Malta: ICOs And ICO Regulations In Malta

Last Updated: 25 April 2019
Article by STA Law Firm

Initial Coin Offering (ICO) is a relatively new player in the financial sector which has paved its way to becoming a principal subject of discussion in the Blockchain community. In essence, ICO stands out amongst the most developed strategies for raising funds from the public and continues to gain popularity exponentially.

While every other jurisdiction is hesitating from regulating this niche industry, Malta has taken the lead and presented a specific regulatory and administrative framework for ICO's. Malta is the first jurisdiction to take the initiative to regulate ICOs and Blockchain Technology. This article seeks to give an outline of the laws and guidelines related to ICOs.

The title of "Blockchain Island" was unequivocally earned by Malta in July 2018 for instituting the first ever cohesive framework for ICO regulation. While this sector universally continues to function in a legal vacuum, Malta is the crypto haven for an unambiguous legal framework for ICO regulation.

Malta comprehended that regulatory clarity is the cornerstone from which this effervescent economy would grow, it set up dedicated government units absorbed exclusively on researching these technologies and ideas to establish Malta as a world's ringleader for transparent and affluent ICO regulation.

Malta culminated with final Parliamentary approval the following three bills:

  1. Malta Digital Innovation Authority Act
  2. Virtual Financial Asset Act
  3. Innovative Technological Arrangement and Services Act

1. Malta Digital Innovation Authority Act (MDIA Act)

The MDIA Act provided for the formation of MDI Authority and projected at outlining the Authority's mission to endorse the growth of the blockchain technology sector in Malta. Its aim was to regulate internal governance. The Authority certifies a Distributed Ledger Technology (DLT) platform software, which provides technical, legal and economic certainty to users of these platforms in Malta.

For clarity, the DLT platform is a digital system that records transactions of assets, through which details of these transactions are recorded at several places at the same time. The motif behind DLT system is to keep transparency amid asset exchanges.

2. Virtual Financial Assets Act (VFAA)

The FCAA institutes a supervisory framework to administer entities that work indirectly or directly with VFAs which includes ICOs, nominee service providers, portfolio managers, token exchanges, investment advisors and token exchanges. The VFA Act also establishes a set of necessities and rules for Security Token Offering (STO) and ICO whitepapers to be delivered to the Malta Financial Services Authority. This Act specifies that the token issuer must assign a VFA agent who is approved by the MFSA as the proficient authority who screens and reports on the token offering.

3. Innovative Technology Arrangements and Services Act (ITAS Act)

The Act promulgates a regulatory structure for ITAS and also institutes definitional criteria and registration prerequisites for innovative technology arrangements, persons providing innovative technology services and the innovative technology services itself. The Act further provides for auditing and authorization of software and architectures used in conniving and delivering smart contracts, DLT, decentralized autonomous organizations, and also similar innovative technologies as may be nominated by the Minister on the recommendation of the Authority. The language of the Act construes that it is future-adaptive.

To Whom Does the New Law Apply?

These rules and regulations apply to anyone who will provide VFA(s) (short for Virtual Financial Asset). VFA is defined in the new legislation, hence, an asset which is not a VFA will not come within the ambit of the legislation.

The pre-requisites for a person to issue a VFA is as follows:

  1. A Whitepaper must be drafted, which must also be registered and approved at the Malta Financial Services Authority (MFSA)
  2. To have consistently a VFA Agent who is duly certified by the MFSA

The new legislation applies to anyone who will offer to the public Virtual Financial Asset(s) (VFA) as these are defined in the new legislation. Hence, if the asset that is offered to the public is not a VFA, the new legislation does not apply.

'Technology First' Approach by Malta

The blockchain and cryptocurrency Acts abridged above are premeditated to work seamlessly as a triumvirate to provide this niche industry with a comprehensive framework that verifies the veracity of DLT software and consolidates protections for token buyers.

While other jurisdictions look to merely attest a whitepaper based on the forte of its economic assumptions, Malta looks at the software and knowledge behind the whitepaper, and at the prospective for efficacious execution of the regulations therein. Malta is the only country who has delved into minute detail on the regulation of unsettling blockchain technologies.

Silvio Schembri, who is the Parliamentary Secretary for Financial Services in Malta, is of the view that flawed technology would deliver blemished results, contrasting what is mentioned in the whitepaper. Hence, he is of the opinion that 'technology first' approach means prudently assessing the technology elucidated in the white papers of those interested in setting up shop in Malta. Hence, Malta's financial ombudsman (the MFSA) concluded a new and mechanically competent body should review and license crypto businesses, which is the MDIA. MDIA decides whether a crypto business is qualified for a license, based on the superiority of the computer code in the white paper.

The outlook of most countries towards cryptocurrencies is that of an investment asset instead of a legal tender. VFA Act outlines the Maltese Financial Instruments Test which determines the category under which a DLT asset falls. Companies that wish to issue DLT assets abroad but carry out connected activity from Malta, or set up an ICO within the country, as well as other domestically based entities in the field must take the Maltese Financial Instruments Test, which defines all tokens and cryptocurrencies as DLT assets.

Furthermore, Silvio Schembri added that when he has contemplated the elements that would boost the development and expansion of the blockchain industry, he fathomed early that operators in the digital realm needed legal certainty. Presently, these operators functioning in the jurisdiction of constitutional vagueness fear that a day will come when the government would deem such activity illegal. Malta encompassed the protection and regulation of digital transactions within the three abovementioned Acts, thus creating legal certainty.

Delving in Technicalities of the Acts

I. Definition of Virtual Financial Asset

As defined in the Act, VFA is any form of digital medium recordation that is exploited as a unit of account, digital medium of exchange or store of value, excluding:

  • Financial Instrument: It includes securities which are transferable, like bonds and shares. It also includes market instruments like certificates of deposit and treasury bills. Additionally, it includes instruments which confer property rights, foreign exchange held for investment reasons, derivative instruments for siphoning credit risk, amongst other types of financial instruments
  • Virtual Token: These are token with no utility, application or value beyond the DLT platform on which it was issued, and also
  • Electronic money: Electronic money refers to the magnetically, including electronically, stored monetary value, which is putative by a legal or natural person other than the financial institutions that issued such money

II. Contents of Whitepaper

Whitepaper contains the information which is essential to allow the investors to make an informed assessment and valuation of the prospects of the issuer, the proposed project and of the characteristics of the VFA. The whitepaper requires such information to be presented in an easily analyzable manner. The language of the draft in English. Following should be contained in the Whitepaper:

  • Date
  • Declaration mentioning that the whitepaper complies with the prerequisites of Maltese Law
  • Summary: It should be brief, and it must provide all the vital information related to the offering, indispensable elements of the VFA, etc. A warning must also be inculcated in the Whitepaper which includes a warning like 'VFA does not comprise an offer to sell financial instruments', 'Any decision to invest must be based on the consideration of the document as a whole' etc
  • Specific matters like name, declarations, and functions of the persons responsible
  • The reason behind the VFA offering

The whitepaper includes several more information that must be provided to ensure approval from the MFSA and not a penalty of rejection.

Benefits of Malta as an ICO Jurisdiction

Below are some of the benefits that ICOs receive for launching in Malta:

  • Incentives: There are several incentives which are associated with the launching of an ICO in Malta, like:
  1. Gaining help from staff salaries
  2. Gaining capital contributions equivalent to capital investment
  3. Getting an office space
  4. Being eligible for tax credits
  • Taxes: Indubitably, taxes is one of the most imperative deliberations to make when selecting a jurisdiction for an ICO. Malta is known for its competitive tax regime that provides favorable conditions to ICOs. According to Malta's corporate tax system, any increment in one's salary is not taxable and one ends up paying only 15% tax on personal earnings
  • Reputation: Malta is undeniably a renowned investment destination with efficient economic infrastructure. Establishing an ICO in Malta gives offerors better credibility. Consequently, the banks and financial institutions comparatively tend to look more promisingly upon ICOs


The Maltese government, through the conduit of the three bills, has drafted a set of edicts to guide the operations of cryptocurrency companies which is based on the principles of consumer and industry protection, and more importantly, on the values of market integrity. Being the first country to have rules and regulations which comprehensively cover cryptocurrency transactions, Malta now also the most robust outline for monitoring and standardizing a country's burgeoning cryptocurrency industry in a way that invigorates innovation.

Other jurisdictions like Isle of Man, Bermuda, Hong Kong, Switzerland which branded as a crypto valley, Liechtenstein and Estonia are far behind Malta, which has created regulatory certainty by way of the Acts mentioned above. The other jurisdictions lack behind because they view ICO and ICO regulation from a vantage point of old monetary paradigms.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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