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

© 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’.

Conclusion

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.

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.

About Dr. Michael Calleja

Dr. Michael Calle­ja, born on the 07.01.1988, stud­ied law at the Uni­ver­si­ty of Mal­ta from 2006 till 2012. He grad­u­at­ed Bach­e­lor of Laws & Euro­pean Stud­ies in 2009 with a Sec­ond Class Upper Degree and grad­u­at­ed Notary Pub­lic in 2010. He suc­cess­ful­ly defend­ed his the­sis enti­tled: ‘Beyond the Bosman Rul­ing: Con­trac­tu­al Dis­putes in Foot­ball and the Spe­cif­ic Nature of Sport in the Euro­pean Union’ in 2012 and obtained his Doc­tor of Laws (LL.D) accord­ing­ly.

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