch with our specialists at 

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