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
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.
- DWP VFA Agent Ltd. fully accredited by the MFSA - 17. May 2019
- Setting up a Crypto Exchange in Malta - 30. April 2019
- First Experience with Blockchain Law in Malta - 26. February 2019
- Strict Application Process: Why you can trust your VFA Agent - 19. February 2019
- Malta Blockchain Summit proves to be a major success! - 5. November 2018
- The Financial Instrument Test: A brief analysis. - 12. September 2018
- Malta and its role in the Blockchain/Cryptocurrency Revolution - 26. July 2018
- The Role of the VFA Agent (Malta). - 22. June 2018
- Three Bills Published aimed at Regulating the Blockchain and Cryptocurrency Sector. - 31. May 2018
- An Analysis of Virtual Currencies in terms of the Proposed ‘Fifth Money Laundering Directive’. - 17. May 2018