Unfortunately, there are scams and dubious projects in the crypto world that try to rob investors of their hard earned money. Such fraudulent schemes not only lead to the loss of investor assets, they also damage the blockchain and cryptoscene.
As Blockchain Island, Malta enjoys an excellent reputation as the location of choice for crypto companies from all over the world. A government open to technology and a worldwide pioneering legal framework have paved the way for this reputation.
Unfortunately, criminals and fraudsters try to abuse Malta’s reputation as Blockchain Island for their scams. This is why in the past, the Malta Financial Services Authority has already issued warnings to investors to beware of such scams. Especially concerning such projects that had fraudulently claimed to have been approved by the MFSA.
Now the MFSA wants to go one step further. For this reason, a new Guidance Note has been published in which it defines general rules to protect investors against cryptocurrency scams and to provide more security in cryptospace. This also shows how seriously Malta’s government and authorities take it when it comes to preserving Malta’s excellent reputation as Blockchain Island.
First, the Guidance Note begins by defining and distinguishing essential terms. It should be noted that the terms virtual currencies and crypto currencies are very vaguely defined. In general, the term “currency” is rather out of place because it would not be supported by any government or central bank.
This is why the term Virtual Financial Assets was chosen and clearly defined for the Virtual Financial Assets Act passed on November 1, 2018. It describes the legal framework for offering VFAs to the public and related services from or in Malta.
We have summarized details on the VFA license classes and important notes to be observed.
It is these licenses that some scams claim to have already received. The aim is to gain the confidence of investors by pretending to be approved by the regulator and to encourage them to invest in a well-designed scam. That is why the MFSA clearly emphasises on page 4 of the Guidance Note:
„as of to date, there are no whitepapers which have been registered with the MFSA and no entities licenced by the Authority under the VFAA act.”
Fake ICOs and other common types of cryptocurrency scams
It is particularly noticeable that the MFSA has dedicated two whole paragraphs of the five-page text to warning of fraudulent ICOs. They were a common type of Cryptocurrency Scams and were a great danger especially for inexperienced investors.
In their efforts to deceive potential investors and lull them into safety, the fraudsters take extremely subtle and professional steps. This sometimes also includes a personal call from trained employees who pretend to be professional consultants, who are supposed to convince the interested parties personally and give them the necessary feeling of security.
Criminals would offer ICOs without underlying value and issue tokens that could only be used on their own platform. These platforms would often suddenly close and the invested money of the investors would disappear.
In terms of crowdfunding, there would also be similar frauds, whereby interested parties would be reeled in with specially reduced entry prices, bonuses or other incentives. It is promised that these will become active as soon as the coins are issued and the platform is started. In addition, the MFSA also warns of counterfeit Exchange platforms or false Wallet Apps. These are well faked camouflaged and are intended to encourage interested parties to register and deposit funds. It is advertised with promises of high profits or the rapid compensation of losses. As soon as higher amounts are deposited, access to the account is blocked and the investor’s money is lost.
Important advice from the MFSA
In addition to the generally understandable advice that any investment in crypto currencies should be made with great caution, the MFSA recommends not to invest in any project that that person does not understand.
In addition, extensive research on companies and the people behind them is recommended. If a company claims to be authorised or regulated by MFSA, the accuracy of that claim should be verified by a check in MFSA’s Financial Services Register. In case of doubt, the MFSA can be contacted by e‑mail.
In the event that an investor has already been deceived in a scam and has already lost money, the MFSA advises to take two steps. Any activity and any further transactions on the platform should be stopped immediately and in case of suspicion MFSA should be informed immediately about the case and the operator.
First VFA agents approved
Meanwhile, there is also further news from Malta’s Financial Supervisory Authority regarding the VFA agents required for VFA offerings. To find out more about the role and responsibilities of the VFA agent, please refer to our extensive blog post.
The Times of Malta reports that the MFSA has issued initial approvals for prospective VFA agents. The first applications were received almost four months ago.
It should be noted, however, as the article indicates, that these authorisations have been granted in principle, but that some details and particulars need to be clarified before the VFA agents can be officially accepted.
There was also an official statement from the MFSA by Chris Buttigieg, Head of Securities and Market Supervision. He sees the approval of the first VFA agents as an important milestone towards the official regulation of cryptoassets. In addition, he referred to the almost 18-month process, which had led from the initiation of an official law on the regulation of crypto currencies to the now total completion of these framework conditions.
The blockchain and crypto world remains young and dynamic. Nowhere are more applications and potentials developing than on the prestigious Blockchain Island Malta. However, for this to remain so, regulators and legislators must rigorously crack down on criminals and fraudsters who want to abuse this reputation for their own criminal purposes.
With the publication of the Guidance Note, the MFSA underlines its efforts to clean the market of bad players and to preserve the confidence of investors so that compliant crypto companies such as the numerous crypto exchanges based in Malta and the immense potential of raising capital by means of crypto currencies — for example in the form of regulated security token offerings — are not harmed.
Start-ups and entrepreneurs from all over the world can be sure to find the best possible location for their business on Blockchain Island and to meet with energetic support and open discussions with the government and regulator.
- An appreciation of the key updates to the FIAU’s Implementing Procedures – Part I - 7. January 2020
- Risk-based approach to Supervision or Monitoring of VASPs (Virtual Asset Service Provider) - 11. November 2019
- The importance of AML compliance - 4. November 2019
- Malta as the ‘epicentre’ of security token financing - 26. August 2019
- Current developments in crypto currencies and the blockchain on Malta - 24. May 2019
- Regulation of crypto currencies and ICOs — International comparison - 10. May 2019
- MFSA Publishes Guidance Note Against Crypto Scams & Appoints First VFA Agents - 29. April 2019
- Blockchain & AI Summit Malta + Blockchain University Degree Malta - 20. March 2019
- MFSA Publishes Consultation Guide on Cybersecurity Regulations for Blockchain Companies and VFA Agents - 12. March 2019
- Malta’s New Tech Authority: Malta Digital Innovation Authority (MDIA) - 5. March 2019