Corporate Governance – why all the fuss?

Corporate Governance


In February of 2020, the MFSA (Malta Financial Services Authority) launched a stakeholder consultation outlining several proposals for the setting-up of a comprehensive principles-based Corporate Governance Code.

This document would be applicable to all entities authorised by the MFSA and Listed Companies, which would then be supplemented by sector-specific rules and complementing guidance notes. It was formulated based on the new MFSA 2019-21 Strategic Plan to enhance Company Management & Compliance issues.


The ubiquitous question: ‘What is Corporate Governance?’’ continues to grapple with most company officers and managers – since there is no set criteria as to what constitutes a proper ‘Corporate Governance Code’. In some ways, what the MFSA will try and introduce is a set of ‘minimum standards’ similar to what already exists with Listed Companies here on the island.

Whilst ‘Corporate Governance’ is a concept as old as the company itself, the study of corporate governance has however gained momentum only recently – as an indirect result of increased AML and Compliance requirements that most licensed companies are already faced with.

Moreover, in light of the 2008 Financial Crisis, Companies have also been forced to upgrade their Risk Management and Dual Control functions (also considering MIFID principles) – which inadvertently have led to most Managers revisiting their Corporate Governance Frameworks to include beefed-up but manageable procedures.

Inasmuch as the subject offers an array of interpretations and different process management techniques, this article will try and outline a couple of key elements that will serve every Company in good stead. For the purposes of this analysis, external sub-committees will not be mentioned but will be tackled in a future piece.


 The G20/OECD Principles of Corporate Governance state that ‘Corporate Governance involves a set of relationships between a Company’s management, its board, its shareholders and other stakeholders. It provides the structure through which the objectives of the company are set and the means of attaining those objectives and monitoring performance are determined’. The definition sounds impressive but what does this mean in practice?

Corporate Governance includes formulating a system of checks and balances with clear and tangible objectives which ensure that the ‘best interests of the company’ are at the core of all Policies and Procedures.

To put it bluntly, all short-term goals should complement the overarching long-term objectives which should primarily focus on sustainability, effective management & protection of investors/shareholders. More importantly, Corporate Governance should lay-out an effective framework in pursuit of a set of commercial objectives.


 The interoperability between the Dual Control Principle and Corporate Governance cannot be overstated. In most jurisdictions, especially Malta, the local Regulator emphasises the need to have proper ‘Dual Control’ principles in place.

The notion of ‘Dual Control’ basically means that for every policy and procedure under the control of a designated person, a second person will monitor said decisions and executions (in an oversight and monitoring capacity) – offering guidance and constructive criticism whenever needed.

Company Policies and Procedures should clearly stipulate which Company Officers are responsible for each process and that such decisions are properly documented accordingly to ensure an evidentiary trail of such decisions – and the applicability thereof of Corporate Governance. In most cases, the Regulator will request licensed companies to provide evidence that major decisions were actually vetted by more than one director.


 Shareholders and Directors have two completely different sets of roles and responsibilities within a Company. Whilst it is generally understood that the Shareholders own the Company, the Directors are in charge of the management of the company. This segregation between Management and Ownership forms the basis for effective Corporate Governance.

The OECD Principles on Corporate Governance go one step further and recommend that a distinction is made between both the ‘Board’ and the ‘Management’ itself. From a practical perspective, the Board would normally be composed of experienced individuals capable of approving major policies, setting strategy and establishing Objectives. In major Companies, the Board also nominates and appoints a Chief Executive Officer (CEO) who oversees the ‘Management’ section. Management is generally involved in the Day-to-Day running of the Company and is tasked with the provision of Products & Services to clients.

The aforementioned set-up not only ensures that Management of the Company is structured and coherent (ensuring shareholders are afforded the most onerous form of governance) but the ‘Dual Control’ principle is satisfied holistically – across all forms of the entity.


 It is generally understood that there are two principal models of Governance – 1) the Anglo-American Model and the 2) Continental Model.

Whilst the Anglo-American model advocates a market-oriented approach, the Continental System is primarily geared towards a stakeholder-oriented approach (and is prevalent across the majority of continental Europe).

To put it simply, the Anglo-American model seeks to compensate for minimal shareholder participation (especially in large companies) by placing emphasis on the Board of Directors to act with the duties of care and loyalty whilst ensuring member/shareholder protection.

On the other hand, the Continental Model involves greater shareholding control and involvement – complemented by the participation of other key stakeholders such as Customers and Suppliers. To note that there is a responsibility on the majority shareholders to keep the managerial officers in check.

Whilst there is no ‘right’ and/or ‘wrong’ system, the style of Governance is normally commensurate to the Quantity and Quality of Human Resources available and the long-term objectives which the company decides to establish prior to commencing its business operations.


 Every Company is effectively managed by a Board of Directors. This organ should be of sufficient size such that the balance of skills and experience is appropriate for the requirements of the business and that changes to the Board’s composition can be managed without unnecessary disruptions. Moreover, the Board should be composed of personnel who, collectively, have the required diversity of knowledge, judgment and experience to properly execute their tasks to the best of their abilities.


 The Board of Directors is usually composed of Executive and/or Non-Executive Directors. To note that the Maltese Companies Act does not provide a distinction between the two – and in the eyes of the regulator, both are treated as ‘Directors’. In fact, the Courts of Malta have often found Non-Executive Directors also liable for wrongful and/or fraudulent trading.

Notwithstanding the aforementioned, Non-Executive Directors are generally not engaged and involved in the daily management of the company. Their role is generally restricted to overseeing the executive or managing directors and dealing with situations involving any potential Conflicts of Interests.


 The Corporate Governance principle is largely dependent on the Good Conduct and Character of the Directors. Within this context, a couple of important principles should be raised to reinforce key traits that will ensure the Company is as closely aligned to this onerous principle as possible: –

  1. Directors must act within their Powers. The Board of Directors should act ‘intra vires’ – that is, within the scope of the Company’s objectives and Statutory Provisions rather than ‘ultra vires’ – whereby the Directors go beyond the scope of their powers.
  2. Directors have a duty to act honestly, in good faith and in the best interests of the company. Their duties extend towards all facets of the company and should not be restricted to any individual shareholders.
  3. Directors must use their own judgment – and should not enter into contracts, either between themselves or with third parties, on how they are to vote at important meetings. In this connection, there must therefore be ‘unfettered discretion’ in the course of their tasks and duties.
  4. There is also a duty of care, diligence and skill- wherein directors must exercise a degree of maturity which one would expect a reasonably diligent person to exercise.
  5. Conflicts of Interest should be avoided. Conflicts can range between the interests of the company and the interests of a director or the duties a director has towards a company and the duties he/she has towards another third-party. Conflicts must always be disclosed and properly recorded in a Register.
  6. Directors must also refuse any form of 3rd Party Benefits. They should not take ‘bribes’ from anyone and refuse favours and any other form of compensation which might inhibit their ability to act in an independent and impartial manner.
  7. Moreover, Directors should not make secret or personal profits without the consent of the company and should not benefit from any form of personal gain using confidential company information.
  8. Finally, Directors have the duty not to compete with the company. In this connection, they should not carry out businesses on their own account which directly compete with the company nor form any enterprise/business association which directly acts in competition with the Company.


Most Boards unfortunately fall into the pitfall of discounting the importance of Corporate Governance and perceive it as a burdensome compliance-forced exercise which must be implemented on a ‘tick-box’ approach basis.

The Companies that succeed are those that are not only driven by profit-making endeavours but are committed to create a ‘Culture of Compliance’ whilst ensuring that appropriate checks and balances exist throughout the organisation.

Here at Dr. Werner & Partner, our qualified personnel will be more than willing to offer consultation based on our experience and help you draw up your Corporate Governance structure as per local legislation.

You can contact us accordingly by sending an email to:


The above-mentioned article is simply based on independent research carried out by Dr. Werner and Partner and cannot constitute any form of legal advice. If you would like to meet with up with any of our representatives to seek further information, please contact us for an appointment.

Keywords: Corporate, Governance, Framework, Company, Compliance.








Source of Funds and Source of Wealth – are we asking for too much?

AML - Source of Funds and Source of Wealt
  • Introduction;
  • Differentiating between SoF and SoW;
  • Why we ask for this information;
  • When do we ask for this information;
  • Categories and common example of SoW;
  • SoW and SoF in the context of Customer Risk Assessment;
  • How to treat SoF/SoW in the context of On-Going Monitoring;
  • Conclusion;


Compliance Officers and practitioners are often faced with the conundrum of how to request Source of Funds (‘SoF’) and Source of Wealth (‘SoW’) information to a prospective customer/client in a manner that provides comfort, discretion and confidentiality.

Inasmuch as local Anti-Money Laundering regulations request both SoF and SoW in certain scenarios (there are specific situations where SoF/SoW is not always required to be collected/corroborated), the ‘art’ of obtaining this sensitive information remains a highly subjective matter. Within this context, Financial Institutions (FIs) and TCSPs (Trusts and Company Service Providers) often adopt different approaches and depending on the client and his/her status, there could also be several intermediaries involved who would obtain and disseminate said information themselves (particularly prevalent in the context of high-ranking Politically Exposed Persons).

Notwithstanding the fact that details are at times hazy and ambiguous (with some clients, on rare occasions, choosing not to disclose information), this article will aim to elucidate the ‘why’, the ‘what’ and the ‘purpose’ of this exercise…and the reason it is so crucial in building up a ‘circle of trust’ between the client and the FI/TCSP.

Differentiating between SoF and SoW.

 For clients that are still grappling with these concepts, they can be explained very clearly as follows. Whenever a request for information pertaining to SoW is made, DWP would seek to identify how a customer accumulated his/her wealth. This relates to the entire economic activity that is generated throughout a person’s lifetime.

On the other hand, Source of Funds will provide the FI/TCSP with an understanding of how and for what purpose an account is going to be funded. This roughly translates as dissecting what ‘source of funding’ will be used to commence this account opening, business relationship or occasional transaction. It is not directly related to the Source of Wealth in that the origin of the funds (which is specific in nature) is what really needs to be surmised and identified.

 Why do we ask for this information?

Having a thorough and comprehensive understanding of the SoF and SoW of any particular customer/client will allow an FI or Service Provider to better comprehend the client’s wealth and (more importantly) funding sources – which will in turn ensure that the customer’s risk is assessed appropriately. To note that FIs and TCSPs should adopt a Risk-Based approach (as per FATF Recommendations) with respect to the amount of information collected for SoW and SoF purposes. The type of customer and the risk rating often entails different forms of Due Diligence.

Obtaining SoF and SoW helps DWP for the following reasons:

  • Understanding the customer’s background and financial history allows us to construct a better picture of his/her needs and business plans. We will be able to comprehend expectations based on either previous success in a particular field or embrace the start-up nature of a project.
  • In this connection, a comprehensive appreciation of what it took you to get to this position allows us to align ourselves thoroughly with your projections and company vision.
  • We will be in a better position to understand where and how capital was generated. This would serve us in good stead whenever we are faced with an Internal Audit or inspection by any Relevant Authority. Local Maltese Authorities have also placed an emphasis on being able to ascertain how and when capital was accumulated throughout one’s lifetime.
  • Throughout on-going monitoring (a legal necessity especially within the context of business relationships), having sufficient SoF and SoW information will allow us to identify any transactional activity which might not be in line with what would be reasonably expected based on pre-collated information.
  • To this end, we would not only be protecting our reputation as a service provider, but we’d serve as a second line of defence in case you are unaware of any transactions (inflows & outflows) or scams of which you have no knowledge of – but are discovered throughout the course of Transaction Monitoring.
  • As subject persons, we are under an obligation to assess transactions (commensurate to the size and nature of our business) and report any potentially suspicious activity – and this is in line with all local AML Regulations. It certainly helps if the information we had obtained in the first place was sufficient as it would help any unit formulate a comprehensive understanding.

 When do we ask for this information?

Each FI’s and TCSP’s AML Manual (Policies and Procedures) should normally state that SoW Due Diligence should be conducted either at account opening (or at on-boarding) and assessed periodically (e.g. annually) commensurate to the Risk given by the Compliance and AML Unit.

What is important to consider is that the Due Diligence exercise should be exhaustive enough to sufficiently create a coherent picture of the customer (which more importantly can be reviewed & understood in a logical and transparent manner by any Relevant Authority).

Similarly, SoF information should be gathered in accordance with the AML Manual (considering also the Risk Based Policies & Procedures). The Compliance Officer will seek to understand the ‘origin’ and ‘means of transfer’ of any currency which is deposited with the FI/TCSP – taking cognisance of the ‘method’ used for that transfer.

In other words, SoF will relate closely to the ‘nature and purpose’ of the account opening (or e.g. establishment of a business relationship). Moreover, SoF in particular should involve (1) the amount/value being transferred (2) the method of transfer (3) remittance and origin and (4) country from where the funds originated.Categories and Common

Examples of Source of Wealth.

As already hinted, Source of Wealth information is at times bordering on the ‘personal’ and ‘high confidential’. Obtaining both a thorough understanding and description as to the economic, business and/or commercial activities that generated the customer’s overall net worth is at times often difficult to holistically ascertain. (This is why at times, it is often necessary to verify Source of Wealth statements by asking for supporting documentation).

Within this context, it must be stated that the purpose of SoW information is not to verify an exact and precise amount of the overall net worth. Rather, any FI and TCSP should be comfortable enough to assess the wealth generating activities. To this end, this is often presented in a form which is filled in by the customer.

Some common examples of SoW ‘inter alia’ include:

  • Family Wealth (very prevalent in SoW declarations, which generally speaking, includes inheritance, family gifts, pension or retirement scheme pay outs.
  • Personal Backgrounds (e.g. casino or lottery wins, any sales from real estate, antiques, artworks or any other activity that has augmented the SoW).
  • Income and Business Activities (this is often linked to business ownership, operations, employment income, any other business activity etc…). Salaries, Bonuses and Commissions are often included here and should be declared.
  • Investment Activities (e.g. income from any sale of shares, real estate, intellectual property etc.).

SoW and SoF in the context of Customer Risk Assessment (CRA).

More often than not, the Compliance/On-Boarding Officer will inform the Customer that the purpose of gathering this information is to also help construct a ‘Client-Specific’ Risk Profile. This information is therefore factored into a Customer Risk Assessment. Once SoF and SoW Due Diligence has been carried out, the assessment of the customer’s risk to the FI/TCSP and the corresponding Risk Rating should reflect each of the enquiries in a holistic manner.

In the course of compiling the Customer Risk Assessment, the Compliance Unit will factor in:

  • Whether or not the overall net worth of the Customer has been properly documented in the On-Boarding process. (Also applicable to Source of Funds).
  • Whether the on-going SoW/SoF of the customer have been sufficiently corroborated.
  • Any inconsistences in the SoW and SoF information.
  • Any adverse media ‘hits’ on the Customer.
  • Checks on the Customer’s Reputability and Integrity.
  • Any SoW/SoF connections to a High Risk or Non-Cooperative Jurisdiction.
  • Whether the Customer is (or becomes) a PEP.

How to treat SoF/SoW in the context of On-Going Monitoring

The AML/Compliance Unit are often tasked with ensuring that SoW (where applicable) declarations are reviewed and updated throughout the course of the business relationship (although this could also be subject to period reviews or even triggered by changes in customer circumstances (e.g. change in residence or status).

The level of corroboration of SoW and SoF information during a review process should be risk-based and consider inter alia:

  • Any material changes or new events affecting the on-going SoW or SoF of the customer which had been obtained at on-boarding stage;
  • For how long the customer been a client of DWP;
  • Any new risk indicators;
  • Any previous transaction monitoring enquiries;
  • Whether the account records are in line with the expected activity which was earlier described in previous SoF/SoW declarations.

Concluding Remarks.

Are we asking for too much? If the customer collaborates and fully understands the essence of the on-boarding process (or request for updated information), then any SoW and SoF exercise will be a seamless process. Notwithstanding the ubiquitous clash between privacy and compliance, it is never too much to ask for accurate and up-to-date information. Inasmuch as Clients have a duty to provide such information (for wholly legitimate reasons), any FI and TCSP is equally obliged to protect both its’ reputation and the credibility of the jurisdiction from where it operates.

As previously hinted, trust is at the forefront between a Service Provider and a Customer and the information presented should display a level of maturity & honesty which ultimately will need to stand the test of time.


The above-mentioned article is simply based on independent research carried out by Dr. Werner and Partner and cannot constitute any form of legal advice. If you would like to meet with up with any of our representatives to seek further information, please contact us for an appointment.


Keywords: Source of Funds, Source of Wealth, Customer, On-Boarding, Risk Management.

Dr. Werner & Partner’s VFA Agent to host exclusive crypto-event in Malta!

On the 21st of June 2019, Dr. Werner & Partner will be hosting a formal event at the Palace Hotel in Sliema where the official launch of the VFA Agent company will take place!

It promises to be a fantastic evening with a number of key stakeholders, business partners, friends & clients in attendance. The event is the culmination of a long & arduous process to acquire the much coveted license. We are also happy to announce that throughout the event, we will also be premiering two crypto-related documentary films!

As a special treat  to all our followers and crypto-enthusiasts, we will be issuing 5 free passes to the event to people that re-share this event post from our Company’s LinkedIn news feed accordingly.

(Please note that the users will be chosen on a random basis).

No alternative text description for this image

DWP VFA Agent Ltd. fully accredited by the MFSA

On the 13th of May 2019, DWP VFA Agent Ltd. was formally granted a license to provide the services of a VFA Agent in terms of Articles 7 and 14 of the Virtual Financial Assets Act (Cap. 590 of the Laws of Malta).

The accreditation was a culmination of months of hard work by Dr. Werner & Partner’s Compliance Team to ensure that all the formalities requested by the MFSA were adhered to.

The firm has been at the forefront of Cryptocurrency and Blockchain-related projects on the island since 2016. Throughout this period, the firm has also endeavoured to recruit enthusiastic individuals with a passion to delve deeper into the world of RegTech and Fintech.

Apart from advising a number of prospective clients throughout 2017 & 2018 with regards to the setting up of an ICO and/or Crypto Exchange, Dr. Werner & Partner also actively participated in Crypto-related endeavours with the following partners/companies: aBey, AI Crypto, apay, Accounting Blockchain, Aryia,, Bitdepositary, bitmalta, Blackmoon,, Blockoville, blotocol, BrokerBabe, Cannabists, Chain Partners, coinstockx, Coinygram, Cryptology Asset Group, EthBits, Fulmo, GambeJoe, Hyperion, Justlin, Knoks, KIC, msales, MundoGamer Network, luxury coin, Forest Coin, Oddspill, nextmarkets, netroxx, Super7+, Thema, TueCon, TueThink, U-Save, Wex & ZebPay.

In 2019, members of Dr. Werner & Partner’s Team sat for the mandatory VFA Agent Exam [by the Malta Institute of Management] and the Designated Persons subsequently also passed the MFSA’s Oral Assessment. DWP VFA Agent Ltd. is currently managed by a Board of Directors composed of three persons [one of whom is also acting as the Company’s MLRO].

As CEO of the VFA Agent, Mr. Philipp Sauerborn highlighted the significance of this license grant by stating: ”We have been laughed at and still are by many, for the strictness and rigidity of the VFA Act and its subsequent Regulations. They have been branded as: too tough, too expensive & too burdensome. In some ways, I do agree that there is strict regulation. After all, our own licensing process was a ‘pain in the ass’ as well. However, one should also ask why licence holders from the so-called “easier” countries are now coming to Malta.

This is because of the strictness and ‘legal certainty’ of the VFA-regime offered on ‘Blockchain Island’. As from a certain size, from a certain eye-level, you are playing with the big boys who are themselves also regulated. And surely they will not trust anything less than a Regulation as strict as the Maltese one. Therefore, it is stupid to ask for a ‘relaxed’ form of regulation or be happy about light regulation, when in fact you should be asking & begging for even more regulation.

That’s the reason why Malta will outperform all the other crypto regulations throughout the world sooner rather than later. Also, don’t forget that we still have one of the best EU tax regimes for companies on top of that!”

Setting up a Crypto Exchange in Malta


The popularity of Crypto-Exchanges is on the rise. With more entrepreneurs willing to set up these platforms, it makes sense to analyse the important role Malta [now ubiquitously known as ‘Blockchain Island’] is playing in this new realm of innovative cryptocurrency-based services.

Quite frankly, given the perceived ‘high risk’ when dealing with Exchanges, Malta has taken the ground-breaking step to guarantee ‘legal certainty’. This is being done by comprehensively promulgating a set of laws which primarily seek to offer investor protection based on Malta’s already-sound and robust financial services legislation.

Throughout this article, Dr. Werner & Partner will attempt to elucidate why ‘setting up shop’ in Malta is the best option for any prospective VFA Exchange Operator and how DWP VFA Agent Ltd. will be your best bet when attempting to ensure that the process is manged and completed as smoothly as possible.

Class 4 License.

VFA [Virtual Financial Asset] Operators seeking to acquire accreditation to manage and operate a Crypto-Exchange will need to acquire a license in terms of Article 8(1) of Subsidiary Legislation 590.01 of the Virtual Financial Assets Act. In fact, the MFSA ‘shall set out in the license, the nature of the activities which particular license holders may carry out’. In this connection, to operate an Exchange, customers will require a Class 4 License which also implies that ‘holders may hold or control clients’ assets or money in conjunction with the provision of a VFA Service’. This is an important point, especially when the MFSA considers the clients’ ‘segregation of assets’ to be of paramount importance.

The essence of operating from Malta.

The Legislator places a strong emphasis on ensuring that a prospective license holder has some form of ‘presence’ on the island. Whilst the issue of ‘substance’ will be dealt with later, the law states that a ‘person wishing to be licensed to provide a VFA service shall be a legal person established in Malta’. This clause automatically implies that the Service Holder shall be a Limited Liability Company. In fact, the objects of the company will be expected to reflect that the body corporate will be operating a VFA Exchange in terms of the Virtual Financial Assets Act, Cap. 590 of the Laws of Malta. As VFA Agents, our team of experts will also be able to guide you vis-à-vis the setting up and establishment of a Company, and this in terms of the Companies Act, Cap. 386 of the Laws of Malta.

The VFA Agent Requirement.

A person seeking to obtain a License to operate a VFA Exchange ‘shall appoint a VFA Agent registered with the MFSA in terms of Chapter 1 of the MFSA’s Fintech Rulebook. Notice how the legislator has placed an emphasis on the mandatory obligation to use an agent with the word ‘shall’. Therefore, the onus is on the License Holder to seek & engage an Agent accordingly[1]. In this connection, as stated in Rulebook 3, ‘the applicant shall ensure that all communications, meetings, notifications and submissions to the MFSA are made through its VFA Agent’.

In previous DWP articles, mention was made that a VFA Agent appointed in terms of Article 7 of the VFA Act [dealing with Initial VFA Offerings], has an on-going obligation/relationship with the Issuer. However, in terms of Article 14 [which is what operators of a VFA Exchange will notice], the VFA Agent’s relationship with the License Holder technically ends upon the granting and approval of a license. This is the fundamental difference between an ICO/IVFAO and a VFA Exchange. However, as stated in R3- ‘the Applicant may appoint its VFA Agent to undertake the Compliance function’ accordingly.

The Auditing obligation.

For the purposes of this write-up, the ‘Auditing’ function will be divided into 1) Internal/External Auditors and 2) Systems Auditors.

Article 50(1) of the VFA Act states that the ‘Licence Holder shall appoint an auditor who shall the duty to report immediately to the competent authority any fact or decision which e.g. is likely to lead to a serious qualification or refusal of the auditor’s report on the accounts of a license’.

Moreover, the Auditor has an obligation to ‘report annually to the competent authority on the licence holder’s systems and security access protocols in the manner and format required by the competent authority’. The MFSA’s consent is required prior to the appointment or replacement of an auditor.

In terms of Article 39(d) of the act, the MFSA may also require ‘an audit of a person regulated under this Act’ accordingly. Also, in terms of Rulebook 3 [specifically R3-], the Licence Holder ‘shall establish and maintain an internal audit function which is separate and independent from the other functions and activities of the Licence Holder’. Essentially, the Internal Audit will seek to ensure that the Service Provider has a proper audit plan in place to ensure the Licence Holder’s effective management of internal control mechanisms, issue recommendations, verify compliance with recommendations and to report in relation to internal audit matters.

System-controls and having a robust cyber-security framework are imperative considerations for the MFSA. It goes without saying that the technologies deployed will certainly be subject to an external technical audit which [generally speaking] is best provided through the engagement of a Systems Auditor.

The laws also specify that ‘whenever’ an Innovative Technology Arrangement[2] is in place, the Authority ‘may’ require the Licence Holder to appoint a Systems Auditor. (The MFSA’s approval will be required prior to the appointment and/or replacement of a Systems Auditor). Moreover, the Licence Holder shall ensure that its ‘Systems Auditor prepares a systems audit report on its own ITAS and that a copy is also forwarded to the MFSA’.

Licensing Considerations.

The MFSA will consider certain key factors when determining whether or not a license will be granted. These considerations will include (i) the protection of investors and the general public (ii) the protection of Malta’s reputation (iii) the promotion of innovation & competition (iv) suitability of the application etc. These points also tie in with the next salient provision which entails that the Authority will also consider a license based on a Fitness and Properness examination and the ‘onus’ of providing sufficient to the MFSA that the proposed applicant is Fit and Proper will primarily rest with the Applicant and its VFA Agent.

The Fitness and Properness Test

In this connection, in terms of Rulebook 3, all prospective Licence Holders will be required to prove to the satisfaction of the MFSA, that they have passed a Fitness and Properness test (F&P). The test itself will be based on the following three key facets: (i) Integrity (ii) Solvency and (iii) Competence.

The F&P is also linked with the overall management of the company/service provider. So much so, that the test is applicable to every person that has a qualifying holding share, beneficial owner, member of the board of Administration, Senior Manager, MLRO, Compliance Officer, Risk Manager and any other person who will be directing the business of the Applicant.

Given these requirements, it is undeniably obvious that the MFSA will require several key persons who will form part of the Business and Management administration of the Company to be properly vetted. Moreover, as already seen during the setting up of the VFA Agent structure, the Authority will most certainly emphasize that at a minimum, an applicant will be able to demonstrate that the business will be managed by a group of individuals in strict adherence with the ‘Dual Control’ principle.

This robust framework is aimed at nothing else but ensuring that the management of the Service Provider is ‘tailor-made’ to ensure that investor protection is at the forefront of the day-to-day operations.

Policies and Procedures

Whilst an in-depth analysis of the required policies and procedures will be tackled in another article, applicants should be made aware of the fact that the Authority has placed a strong emphasis on the Licence Holder ensuring that robust ‘Policies and Procedures’ are in place. To this end, in terms of R3- the Licence Holder ‘shall establish implement and maintain’ inter alia documents such as a: Cybersecurity Policy, Accounting Policy, Business Continuity Procedure, Key Management Policy etc. The Licence Holder shall also ‘take into account the nature, scale and complexity of its business’ accordingly.

Initial Capital Requirements & Annual Fees.

VFA Exchange operators will need to note that the company will need to ‘maintain an amount equal to the initial capital required for the authorisation’ and vis-à-vis Exchanges, this amount should be not less than 730,000 EUR [fully paid-up][3].

Rulebook 3 specifies that ‘the Licence Holder shall promptly pay all amounts due to the MFSA’ including an Annual Supervisory Fee which shall be payable by the Service Provider on the day that the audited financial statements are submitted to the Authority. Upon authorisation, the company will be required to pay the minimum annual supervisory fee for the first year of operation ‘upon receipt of the License’.

This fee is payable proportionate to the period remaining between the date of licensing grant and the submission of the annual accounts. For persons operating a Class 4 License, the Application/Notification fee is that of EUR 24,000 and the Annual Supervisory fee will depend on revenue accordingly. For revenue up to EUR 1 million, the fee will be 50,000 EUR and for ‘further tranches of EUR 1 million up to a maximum of EUR 100 million, the fees will be 5,000 EUR per tranche or part thereof’.

The Business Plan

The MFSA has made its intentions clear regarding having in place proper management structures and this via the exigency of ensuring that the Service Provider has a properly structured Business Plan. It would be recommended that the Board of Administration would be heavily involved in the plan’s set up but not without also involving the VFA Agent’s expertise.

Here at DWP VFA Agent Ltd, our team of experts can recommend an approved structure which will form an essential barometer when disseminating information to the relevant authority. Moreover, the Agent can help the applicant ‘tailor-make’ the Business Plan by also suggesting and vetting proposed persons who will be involved in the day-to-day management of the Company [and this of course on a case-by-case basis].

The essence of ‘substance’.

Based on prior experience with existing and regulated entities, ‘substance’ will certainly be a key element when determining whether or not the MFSA will grant a license to any applicant to act as a VFA Service Provider. There will certainly be the requirement for ‘residence’ of the key person/official involved in the Company [in an analogous model used by Gaming Companies] which conclusively also suggests that an office will be required to formally ‘set up shop’ in Malta.

In this connection, the overall and anticipated approach of the MFSA will certainly equate to ‘physical presence’ on Blockchain Island– as this would be the best option for the Authority to monitor and regulate all applicants accordingly. Apart from the aforementioned facts, is the general regulatory requirements imposed by local banks and Tax Authorities that substance goes hand in hand with a physical presence – which, more often than not, implies having some senior management present in Malta, a Company Secretary who is also resident on the island and genuine fiscal substance.


DWP VFA Agent Ltd. is already in possession of the In-Principle Approval and has already commenced advising various applicants accordingly [although fully-fledged services will be offered once the Certificate of Registration is granted by Fintech].

The importance of the VFA Agent can never be discounted especially in light of the seemingly cumbersome regulations that are already in place. Whilst some might be dissuaded by the fact that the requirements could be tedious and taxing, the ‘legal certainty’ that Malta has enshrined in its VFA Laws ensures that ‘investor protection’ and ‘good governance’ are at the forefront of any business endeavour.

In this connection, a reputable VFA Agent and a sound business plan should certainly be the key ingredients in a promising application that will eventually be presented to the MFSA.


The above-mentioned article is simply based on independent research carried out by Dr. Werner and Partner and cannot constitute any form of legal advice. If you would like to meet with up with any of our representatives to seek further information, please contact us for an appointment.

[1] Although, strictly speaking, more than one Agent may be appointed provided that prior notification is granted to the MFSA explaining the different responsibilities that will be undertaken by the respective Agents.

[2] In terms of the First Schedule of the ITAS Act, this arrangement is defined as either being ‘software and architectures which are used in designing and delivering Distributed Ledger Technology and smart contracts & related applications.

[3] As established in Subsidiary Legislation 590.01, the capital requirements are commensurate to the type of license obtained. In this connection, a VFA Class 1 Licence [primarily dealing with Investment Advice and reception and transmission of orders is EUR 50,000 or 25,000 EUR + Insurance. A Class 2 Licence [primarily dealing with the holding and controlling of clients’ funds] is 125,000 EUR and a Class 3 Licence [for operators willing to deal on own account] is priced at 730,000 EUR.

First Experience with Blockchain Law in Malta

The ubiquitous term ‘Blockchain’ has been often used in a nonchalant manner yet closer scrutiny is required to disseminate what exactly is meant by: ‘Blockchain Law’. To be both precise and meticulous at the same time, there is no such thing as a conspicuously conceived statutory Blockchain framework. Instead, there are a few laws and supporting documentation which aim to provide some form of legal certainty to all ‘Blockchain’ enthusiasts.

‘Understanding Blockchain’

To further understand what is meant by: ‘Blockchain Law’, we need to initially attempt to understand the term: ‘Blockchain’. Investopedia for example remarks that: ‘Blockchain is literally just a chain of blocks, but not in the traditional sense of those words. When we say the words “block” and “chain” in this context, we are talking about digital information (the “block”) stored in a public database (the “chain”).  Moreover, it is stated that: ‘Bitcoin is based on a distributed ledger or rather a specific kind of distributed ledger: ‘a Blockchain’.

Therefore, for all intents and purposes, when we refer to: ‘Blockchain’ we are referring to the underlying ‘Technology’ that is nowadays already seen as an integral part of the ‘digital society’. As Malta is already aptly termed: ‘Blockchain Island’, this tiny jurisdiction in the middle of the Mediterranean has already been at the forefront of innovation with the recent promulgation of the ‘Virtual Financial Assets Act, Cap. 590’, ‘Malta Digital Innovation Authority Act, Cap. 591’ and the ‘Innovative Technology Arrangements and Services Act, Cap. 592’ of the Laws of Malta. Colloquially speaking, these three pieces of legislation have already been referred to as: ‘Blockchain Laws’.

It is fair to say that given its relative infancy, ‘Blockchain Law’ as such is still not fully operative and/or functional. So much so, that a proper analysis of Blockchain Law should ideally be conducted within a period of five to ten years from its actual promulgation. Nevertheless, it is worth mentioning the most salient features and components of this new regulation.

Virtual Financial Assets Act

When analysing the VFA [Virtual Financial Asset] Framework, from a practical perspective, the starting point certainly has to be the Virtual Financial Assets Act, Cap. 590 of the Laws of Malta. Innovative yet slightly rigid, astutely written yet relatively complex, this Act essentially espouses the doctrine of ‘legal certainty’; that is, establishing a structured and specific framework to ensure that a comprehensive legislation is created in order to ultimately guarantee ‘investor protection’ and the reputation of Blockchain island.

The Act mainly deals with (i) Initial VFA Offerings – that is mainly, the establishment and operation of an ICO [Initial Coin Offering], (ii) general Licensing requirements for persons willing to apply for a VFA Service, (iii) the Board of Administration and its obligations, the (iv) prevention of market abuse, (v) Regulatory and Investigatory Powers, (vi) the Duty of Auditors and (vii) Appeals, Remedies, Sanctions and Confidentiality provisions.

Articles 7 and 14

The most important elements of the Act pertain to Articles 7 (i.e. the requirement for the issuer to ‘appoint and have at all times in place, a VFA Agent who shall be registered with the MFSA) and 14 (i.e. that the application for a license must also be made solely through the VFA Agent]. There have so far been 36 applications for Issuers of VFA Offerings and 41 applications by prospective VFA Agents. In terms of Article 14, there have so far been 182 applications from service providers.

The First and Second Schedules

Experience has shown that mastery of the First and Second Schedules of the VFA Act is paramount for a good understanding of the subject. In fact, this was emphasised by the MFSA throughout the approved-courses for the VFA Agents. The First Schedule deals with general principles that should be found within any VFA Offering Whitepaper. This exhaustive list has already been applied by a number of issuers and its aim is to generally ensure that prospective investors are aware of the all the risks associated with crowdfunding initiatives.

The Second Schedule contains a list of VFA Services and from a practical perspective, these are 1) Reception and Transmission of Orders 2) Execution of orders on behalf of other person 3) Dealing on own account 4) Portfolio Management 5) Custodian and Nominee Services 6) Investment Advice 7) Placing of VFAs and 8) The operation of a VFA Exchange.

It goes without saying that given the current and obvious ‘slowing-down’ of the ICO Market, VFA Services will certainly play a more crucial role in the months to follow.

Subsidiary Legislation

Subsidiary Legislation 590.01 [The Virtual Financial Assets Regulations, 2018], primarily deals with four main features 1) Licensing Exemptions 2) Fees 3) The Holding and Control of Assets and 4) Administrative Penalties and Appeals. This subsidiary legislation makes reference to the four classes of licenses and also stipulates that the holding and controlling of client assets forms a distinct patrimony in so far as liability is concerned. To also note that the MFSA has published two Rulebooks [Chapter 1- VFA Agents, Chapter 2- Issuers of VFAs at the time of writing] which should also be read and analysed as well as numerous Guidance Notes, Consultation Papers & Feedback Reports.

The MDIA Act

The ‘Malta Digital Innovation Authority Act’ primarily establishes this organisation and enshrines the guiding principles of this Authority, that are mainly: the promotion and development of the innovative technology sector and the development of Malta as a centre of excellence for innovative technology.

Moreover, the Act also mentions the ‘Functions’ and ‘Conduct of Affairs’ of the Authority and it is specified that the MDIA is a ‘body corporate having distinct legal personality with legal and judicial representation vested in the Chairman’. In this connection, the Board is tasked with Regulatory powers, enforcement and sanctions. An interesting concept is the encouragement of ‘co-ordination with other national competent authorities’ including the MFSA, Malta Gaming Authority, Malta Information Technology Agency, Malta Competition and Consumer Affairs Authority and the Malta Statistics Authority.

The ITAS Act

The much-anticipated ‘Innovative Technology Arrangements and Services Act’ primarily caters for the voluntary application for certification of DLT [Distributed Ledger Technology] and Smart Contracts. More importantly, it also provides a structure for the registration of System Auditors and Technical Administrators.

This Act also contains the registration requirements for providers of Innovative Technology Services. The Registration process focuses on the service provider being fit and proper, qualifications and experience of the service provider, the technical resources or third-party support of the service provider etc…The most salient article in the ITAS is undoubtedly Article 8 which deals with the ‘certification’ of any prospective ITAS. To also note that there are several Guidelines which have been issued by the MDIA which certainly deserve a thorough reading by all and sundry.


As previously stated, practical and hands-on application of ‘Blockchain Laws’ is still very much a novel concept. However, practitioners and prospective clients would do well to familiarise themselves with the inherent feel of the overall legislation – which one can surmise will certainly play a crucial rule in ensuring that Blockchain Island thrives on its well-founded reputation of ‘innovation’ & ‘technology.’


The above-mentioned article is simply based on independent research carried out by Dr. Werner and Partner and cannot constitute any form of legal advice. If you would like to meet with up with any of our representatives to seek further information, please contact us for an appointment.


Strict Application Process: Why you can trust your VFA Agent

The fulcrum of every successful community is the principle of ‘trust’. Having confidence in relying on a trusted authority/agent will certainly help make the financial services sector more trustworthy and reliable. Given the very risky world which is already associated with Cryptocurrencies and Initial Coin Offerings (ICOs), a proper strategy is required by all and sundry in order to mitigate any salient risks which may arise for both the authorities and prospective investors.

In this connection, the necessity for having a qualified intermediary who can effectively liaise with both the Regulatory Authority and the client is certainly a must. Within this context, the concept of the VFA [Virtual Financial Asset] Agent was born. The Maltese VFA Agent is to put it ‘bluntly’, the closest thing to an ‘expert’ in the realm of ‘Blockchain Laws’ and a proper understanding of why this person should be trusted certainly merits further scrutiny.

Understanding the definition

Firstly, a closer look at the legal definition [contained in Chapter 590 of the Laws of Malta] will give us a better understanding of what is specifically meant by ‘VFA Agent’ that is, ‘a person registered with the competent authority under this Act and authorised to carry on the profession of –

(a) advocate, accountant or auditor; or

(b) a firm of advocates, accountants or auditors, or corporate services providers; or

(c) a legal organisation which is wholly owned and controlled by persons referred to in paragraphs (a) or (b), whether in Malta or in another recognised jurisdiction,

any other class of persons holding authorisations, qualifications and, or experience deemed by the competent authority as possessing suitable expertise to exercise the functions listed under articles 7 and, or 14’.

A purposely promulgated Rulebook

The VFA Agent’s role is so crucial that the MFSA has even published an entire Rulebook for VFA Agents [Chapter 1] which seeks to enshrine several key principles/features. In fact, the Rulebook is primarily divided into four key areas which are: 1) High Level Principles 2) The Registration Requirements and process 3) the on-going obligations for the VFA Agent and 4) Enforcement and Sanctions by the MFSA.

Therefore, the first reason why the VFA Agent can be trusted is precisely this robust legal framework [enshrining minimum standards] which helps regulate and ‘monitor’ the Agent in the best possible manner. Also, according to the Rulebook, the VFA Agent shall openly co-operate with the MFSA and shall provide all information required. Moreover, the VFA Agent is duty bound to comply with the applicable Maltese Laws, Rules, Regulations and Guidance Notes which are issued by the MFSA and/or any other body on an ad hoc basis.

The mandatory imposed examination

Another important reason relates to the rigorous examination which every prospective designated person must undertake in order to form part of the VFA Agent team. By no means ‘a walk in the park’, the currently approved examinations are tough and designed to ensure candidates are grilled in not only the traditional financial services legislation but an in-depth knowledge of basic AML/CFT analysis including assessing the Financial Instruments Test. In other words, when investors hand-pick their VFA Agent, they can be rest assured that their chosen intermediaries would already have plenty of knowledge in this sector. Moreover, is the annual obligation imposed by the Authority in order to complete a mandatory amount of CPE [Continuous Professional Education] hours in order to ensure that all designated persons [including the MLRO] are kept up-to-date with recent changes & updates in the legislation.

Fitness and Properness Assessment

Whilst the above-mentioned points already require prospective Agents to ‘beef-up’ their credentials, another reason why your VFA Agent can be trusted is the scrutinous registration considerations which are imposed by the MFSA. The MFSA imposes the obligation to prima facie asses the fitness and properness of the VFA Agent – which primarily includes the Agent’s (i) Integrity, (ii) Competence and (iii) Solvency. The Fitness and Properness is required on the UBOs (owning more than 25%, qualifying members (10%+), the Designated Persons and Appointed Persons. Moreover, when specifically dealing with ‘Competence’, all proposed persons shall be obliged to individually and collectively demonstrate to the MFSA knowledge, expertise that adequate systems are in place to act as a VFA Agent.

Policies and Procedures

This last point can be tied with the next salient reason and that is the robust ‘Policies and Procedures’ that every VFA Agent should have in place. At a minimum, a VFA Agent should have in place: 1) Accounting Policies and Procedures 2) AML/KYC and On-Boarding Policies and Procedures 3) Business Continuity and Disaster Recovery Policies 4) Conflict of Interests Guidelines 5) Remuneration Policies 6) A robust Corporate Governance Framework 7) Cyber-security and Reporting of Breaches Procedure 8) Data Protection (GDPR) and Privacy Policy 9) Outsourcing policy and a 10) Staff Training Policy.

On-going obligations (& Insurance Requirement)

These policies and procedures are inherently linked to the ‘On-going obligations for VFA Agents’. Therefore, prospective clients should also be made aware that the VFA Agent will, from a regulatory aspect, be continuously obliged to adhere to all rules and regulations. This is also stated in the Rulebook whereby ‘the VFA Agent shall at all times have adequate business organisation, systems, experience and expertise’. Moreover, the VFA Agent is to maintain records to be able to demonstrate compliance with the MFSA’s on-going obligations.

The regulations also impose upon the Agent the obligation to be ‘effectively managed by two individuals’ who are both Fit and Proper and have enough time to manage the business of the Agent in an efficient manner. The VFA Agent must also make every effort to obtain a Professional Indemnity Insurance which [amongst other requirements] will effectively help cover any legal liability of negligence or error by the Agent, Designated Employees or contractor. The VFA Agent is also required to submit to the MFSA (on request) the renewal of said policy.

Enforcement and Sanctions

Finally, the MFSA imposes very strict enforcement and sanctions on non-compliant VFA Agents. These principles are also enshrined in the Virtual Financial Assets Act (Articles 48 to 55). The Regulatory Authority may by virtue of Article 48 impose an administrative penalty of up to EUR 150,000 and the MFSA will use the principle of proportionality to impose penalties/sanctions whilst taking into consideration important points such as (i) repetition, frequency, gravity or duration of infringement (ii) Third-party losses (iii) previous sanctions and (iv) evidence of wilful deceit.

Articles 7 & 14

It has already been noted [in previous articles] that clients may opt to engage a VFA Agent in terms of Article 7(1) of the VFA Act i.e. ‘An issuer [for an ICO/VFA Offering] is required to appoint, and have at all times in place, a VFA agent who shall be registered with the Competent Authority’ or Article 14(1): ‘An application for a licence under this Act shall be made solely through a VFA agent which is duly registered in terms of this Act in the form and manner required by the competent authority’. In both instances, the VFA Agent is duty-bound to act in a diligent and professional manner in order to not only help maintain investor protection but also mitigate any threats posed to the reputation of ‘Blockchain Island’.


The ultimate ‘purpose’ of all this regulation is to protect the Public Interest since this ‘person’ will certainly be acting as a ‘gatekeeper’ for applications before going to the MFSA. Keeping all these principles in mind, the investors can be rest-assured that a Maltese approved VFA Agent is and will always be the best assurance to ensure that any prospective crypto-related endeavour is tackled in the best possible manner.


The above-mentioned article is simply based on independent research carried out by Dr. Werner and Partner and cannot constitute any form of legal advice. If you would like to meet with up with any of our representatives to seek further information, please contact us for an appointment.

Malta Blockchain Summit proves to be a major success!

Representatives from Dr. Werner & Partner successfully participated at the Malta Blockchain Summit which was held on the 1st and 2nd of November 2018 at the Intercontinental Hotel in St. Julian’s.

The company stand proved to be an immediate success with a record number of delegates and people visiting and queues forming to sample the innovative and hugely popular Virtual Reality Simulator – Birdly.

Members from the Crypto team enjoyed meeting up with a variety of people and new contacts were made in this ever dynamic ‘digital world’. In this connection, a special thanks goes to: Philipp Sauerborn, Joerg Werner, Michael Calleja, Rebecca Mifsud, Dragana Nedin, Rebecca Mifsud, Katerina Avdeeva & Meinrad Froehlich.

The summit was used as a ‘launching pad’ for the VFA Act, MDIA Act and the TAS Act which formally came into force on the 1st of November 2018. Simultaneously, the MFSA also announced that persons wishing to avail themselves of the transitory provision in terms of Article 62 of the Act, but have not yet submitted a Notification Form, have until 12 November 2018 to submit a complete Notification Form.

Stay tuned to all our updates by visiting our funky new website:!

To contact us accordingly, you may also visit us via:

The Financial Instrument Test: A brief analysis.


The current ‘talk of the town’ for all Blockchain & Crypto-enthusiasts is an innovative test formulated by the Malta Financial Services Authority (MFSA) entitled: the Financial Instrument Test.

This analysis and ‘determination’ will be the mandatory barometer for all forms of enterprises proposing to introduce DLT [Distributed Ledger Technology] Assets into ‘Blockchain island’. Moreover, it will be the prime responsibility of the proposed VFA Agent to ensure that the test is conducted properly whilst having taken into consideration the nature and residual assessment of the proposed DLT Asset.

In this connection, it is worth briefly discussing this pioneering test and how representatives of Dr. Werner & Partner can aid in helping you set up a VFA approved business initiative/project.

MFSA Requirement.

To note that Article 47 of the Virtual Financial Assets Act, 2018 specifically states that the MFSA [aptly termed the ‘Competent Authority’] ‘shall introduce a test applicable to issuers, VFA agents and license holders for the purpose of determining whether a DLT asset qualifies as Electronic Money, a Financial Instrument, Virtual Financial Asset (VFA) or a Virtual Token’.

Prima facie, the test is in a way structured into ‘three’ main categories which for the sake of simplicity and coherence will be termed as the Virtual Token Test, the MIFID Test and the Electronic Money (E-Money) Test.

The Virtual Token Test.

When proposing a DLT Asset, it must first be determined whether the ‘asset’ or ‘token’ is a Virtual Token. Virtual Tokens can be defined as pure utility tokens in that they are solely issued for the specific purpose of consumption of services by the issuer of a related entity and have no other purpose. If a DLT Asset qualifies as a Virtual Token, it will fall outside the definition of a Virtual Financial Asset.

To determine if a DLT Asset is a ‘Virtual Token’, one must consider two key elements. 1) Its Exchangeability [Virtual Tokens are usually exchangeable solely within the DLT Platform] and 2) its ‘Purpose’ [as previously stated, the Virtual Token’s utility is restricted solely to the acquisition of goods or services]. If the token hypothetically allows for automatic swapping outside the limited network of the DLT Platform, the asset would not qualify as a Virtual Token.

The MIFID Test.

If the proposed DLT Asset does not qualify as a Virtual Token, the asset will be subject to a second layer of testing i.e. whether the proposed DLT Asset qualifies as a Financial Instrument in terms of the Markets in Financial Instruments Directive (the ‘MIFID test’).

A DLT Asset will be deemed to be a ‘Financial Instrument’ if it primarily qualifies as:

  • A Transferable Security.
  • Money Market Instrument.
  • Is a Unit in a Collective-Investment-Scheme.
  • A Financial Derivative
  • An emissions allowance under MIFID.

The MFSA’s Guidance note to the Financial Instrument Test provides a very robust and in-depth application of MIFID requirements. What is crucial to understand is that any proposed DLT Asset that has a payments/money exchange functionality will technically speaking fall outside the scope of MIFID. The test in itself ‘by-passes’ MIFID if the DLT Asset would contain features which would therefore be similar to an instrument of payment. This will determination will certainly be crucial in solving the FIT ‘riddle’.

‘Transferable Securities’.

One of the most important considerations will certainly be that pertaining to ‘Transferable Securities’ since tokens might hypothetically have rights akin to normal corporate shares. For Tokens to be classified as ‘Transferable Securities’, they would need to be 1) Exchangeable and negotiated on Capital Markets 2) Have rights which render the DLT Asset similar to a share/bond and 3) would not serve as a medium of exchange. This is why the definition of a transferable security excludes instruments of payments.


In terms of ‘Financial Derivatives’, one must always take into consideration ANY ‘underlying contract’ to determine whether the proposed DLT Asset is actually licensable under MIFID. Four principal requirements would need to be satisfied for any token to qualify as a Derivative i.e. 1) Contract Type (DLT Asset would be the equivalent of an option, future, swap or any other Derivative], 2) DLT Asset would have an underlying asset in terms of MIFID, 3) the DLT Asset would be in accordance with conditions applicable in terms of MIFID [Settlement] and 4) Purpose (the DLT Asset would have an underlying purpose equivalent to a contract of difference).

The E-Money Test.

The final stage of the test would be to determine whether the DLT Asset would qualify as ‘Electronic Money’. (The E-Money test). The European Central Bank notes that Electronic money (e-money) is broadly defined as an electronic store of monetary value on a technical device that may be widely used for making payments to entities other than the e-money issuer. The device acts as a prepaid bearer instrument which does not necessarily involve bank accounts in transactions.

This test can be particularly challenging when tokens might be fully backed by FIAT currencies or if the proposed token has ‘redemption’ facilities. In this connection, in order for a DLT Asset to ‘qualify’ as Electronic Money and henceforth fall outside of the scope of the Virtual Financial Assets Act, 2018, the MFSA has established three main determining criteria:

The first pertains to Issuance and Redemption (i.e. the DLT Asset would need to be issued at par value on the receipt of funds by the issuer and redeemed solely by the issuer), secondly the DLT Asset would need to represent a claim on the issuer and thirdly, the DLT asset should be used for the purpose of making a payment transaction and is accepted by a natural/legal person other than the issuer of the said DLT Asset as a payment.


Since the ‘test’ is inherently a ‘negative’ test, it stands to reason that if the proposed DLT Asset ‘fails’ all three tests accordingly, it will be by default satisfy the requirements of a ‘Virtual Financial Asset’ and the new regulation would henceforth be applicable.

Here at Dr. Werner & Partner, our qualified personnel will be more than willing to act as your personal prospective VFA Agent and help you draw up your business plans/proposals as per local legislation.

You can contact us accordingly to discuss any ICO, Token Generation Event or Blockchain-related idea by sending an email to:

Disclaimer: The above-mentioned article is simply based on independent research carried out by Dr. Werner and Partner and cannot constitute any form of legal advice. If you would like to meet with up with any of our representatives to seek further information, please contact us for an appointment.


Malta and its role in the Blockchain/Cryptocurrency Revolution


‘Viva La Revolucion!’ shouted the throngs of crowds in the streets of Havana. With a new regime in place, the balance of power had shifted, and the paradigm of society had changed forever. A phrase which has been immortalised and enshrined in history is reinventing itself in this new and glorious era where Fintech and Distributed Ledger Technology seem to be weaving themselves in the fabric of this new and fascinating digital society.

In an ever-cautious world where Cryptocurrencies are for the time-being feared, rather than respected, tiny Malta has embarked on a journey towards not only accepting the ‘status’ of Cryptocurrencies but has essentially provided legal certainty and governance to this spectrum. This was done by promulgating three laws which are certainly bound to raise a couple of eyebrows across the financial world.

Three ingenious Bills.

Three Bills were recently published which are bound to get investors up and running towards the tiny Mediterranean island. The Virtual Financial Assets Act, The Technology Arrangements and Services Act & the Malta Digital Innovation Authority Act are avant-garde and revolutionary; innovative and pioneering.

In this connection, the Maltese Government has committed itself to certainly setting the bar in terms of (though not exhaustively) Blockchain Technology, Initial Coin Offering (ICO) and Smart Contract Arrangements. The Bills are tantamount to the Government’s initial pledge to ‘rebrand’ Malta as: ‘Blockchain Island’. The birthplace of this tailor-made legislation will ensure that entrepreneurs will be setting up shop and relocating to the island….and not to sample Malta’s sun or beaches! Big things are happening on this island….and everyone will be wanting a slice of the action.

The Virtual Financial Assets Act.

The most anticipated Bill which was instantly met with exuberance and fascination is undoubtedly the Virtual Financial Assets Act. Offering a plethora of definitions and clarifications, the main crux of this legislation pertains to Crowdfunding initiatives (henceforth termed: Initial Virtual Financial Asset Offerings), the White Paper requirements for a successful ICO and the introduction of a Financial Instruments test.

Without going into too much detail, the first stage of this latter innovative ‘test’ would effectively determine whether a Virtual Financial Asset (any form of digital medium that is a medium of exchange and is not: electronic money, a financial instrument or a virtual token) qualifies as a financial instrument in terms of existing legislation (Maltese and/or EU) (e.g. MIFID regulations).

The second stage would determine whether the Virtual Financial Asset qualifies as an ‘asset’ under the proposed VFA Act. It should be clarified that, in case of an affirmative determination during the first stage, the person undertaking the ‘Financial Instruments Test’ would not be required to proceed to the second stage. The respective classification resulting from the ‘Financial Instruments Test’ would need to be verified by an external independent professional reviewer.

The White Paper requirements pertaining to the ICO are an exhaustive list of points needed to satisfy the ‘Competent Authority’s (in this case the Malta Financial Services Authority) so called ‘checklist’. Established with the intention of attracting young entrepreneurs and businessmen, the whitepaper will allow ‘investors to make an informed assessment of (i) the prospects of the issuer (e.g. a Company) (ii) the proposed project and of (iii) the features of the virtual financial asset.’ [LINK: C:UsersStefanie MallmannDesktopBlockchain and CryptocurrenciesVirtual Financial Assets Act, 2018.pdf] Once approved, the White Paper will be valid for a period of 6 months for offers to the public.

The MDIA Act

An interesting regulation will certainly be the Malta Digital Innovation Authority (MDIA) Act. Inherently, this Law will seek to formulate rules governing Distributed Ledger Technology (DLT) Arrangements and Crowd-funding set ups. The Act establishes the roles and responsibilities of the Authority including the ‘fostering, promotion and facilitation of advancement and utilisation of innovative technology arrangements and their design’ [LINK: C:UsersStefanie MallmannDesktopBlockchain and CryptocurrenciesMalta Digital Innovation Authority Act, 2018.pdf] and to protect users of Innovative Technology Arrangements including consumers and the public in general to ensure minimum standards which meet their legitimate expectations.

The TAS Act

Finally, the Technology Arrangements and Services Act will seek to provide for the regulation of designated technology arrangements (e.g. Smart contracts or any software which uses Distributed Ledger Technology as a platform for the execution of said covenant) and for the exercise by or on behalf of the MDIA of regulatory functions pertaining to said agreements. The Act prescribes certain conditions which would need to be adhered to for an ‘Innovative Technology Arrangement’ to be fully recognised (e.g. rules pertaining to software and compliance standards] and certified by the Authority accordingly [though it must be stated that certification and approval is entirely voluntary).


Whether tiny Malta can cause an earthquake in the Crypto/Blockchain world remains to be seen. That the tremor has been felt by most of the world is undeniable. The question remains as to whether the laws drawn up and presented by the Government will hit the nail on the head and catapult Malta into unchartered but immensely exciting waters. Whilst Financial Regulators and Credit Institutions have been rather coy and modest in their reception of the Bills (and Banks have not particularly welcomed the usage of Virtual Currencies with open arms), the issue remains as to whether trust and acceptance will eventually be built thanks to legal certainty.

What can safely be concluded is that a revolution has begun, and tiny Malta is setting the spark. Whether the Crypto-flames will ignite into a world-wide phenomenon is the next chapter which is yet to be written.


The above-mentioned article is simply based on independent research carried out by Dr. Werner and Partner and cannot constitute any form of legal advice. If you would like to meet with up with any of our representatives to seek further information, please contact us for an appointment.