A lot of hype is being generated (and rightly so!) about how Malta is going to regulate and licence virtual financial assets (VFAs) when other countries are treating VFAs as hot potatoes. But what exactly IS regulated licenced? Is it the VFA itself? Is it the company issuing the VFA? What about services relating to VFAs? So many questions but really and truly the answers are quite simple.
The short answer is that the VFA offerings and their respective white papers will be regulated Malta Financial Services Authority (MFSA), and the services related to VFAs will be regulated and licenced by the MFSA. So, whilst VFA offerings themselves do not need a licence (but their white paper needs to be submitted to the MFSA BEFORE the issuance actually happens), services relating to VFAs need a licence.
Licenced VFA Activities
Whilst there are FOUR kinds of VFA Licences, such licences cover EIGHT VFA Services – which are the following:
- Reception and Transmission of Orders;
- Execution of orders on behalf of other persons;
- Dealing on own account;
- Portfolio Management;
- Custodian/Nominee Services;
- Investment Advice;
- Placing of Virtual Financial Assets;
- Operation of a VFA Exchange.
If these services found familiar, then you probably came across them in some form of EU transposition of the MiFID2 regulation, which is a good thing, as then you probably know what these services entail – of course, with some (or a lot actually!) VFA sprinkled on top!
VFA Licence Classes explained
Each of the four VFA licence classes will encapsulate the eight VFA Services listed above. The first class of licence is the Class 1 Licence (duh!). Class 1 Licence holders will be licenced to conduct the service of reception and transmission of orders (Service Number 1 above), provision of investment advice (Service Number 6) and the placing of Virtual Financial Assets (Service Number 7). Holders of this licence will need to hold an initial capital requirement of €50,000 OR €25,000 and Professional Indemnity Insurance. Given that such services will be licenced and regulated by the MFSA, licence holders will need to pay a yearly supervisory fee. This supervisory fee for Class 1 Licence Holders will be €5,500 for revenue up to €50,000 plus €700 per €50,000 revenue tranche thereafter.
Class 2 Licence holders are able to provide ANY of the eight above-mentioned VFA Services EXCEPT Operating an Exchange and Dealing on own account. Therefore, under the Class 2 Licence, VFA Services 1, 2, 4, 5, 6 AND 7 mentioned above can be conducted. Of course, given that this class of licence offers holders the possibility of providing more services, the initial capital requirement is higher than the Class 1 Licence. In this case, the initial capital requirement of a Class 2 Licence will be €125,000, and the applicable supervisory fee will be €9,000 for revenue up to €250,000 plus €800 per €250,000 revenue tranche thereafter.
Should one wish to offer ANY VFA Service EXCEPT operating a VFA Exchange, then one would need to apply for a Class 3 Licence, which would oblige holders to hold an initial capital requirement of €730,000. Of course, the mandatory supervisory fee in this case would be €12,000 for revenue up to €250,000 plus €800 for every revenue tranche of €250,000 thereafter.
Last and most definitely not least, comes the Class 4 Licence, which lo and behold, allows providers to offer ANY of the VFA Services listed above! Before rushing to apply for this licence, one must keep in mind that an initial capital requirement of €730,000 applies, and the supervisory fee is €50,000 for revenue up to €1,000,000 plus €5000 per revenue tranche of €1,000,000 thereafter.
It’s all very simple, right? One word of advice: do not let the supervisory fees scare you off! Just think what regulatory endorsement and approval does for one’s reputation! One can see it as a certification of quality that can be used to put clients’ minds at rest and entice them to use the services of your first-class regulated firm instead of those service offered by the pesky, dodgy, unregulated competition.