ICOs and Digital Currencies Profiled In Malta Financial Services Paperbr>
The Malta Financial Services Authority (MFSA) has issued a discussion paper on initial coin offerings (ICO) and digital currencies to obtain feedback from the industry before drafting a legal framework.
The MFSA is the single regulator for financial services in the country. It was established by law on July 23, 2002, taking over supervisory functions previously carried out by the Central Bank of Malta, the Malta Stock Exchange, and the Malta Financial Services Center. The Authority is a fully autonomous public institution and reports to Parliament on an annual basis.
MFSA noted that digital currencies and ICOs are rapidly evolving. It said that the aim of the discussion paper is to devise a policy framework that supports the innovation and new technologies for financial services while ensuring effective investor protection, financial market integrity, and financial stability.
According to the MFSA, the policy guidelines being proposed in the discussion paper follow the general principles of a policy statement issued by the European Securities and Market Authority (ESMA). This states that firms involved in ICOs and/or other digital currency activity must carefully consider whether their activities constitute regulated activities in terms of EU or national legalisation.
The discussion paper stated that certain digital currencies and activities pertaining to them would be licensed and regulated under a new legislative framework to be drafted by the MFSA and adopted by the Maltese Parliament, the Malta Virtual Currencies Act. The Act and any relevant subsidiary legislation would regulate the carrying-on of business associated with digital currencies falling outside the scope of the existing EU and national financial services legislation, and make provision for matters ancillary thereto or connected therewith. The Act would apply a principles-based approach to regulation supplemented by MFSA guidance, rather than detailed rules which would possibly stifle technological innovation.
The paper is also proposing a test that would determine whether the features of a digital currency, either on a stand-alone basis or within the context of an ICO, constitutes a financial instrument under Markets in Financial Instruments Directive (MiFID) and other relevant EU legislation. That is, specifically in the forms of transferable securities, units in collective investment schemes, commodities and their respective financial derivatives contracts. and financial contracts for difference.
If a digital currency issued through an ICO qualifies as a financial instrument, the issuer is required to comply with the relevant existing EU legislative framework. On the other hand, If the test determines that the digital currency issued through an ICO does not qualify as financial instruments, the Virtual Currencies Act would be applicable. Similar high-level regulatory principles on transparency and merit-based regulation as those currently applicable to securities seeking a listing on a regulated market would apply to ICOs in terms of the Virtual Currencies Act.