ICO, Blockchain and Crypto Advisory Services Malta
Expert advice and a bunch of experience
Welcome to the ICO, blockchain and crypto advisory services of Dr Werner & Partner. Like with any other of our services, we focus solely on Malta, for businesses, entrepreneurs and start-ups who are looking for a next level consultant, to assist our clients with their next level ideas from a next level country.
Yep, you came to the right place if you’re looking for next level chakkawanga.
The main members of our awesome crypto team:
Ekaterina Avdeeva LLB LLM
Junior Crypto Lawyer
Dr. Michael Calleja LLB LLM
Crypto Team Leader
Table of Contents
Companies we work with and for
Licence & Regulation in Malta
What the heck? Virtual Financial Asset Act Service Provider? Licence?
In Malta the regulation for VFA services like crypto exchanges, crypto brokers, crypto payment processors, crypto investment advisors or asset managers or any other crypto service requires your business to be licensed — most of the services will be licensed under the new Virtual Financial Assets Act, the VFAA.
The smart people at the regulator have published a “consultation paper”.It appears that they will allow some VFA service providers to hold and control FIAT. We cannot tell you how excited we are about that! That is sooooo advanced and next level in terms of regulation because there is an authority that actually delivers exactly what the peeps need.
See for yourself for an exchange:
Licence holders authorized to operate a VFA exchange and to hold or control clients’ money, virtual financial assets and, or private cryptographic keys and custodian or nominee services solely in relation to the operation and activities of such VFA exchange.
We also have a pretty good idea from the said consultation paper of what the “one time” and “annual licence and supervisory fees” will be, and I am happy to share those further down below.
Before you start popping the expensive bottles:
The licence under the VFAA might be “easier” than under MiFID but is a licence nonetheless. With that being said (can you feel my excitement?) THERE IS A 12 MONTHS TRANSITION PERIOD after which you latest have to APPLY.
Yes, correct: During now and the first 12 months after the law comes into force, you can start working like it’s 1999 straight away, with a few strings attached. You will just need to have the application filed before the 12 months end (which will probably be done by us). This gives you the opportunity to work and gives us the opportunity to prepare the licence — isn’t that just super nice?
TIME LEFT TO WORK WITHOUT A LICENCE IN MALTA:
ISMA! (MALTESE FOR) LISTEN! READ! (BOLD CAPS EERRRMEERRGEERDDD)
It is (hopefully) needless to say that there are current, already existent rules in place from the normal non crypto world (yep, there is still one) and I hate to break it to you, that if you thought under the transitory period you can operate like an elephant in a fine china boutique: You can’t, and you shouldn’t. You must operate using “best effort and best practice” and we will tell you how.
(BOLD CAPS OFF)
The crypto laws in Malta require a “competent authority” to dish out the licences for the “VIRTUAL FINANCIAL ASSETS SERVICE PROVIDERS”, or short “VFA Service Providers”, or very short “VFASPs”, but try to say that fluently with any dignity! Therefore, let’s stick to the golden middle and refer to them as “VFA service providers”.
As competent authority the Malta Financial Services Authority (“MFSA”) has been appointed, so these are the guys you have to be super nice to, super professional and super-duper compliant. Our firm has been working with the authority for many years and can attest that they do their job profoundly.
You can talk to them and they listen, and you can make your point and the listen, and you can ask for co-operation and they co- corporate but be informed they will not licence a remote, intransparent dark net operation just because it happens to receive Monero (EXAMPLE, SORRY!) in exchange for blue prints for rocket launchers!
Can I have a moment? Can you share a moment?
Prospective client: “So, uhm, I want to open a crypto exchange in Malta, I heard there is lot of money in it, I got my white label solution from some guy that I know, I don’t really have money and I have not really experience in crypto but I want to get this letter box company in Malta and I want to start in 1 week, can you get this done for me please for less than 500 EUR?”
Us thinking: “-.-“
What we really say: “A licensing process is a diligent, exact, and complex project, with a lot of attention to detail. It takes time and it requires the applicant (“the promotor”) to be patient, eloquent and responsive.”
And that is the facts and we are working very hard to you get you licenced as soon as possible. Because once you are licenced, once your company is registered and published as “fully licenced VFA Service Provider” – it is a feeling hard to beat. (Aaah good memories shared with many dear clients over the years, oh nostalgica!)
Be fit. Be proper.
Our team has attended all of regulator’s public meetings so far and we can report and confirm that they will emphasize for any licence, that the peeps setting up and operating the business know what they are talking about.
And the competent authority will check that, you guys will have to proof that you are you fit and proper. It’s nice that you have the perfect beach body and a six pack to make even my grandma go nuts, but that is not what “fit” or “fitness” in this context means. For any crypto licence in Malta this means that you, and your team, is fit and proper in terms of education, experience, money, integrity, solvency, conduct, diligence and prudence. It’s nice that you are an absolute tech superman and you can code windows one handed with a game boy, but that is not enough: you will need to show also that you financially fit and fit legally and with anti-money laundering. Of course, you don’t have to know or represent all of this alone and by yourself, but your team will have to as a whole.
Go on. Just get an office in Malta already.
One thing I have been preaching to my clients like since forevaaaa is it is important to have substance in Malta. Yes, physical premises and yes staff on the ground. I quote the head of the supervision: “We will not licence letterbox companies”.
Random licence and regulatory facts:
- Any licence application will have to be lodged by a VFA agent (us) and the agent will have to endorse the application.
- What the licence application procedure will actually entail is not yet published, but normally, like with the other “normal” financial service provider licences, we assume Licence 1 to be “easier” and “cheaper” compared to licence 4. which we assume to be more expensive and more complex in applying for. We will only know for sure when they actually publish the licence application process.
- The regulator has told us, that they will apply the “high principles of MIFID” for the regulation, so be ready for action.
- Mind you peeps, that there will also be share capital requirements for each licence so start saving some money already.
The licence classes and the damage
Anyway, let’s dive in and see, what licences are actually there? Well there’s 4 licences available, VFAA 1 -4 with 1 being the “smallest” and least complex and 4 being the “big boy” and most complex.
Initial Coin Offering (ICO) in Malta
Even though an ICO issued in or through Malta does not require a licence per se, it requires an official recognition or approval by a competent authority. For the time being the competent authority is the Malta Financial Services Authority.
There is (again) a test to complete, not a school test (don’t worry), but a financial instrument test. Let me give you some fancy legal description for that in the context of an ICO:
It is also being envisaged that the ‘Financial Instruments Test’ will consist of two stages. The first stage would effectively determine whether a particular Virtual Financial Asset qualifies as a financial instrument in terms of existing legislation, Maltese and EU. The second stage would determine whether the Virtual Financial Asset qualifies as an asset under the proposed VFA Bill. 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. It is being proposed that the respective determination resulting from the ‘Financial Instruments Test’ will need to be verified by an external independent professional reviewer.
What does that mean?
It means, that if you’re brave enough to issue an ICO containing financial instruments under the test, the ICO will have to be setup as a (professional investment) fund (and maybe collective investment scheme) under the normal financial services regulation. Don’t get me wrong, it is possible to get a licence for that, and we even have fund providers to assist you. But the rules are very strict, and it will be a lengthy and expensive process.
On the other hand, if your token or coins do NOT qualify as financial instruments you have to obtain an approval or authorisation by the MFSA for the ICO.
How do you get that?
This will be done, among other things, by submitting a state-of-the-art white paper in compliance with the “First Schedule” of the VFA Act. There are specific requirements outlined in the schedule accordingly. This is where we come into the picture.
We can (If you want to effort that) write your white paper from A to Z for you. But most of the time we do the calibration of your white paper towards the legal requirements of the law. This means we read and read and read and read your white paper and we will provide you with comments on how to amend or adjust it.
We, as the VFA agent, have a to be super close and good buddies with you, the ICO. It will be our duty not only just to check the white paper but also to monitor your milestones. Yep, the funny blocks in your white paper where you predict the performance of you service. We will have monitor that you achieve those and if not, muurp, report you.
In this connection, the best recommendation is to setup a company and appoint a local VFA agent (that’s us) and we will be the interface for the Q&A with the competent authority. Once approved, the “rubber stamp” of the white paper is valid for 3 months – this the time frame to setup the operation according to the white paper — it may sound short but normally you have done plenty of work anyway already.
Again, I can share that there is a “no licence grace” period in Malta after the law coming into force. It’s “only 3 months”, but that is plenty of time for an ICO to become fully compliant.
TIME LEFT TO ISSUE AN ICO WITHOUT A LICENCE IN MALTA:
One word (or actually 243 words) in advance (putting my serious face on now):
A Maltese ICO issued before or within the transitory period will still have get approved at one stage.
Even so the regulator will allow you to issue without the official “accreditation”, the regulation will eventually catch up with you. Every time any crypto exchange (including your own!), or for sake of the argument any VFA service provider will want to use, place or accept your token, it will have to make sure that this token was issued according to the regulation.
Otherwise, it will not be allowed to accept or place the token. And now assume that most of the crypto exchanges are based or will be based in Malta (the biggest in the world so far) and they will not accept your token, because you did not get your ICO regulated – they will not list you. That means, that even so you can issue now, WITHOUT the “stamp” you MUST get it in the future.
To my dear nomad perpetual traveller offshore operating my life is digital lmfao I’m stateless global citizens:
We totally get that the whole ICO peeps are everywhere and you have the perfect work live balance, taking your notebook to the beach in Bali while the COO sits in an igloo in Greenland and the head of marketing drinks a gender neutral organic non genetically pimped soya milk semi fat fair trade home brew coffee out of a cup that he brought with him in order to save feminist dolphins from dying of plastic in a hipster coffeeshop in Berlin Prenzlauer Berg.
BUT: While Malta is supporting the whole crypto hype in general, guess what, they are not only doing it because they are such nice people only. For Malta, just like for you, it’s a business, it’s taxes, it’s the commercial and financial development of this beautiful rock in the Med.
Therefore, you can anticipate that they will want to see some substance creation in Malta, some form of physical presence. And that should be already specified in the White Paper and subsequently turned into reality when you kick start the operation. So please don’t be shy when your ICO has generated 10 Mio EUR for you: Rent an office in Malta, hire a bunch of people in Malta (e.g. customer service reps for the telegram community (officially the worst job in the world) and get used to the idea of setting up camp here.
Since we have mentioned the obscure financial instrument test so many times, for the masters of complication, here it is in all its beauty:
Blockchain in Malta
Everyone is talking about Bitcoin and ICOs und how to get rich fast. We all know, that cryptocurrency is only a very small part of the cake – more a tool or product of the blockchain technology or DISTRIBUTED LEDGER TECHNOLOGY (DLT).
The Maltese new legal framework includes a regulation for DLT, which is one of a kind worldwide. We anticipate DLT to be the bigger business in general and for Malta.
The “licence” or more the “accreditation” of DLT in Malta is entirely voluntarily. Hey, you might think, that’s easy, so I don’t have it approved then. Yes and no, we think. With increasing mainstreaming of DLT in day to day life and with more and more interaction with “old” technology and institutions, like banks, companies or (sorry) courts and lawyers, you may wish to consider this opinion. Having a rubberstamp from the Local competent Authority as will be the Malta Digital Innovation Authority might also be useful for future business.
First of all, an EU government approved DLT (with a nice stamp to show off on the website) in itself will create trust and credibility. But it also helps to detect flaws in your DLT, that you might not be aware of (because it’s audited). And third, in case of a legal dispute, you certainly have more options on your side when in comes to the question of “who is liable”.
The rubberstamping of the DLT is done by auditors appointed by the Maltese government authority and I am putting my serious face on again: Be prepared that you have to give something to Malta in order to receive the accreditation. Setup a company, setup offices, employ people. They will not approve a DLT on a remote island in the Caribbean with no physical link at all to Malta – remember and repeat: It’s a business for Malta, just like it is for you.
What we can do? If you are already busy on the chain, we can assist you with the accreditation of your DLT in Malta.
Migration to the blockchain — if you are thinking: Hey, can I maybe also do my service blockchain based? We can give you the answer to that and we can assist you with migrating your business from off chain to on chain.
Next level Online Gambling
In Malta, four worlds collide, merge and are forged together to a massive new opportunity:
- Online gambling / betting
- Blockchain technology
- Tokenizing / ICO
Attention, marketing phrase: The possibilities are endless! As matter of fact they are. Our firm has the privilege to work on a fully flexed online casino on the chain, with crypto as payment and with an ICO to finance. This client has not only the Random Number Generator on the chain, but also the CRM System and the KYC tool. The scalability ratio compared to a normal online casino is 1:10. Players can stake with normal currency, with the big crypto currencies and with the own token issued during the ICO.
The Malta Gaming Authority is very embracing of this new technology (and new business of course) as long as it is setup properly, is transparent and is designated safe.
Even if you are an online gambling provider and your system is not yet blockchain based: why not tokenize the business through an ICO? Why not accept crypto currencies as a means of payment?
Now it’s your turn
If you’re up for some next level chakkawanga, drop us a request below. And the good news for hodlers: We accept crypto as payment!