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Starting a Business of Cryptocurrency in Malta: An Overview

Nikhil Mogha

| Updated: Oct 03, 2022 | Category: Global Registration

Cryptocurrency in Malta

Malta is considered one of the jurisdictions that set up the regulatory framework for Blockchain, DLT (Distributed ledger Technology), cryptocurrency and digital assets. The country aims to recognise itself as the pioneer in the crypto hubs by adopting Crypto-friendly regulations. The Virtual Finance Act 2018 governs the country’s digital laws. They aim to provide a smooth regulatory framework to make Malta the leading country in blockchain technology. The present article will discuss the steps and the regulatory requirement for starting a business of Cryptocurrency in Malta.

What are the acts governing cryptocurrency in Malta?

The laws regulating cryptocurrency in Malta are:

  • Virtual Finance Act, 2018: The VFA act is the principle law governing the country’s virtual financial assets. The act provides a compulsory requirement of white paper, licensing requirements, advertising, types of liability etc. The act further states the applicable principle of admission of virtual financial assets to trading.
  •  Malta Digital Innovation Authority Act: The Malta Digital Authority Act[1] is established to provide a certificate to cryptocurrency companies, register the service providers and utilise DLT. The Malta authority act further establishes the Malta Digital Innovation Authority, which will look over the certification and registration process and is also responsible for enforcing the standards for the protection of consumers and investors.
  • Innovative Technology Arrangements and Services Act: The ITAS act determines the principle for recognition and certification of DLT (Distributed Ledger Technology) platforms. Further, it provides for the registration process of rims willing to carry out an exchange business. The act also regulates the service providers in relation to the system auditors and technical administrators.

What is Virtual Finance Asset?

The VFA is a form of digital technology that is used as a medium of exchange, store of value, unit of accounts and doses not contains:

  1. Electronic Money
  2. Financial Instrument
  3. Virtual Token- digital technology used as a medium of recordation of utility, value or any application.

What is VFA offering?

Any company willing to offer a VFA to the public in or from Malta shall require to draw a white paper. The whitepaper shall be filed under the following conditions:

  1. The whitepaper shall contain:
  2. Date of offering
  3. Matters stated in the First Schedule
  4. Statement of compliance by the board of administration
  5. A signed copy of the whitepaper duly signed by the board of administration is provided to the competent authority.

Appointment of VFA agent

Any company willing to offer VFA to the public shall appoint a VFA agent who will handle all the correspondence with the regulatory authority. For carrying on the below-mentioned activities, the agent is required to be registered with the competent authority by filing an online VFA agent registration form:

  1. Advisory on the matter of regulatory compliance
  2. Retain and Receive documents and information on behalf of the issuer
  3. Advisory on the matter relating to the listing of VFA on the DLT exchange
  4. Submit required documents and information to the competent authority.
  5. Providing any information to the competentauthoritywithout any delay
  6. Acts as a liaisonbetween the authority and the issuer
  7. Submit an annual compliance certificate with authority.
  8. Deal in a cooperative manner with the authority

Types of Classes and their fees for cryptocurrency

The company willing to start a business in cryptocurrency shall choose from the types of classes they want to engage in the business activities. The VFA Act determines the types of cryptocurrency according to the activities.

TypePurposeCapital Requirements and Fees
Class 1A company is willing to open an advisory service relating to cryptocurrency investments.Capital requirements:- EUR 50,000 or EUR 25,000 with VFA insurance Application Fee: EUR 6,000 Annual Supervisory Fee: EUR 5,500 for the first generated revenue of EUR 50,000 and EUR 700 for each additional part till revenues amount to EUR 1,000,000.
Class 2A company is willing to provide a digital wallet and looking to manage cryptocurrency portfolios. They can hold and control the money of the investor.Capital requirements:- EUR 125,000 Application Fee: EUR 10,000 Annual Supervisory Fee: EUR 9,000 for the first generated revenue of EUR 250,000 and EUR 800 for each additional part till revenues amount to EUR 5, 000,000.
Class 3A company is willing to operate as a trader over the counter on the cryptocurrency market. They can use any VFA service and hold control money of the investor.Capital requirements:- EUR 730,000 Application Fee: EUR 14,000 Annual Supervisory Fee: EUR 12,000 for the first generated revenue of EUR 250,000 and EUR 800 for each additional part till revenues amount of EUR 50, 000,000
Class 4A company is willing to offer VFA and DLT assets on the cryptocurrency exchange. They can hold and operate VFA cryptographic keys and manage their VFA exchange.Capital requirements:- EUR 730,000 Application Fee: EUR 24,000 Annual Supervisory Fee: EUR 50,000 for the first generated revenue of EUR 1,000,000 and EUR 5,000 for each additional part till revenues amount to EUR 100, 000,000

What are the preliminary steps before starting a business of cryptocurrency in Malta?

Below mentioned are the steps that shall be adhered to while starting a cryptocurrency in Malta:

Step 1: Determination of Service

The first step is to identify the type of VFA services offered by the company and determine whether the services are covered under the VFA act by giving the Financial Instrument Test, as the act allows only certain entities to offer VFA services.

Step 2: Establishing a Company

The subsequent step will include establishing a company in Malta or other jurisdictions. If the company operates from outside Malt, it must have a branch in Malta with its registered address. Further, the company shall carry out only those activities for which the license was granted. Moreover, the company shall hold a valid corporate bank account.

Step 3: Appointment of VFA agent

The applicationcan only be processed through a VFA agent. Hence the company shall appoint a VFA agent who will act as a correspondence between the authority and the company.

What is the Licensing of Cryptocurrency Company in Malta

The person willing to trade its virtual financial assets on the VFA exchange can do so by making an application at the MFSA. It is pertinent to mention that the VFA agent shall carry out all the activities of application and licensing. For obtaining a licence for cryptocurrency in Malta, the applicant shall undergo a test conducted by MFSA. The tests apply to the applicants who:

  1. Offers DLT assets to the public or willing to admit such assets on exchange in or from within Malta
  2. The person providing services or performing any activity in relation to DLS assets

Step 1: Application Filing

The applicant must apply to the VFA agent and a statement of intent with MFSA before commencing cryptocurrency activities in Malta. The statement of intent shall contain the following:

  1. Comprehensive Structure of proposed services offered
  2. Identifying the key positions held by the managerial persons
  3. Description of how the proposed service does not fall within the scope of traditional financial services legislation

After submission of the application, a preliminary meeting shall be held with the applicant and the MFSA. If there is a requirement of any other documents mentioned by the MFSA, then the applicants shall within 60 days submit the complete application.

Step 2: Review of application by MFSA

After applying, the MFSA shall review the application and analyse the information set out in the application. If the authority is satisfied with the application, it will issue “in principle” approval that will be valid for 3 months from the date of issue. The applicant must then fulfil and finalise all the conditions mentioned in the ‘in-principle approval” within 3 months. The authority will issue the grant of licence for operating cryptocurrency activities in Malta after satisfying all the conditions.

Step 3: Time period to offer Services

After the grant of licence by the authority, the applicant shall have to undergo other requirements with authority before commencing the business activities of cryptocurrency in Malta. However, the applicant can start its services within 12 months from the date of issue of license.

What are functionaries to be appointed before starting the business of Cryptocurrency in Malta?

Before starting the business of cryptocurrency in Malta, the person or the applicant has to appoint preliminary functionaries of the company:

  1. Auditor
  2. Anti-Money Laundering Reporting Officer
  3. Administration Board

Conclusion

Malta is considered as a start-up hub for cryptocurrency companies.Being the first country to offer blockchain technology, it has acquired a dominant place globally. The stable approach of the country is creating an ideal place for many cryptocurrency companies worldwide. Moreover, the time required to start a cryptocurrency business in Malta is comparatively less than in other European countries. Malta is a crypto-friendly country but also requires that a VFA agent who will be the professional service provider be appointed by the company. The VFA agent will advise and provide any information on behalf of the company to the regulatory authority.

Read our Article: All about The new Cryptocurrency Bill 2021 (The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021)

Nikhil Mogha

An Advocate by profession, Nikhil Mogha holds experience in the field of Business and Securities law. He has done his Masters of Law in Corporate Law from Guru Gobind Singh Indraprastha University, New Delhi. He is also versed with the drafting and research work in the field of Company Law, Banking Laws and Contract Laws.

Business Plan Consultant


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