Malta Financial Services Authority Consults on Investments in Virtual Currencies

In line with the Government’s policy to develop the digital economy, the Malta Financial Services Authority (“MFSA”) is considering the manner in which further rules may be introduced to ensure investor protection and market integrity in the context of investments in virtual currencies. In this context, the MFSA has launched a consultation document publishing a framework for such regulation and is inviting relevant stakeholders to provide comments and feedback in this process.

The MFSA is developing a rulebook to regulate Professional Investor Funds (“PIFs”) which have the investment in virtual currencies as their investment objective. The MFSA is presently considering whether Alternative Investment Funds and Notified Alternative Investment Funds should also be allowed to invest in virtual currencies.

In view of the risk associated with the investment model of collective investment schemes investing in virtual currencies, it has been decided that, for the time being, the legal structures for PIFs making such investments should be limited to SICAV and INVCO structures, which are required to have a board of directors responsible for the overall conduct of business of the collective investment scheme.

According to Malta Today, Cabinet has approved the first draft of a national strategy to promote blockchain, the technology underlying the Bitcoin cryptocurrency, Prime Minister Joseph Muscat has revealed.

“This is not just about Bitcoin, and I also look forward to seeing blockchain technology implemented in the Lands Registry and the national health registries,” he said. “Malta can be a global trail-blazer in this regard.”

Muscat reiterated his call on the EU to harness the potential of cryptocurrencies and seek to become the “Bitcoin continent of Europe”.

According to Library of Congress survey on bitcoins

Malta currently does not have any regulations specifically pertaining to bitcoins, nor does there appear to be any official government statement on the recognition or policy towards the bitcoin.  According to news reports, the bitcoin is not deemed as a regulated instrument under the EU’s Markets in Financial Instruments Directive 2004/39/EC (MiFID),[81] thus there are no licensing requirements for companies that deal in bitcoins to obtain a license from the Malta Financial Services Authority.[82]

The rulebook published for consultation builds on the existing rules applicable to PIFs and adds further rules, which specifically aim to mitigate the potential risks of investing in virtual currencies. The main proposals introduced within this new rulebook aim at safeguarding the interest of investors and the integrity of the financial market in the context of virtual currencies. In this regard, the rulebook imposes specific requirements on the governing bodies of the collective investment schemes and, in certain instances, the collective investment schemes’ service providers, in relation to competence, risk warnings, quality assessment, risk management and valuation.

  • The Government of Malta has reported that it is developing a broad national strategy that will see the government embracing blockchain innovation. The MFSA is mandated under Article 6(1) of the Malta Financial Services Authority Act to follow such policy guidelines as may be set out by Government.
  • The Malta Financial Services Authority (“MFSA”) has for the past months been monitoring the developments with respect to Virtual Currencies (“VCs”). In this regard, the Authority is considering the manner in which rules may be introduced to ensure investor protection and market integrity in the context of investments in VCs.
  •   As a first step, the MFSA is establishing and is, by way of this consultation document, publishing a framework for the regulation of collective investment schemes investing in VCs.
  • This consultation deals with a standalone rulebook applicable to Professional Investor Funds (“PIFs”) which have investment in VCs as their investment objective. Building on the existing rules applicable to PIFs, the MFSA has added further rules which specifically aim to mitigate the potential risks of investing in VCs.
  •  The MFSA is presently considering whether Alternative Investment Funds and Notified Alternative Investment Funds, respectively, should also be allowed to invest in VCs.

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