This Tuesday I attended a conference in Malta, on the new regulations approved by the Maltese government and which will come into force from October 2018.
MALTA, THE BLOCKCHAIN ISLAND
For those who still had doubts that the Blockchain together with the Crypto Assets could become a reality, necessarily change your mind, because with Malta the process of regulating a new phenomenon that will change the world and our life has begun.
As always, those who first manages to exploit a new technology will have significant advantages over those who ignore it and even more than those who oppose it.
So I thought it was necessary for my loyal readers of the Blog, to share a lot of information (not all, he, he, he) that I learned and some considerations on this emerging phenomenon. The Maltese Government on July 20 issued three laws:
1) Malta Digital Innovation Authority Act (MDIA)
2) Innovative Technology Arrangements and Services Act (ITAS)
3) Virtual Financial Assets Act (VFA)
The first rule that we will not elaborate on it is practically the regulation to establish a new Regulatory Body called in fact the Malta Digital Innovation Authority to authorise and supervise all the actors necessary for the various processes that I will explain later.
The second is the establishment of a Register and its rules for a new "voluntary" figure of the Technology Service Provider and the Certification of DLT Platforms (Distributed Ledger Technologies).
VIRTUAL FINANCIAL ASSETS
The third law is the most interesting because it concerns the regulation of Crypto and services related to Blockchain, especially from the financial point of view of Crypto activities.
The choice of the legislator was to approach the sector with a holistic approach, having to cover different aspects of technological innovation, such as the DLT, the Smart Contracts, the Artificial Intelligence and the IOT (Internet of Things).
At present, the law will come into force on the first of October and will be followed by an event called Delta Summit from 3 to 5 October where it will be presented to journalists from around the world this novelty, which I am describing in advance ... ( I hope you appreciate).
So let's focus on the Crypto law, that is the Virtual Financial Asset Act.
The first aspect is the definition of VF Asset that has been described: "virtual financial asset" or "VFA" means any form of digital medium record that is used as a digital medium of exchange, unit of account, or store of value and that is not - (a) electronic money; (b) a financial instrument; or (c) a virtual token.
"Virtual Financial Asset" or "VFA" means any form of digital information recording medium that is used as a digital means of exchange, unit of account, value retention that is not:
(a) Currency electronics;
(b) a financial instrument; Or (c) a Virtual Token.
So the Maltese regulator has chosen a form of exclusion, so to identify a Token, to understand whether or not it falls within the perimeter of the law you must first ask yourself these questions.
It could be misleading the Virtual Token, because it might seem that the cryptos are excluded, but in reality, for Virtual Token you can identify only those private tokens that are not used outside a closed environment, and that will never go into an exchange to be exchanged at rising or falling values.
To give an example citing Leonard Bonello, lawyer of GANADO Advocates of Malta who presented the standard, a Token made to pay within the Disney Parks and only in the parks of that company can be considered Virtual Tokens, if Disney decided to quote the Tokens in an exchange, then it would become a Virtual Financial Assets. In fact, all the Token Utility listed on the market today are from the VFA and therefore fall under the Maltese legislation.
SECURITY OR UTILITY?
Once you have defined that a token is a VFA, you have to establish whether it is a Security Token or a Utility Token, to do this the legislation has prepared a series of exclusion points, beautifully summarised by GANADO with a slide that follows below.
Practically this test defines if the Token you want to achieve falls within the MiFID legislation or within the VFA Act and is therefore considered a Utility Token.
If it falls under the MiFID rules, a Token is regarded as a Security and follows the European regulations for financial instruments, for which a prospectus is required, the Token can be quoted only on regulated markets or on MTF always regulated. On the other hand, if the Token falls within the VFA regulations, it follows specific rules such as those concerning ICOs or the management of the same regarding use in the business. The Initial Virtual Financial Asset Offering, known as ICO (Initial Coin Offer) provides a series of steps that regulate, in a positive sense, the process to issue the Token.
For those who want to make a capital injection through the issuance of a VFA, the process in Malta will be a little more complicated, but not too much compared to other jurisdictions.
But the regulation guaranteeing those who buy the Tokens to have greater guarantees on the company, on the seriousness of the project and on the IT structure that is adopted.
It will not be fortunately necessary to obtain approval from the digital authority, but it will be required to deposit the Whitepaper a week before the start of the offer.
This procedure principally works in case of complaints worth the Whitepaper in the hands of the authority, and thus it is an essential passage of transparency.
The law has also been defined the necessary points to be included in the Whitepaper to give a clear image of the project with a series of minimum and required information so that the Whitepaper is considered a valid document.
NEW STANDARD IN THE ICOs
The law specifies that no VFA offering can be made without a Whitepaper being drawn up in line with the Maltese legislation guidelines, whether the VFA is made in Malta or outside.
So it appears in fact that the Maltese government has "de facto" established what a Whitepaper should contain, on pain of not being able to have the VFA signed in Malta and I do not even believe it can be quoted in a Maltese Exchange. VFA
The Law also regulates companies that can manage the crypto Assets for third parties, introducing the VFA Service Providers, on the false line of the AIFMD, the European directive that regulates the Management companies that have the authorisation to manage alternative funds and investments in Alternative Assets. These companies will be the only ones able to manage the PIF investing in Crypto Assets and probably in the future also the AIFs investing in these types of unconventional financial instruments.
The activities that these companies can carry out are practically the same as a MiFID Firm, that is a management company for traditional investments, apart from the first two points:
a. VFA Exchanges;
b. Wallet Providers (safekeeping);
c. Dealing on Own Account;
d. Execution of Orders;
e. Reception and Transmission of Orders;
g. Portfolio Management;
h. Investment Advice.
The exciting thing is that the VFA Exchanges are finally regulated, for those who want it of course, and then use these exchanges to buy and sell Crypto Assets will undoubtedly be safer than an unregulated Exchange.
It is not yet clear, but I believe that those who ask for authorisation as a Wallet Provider, will allow, as regulated, to be able to accept Fiat currency inbound or outgoing and this will represent a clear competitive advantage.
The other items are the same as those already used in the traditional financial world, but the novelty is that a company that operates in conventional investments will not be able to run and manage Crypto Assets.
For the same reason, the companies operating under the VFA Act will not be able to manage traditional assets because the regulator Maltese believes that they are different skills that should be kept separate in order not to confuse the customer (and perhaps to give him better security).
Lastly, various technical figures have been introduced to be used both to create an Initial VFA Offer or to operate activities reserved under the VFA Act. The new figures regarding ITAS are the following:
1 ) System Auditors Practically some people who under contract perform an Audit of Smart Contract or "Innovative Technology Arrangements (ITA)".
2) Technical Administrators, They are people who under written agreement agree to perform all or part of the operations of an ITA
3) Resident Agent They are people with specific requisites (honorability, but also technological knowledge) resident in Malta that operate from conjunction with the Digital Authorities and that compile the various documents required by the Maltese law and interact with both parties.
Regarding the legislation on VFAs, three other figures have been established:
a) VFA Agent;
b) VFA Issuer;
c) VFA Service Provider;
The VFA Agent (a) is required both for those who carry out VFA Issuer activities (who issues ICOs to be understood) that for the VFA Service Providers. To be a VFA Agent, you need to be a lawyer, an accountant or a company regulated as a Company Service Provider. The VFA Issuer (b) is the company that wants to launch an ICO, ops, an Initial VFA Offering, with its headquarters in Malta and according to the Maltese jurisdiction. The VFA Agent must always be present for a company that wants to realize an ICO, and it is the one who helps the company to draw up the Whitepaper according to the law, to obtain a legal opinion about the functionality of the Token. For the companies of VFA Service Providers (c), the VFA Agent will have to compile the "file" to be submitted to the Authorities for the authorization of the services.
Although the law does not cover all aspects of the strong innovation deriving from Blockchain and Crypto, finally the first clear legislation has arrived to operate in a bright and confident regulatory environment.
And this without having to take operational and corporate risks for those issuing ICOs and for those who want to perform in the management of such assets that will gradually become an investment, as are today the Commodities, the Shares, the Certificates, the Derivatives, etc. Of course, a world born to de-centralise, dis-intermediate, de-regulate is nowadays starting to be regulated, creating intermediaries and centralising the power of control to a government agency.
The purists of the crypts imagine that they will not be happy, but for the vast majority of people, it is essential clarity, security and regulation.
So my opinion is that giving a regulation to the world of Crypto Currencies can only do well to them and can to develop even more and better this market and this technology to improve the world where we live. This is my opinion, then we will see how the Crypto community will respond.
We live in an exciting era with a rate of technology development never seen in millennia of human history, so the best thing we can do is try to stay connected to technological evolution and if possible exploit it in our business before they do other ... ps: the taxation of the Capital Gain from Crypto Assets is a thing apart, who cares about this aspect, contact me personally ...