Things you really need to know about Security Token Offerings (STOs) in Malta


Let’s start off by point­ing out that the term Secu­ri­ty Token Offer­ing — STO is an umbrel­la term and attempt­ing to deci­pher this term can at times be all-but impos­si­ble.

STOs give you own­er­ship or part there­of of an asset or of a com­pa­ny. So, what is inher­ent­ly dif­fer­ent when it comes to STOs? The main dif­fer­ence is the under­ly­ing tech­nol­o­gy.

When think­ing of an STO think of it as hav­ing the same char­ac­ter­is­tics as an Ini­tial Pub­lic Offer­ing but hav­ing the vari­a­tions of MiFID instru­ments.

Mal­ta enact­ed a new reg­u­la­to­ry frame­work which is main­ly com­prised of three Acts: the Mal­ta Dig­i­tal Inno­va­tion Author­i­ty Act (the “MDIA” Act), the Inno­v­a­tive Tech­nol­o­gy Arrange­ment and Ser­vices Act (the “ITAS” Act), and the Vir­tu­al Finan­cial Assets Act (the “VFA” Act). STOs fall under the Invest­ment Ser­vices Act (Mal­ta) and the tech­nol­o­gy there­in fall under the Mal­ta Dig­i­tal Inno­va­tion Author­i­ty (MDIA) Act.O

Defining a Security Token Offering (STO)?

STOs are the ‘process of invest­ing funds that rep­re­sent the frac­tion­al own­er­ship of real-world assets such as bonds, stocks, and real estate, amongst oth­ers, on the blockchain, and are pow­ered by DLT tech­nol­o­gy’.

We can­not say that they are pow­ered by Smart Con­tracts and here is the rea­son why. One can cre­ate a token on their own ecosys­tem which is not a smart con­tract and can still resem­ble an STO. This is like how tra­di­tion­al invest­ments are car­ried out. If you replace the paper work with a new token, you do not nec­es­sar­i­ly need a smart con­tract.

Secu­ri­ty tokens are on the blockchain and allow the own­er to have mon­e­tary rights. Tokeni­sa­tion pro­vides own­er­ship of an under­ly­ing asset and that is why it is not con­sid­ered to be a util­i­ty token. Util­i­ty tokens can be dif­fer­en­ti­at­ed from STOs inso­far as their main use is for the exclu­sive pur­chase of goods or ser­vices on a platform/system.

Why Malta is STO friendly…

In the Mal­ta Blockchain Sum­mit of 2018, the Prime Min­is­ter of Mal­ta Joseph Mus­cat described Mal­ta as “the land of oppor­tu­ni­ty for Blockchain.” Mal­ta has attempt­ed to cre­ate a robust cryp­to-friend­ly frame­work to pri­mar­i­ly guar­an­tee legal cer­tain­ty and investor pro­tec­tion. In this con­nec­tion, Mal­ta has intro­duced new meth­ods of reg­u­lat­ing Blockchain (DLT) Tech­nol­o­gy.

In fact, back in Novem­ber 2018, the Mal­tese Par­lia­ment passed three very rel­e­vant bills into law and estab­lished the first reg­u­la­to­ry frame­work in the world. It there­fore comes as no sur­prise that giv­en Malta’s fore­sight and ini­tia­tive, the island-nation was apt­ly termed: ‘Blockchain Island’. Mal­ta is hav­ing its own iden­ti­ty and focus­ing on 3 main prin­ci­ples being; mar­ket integri­ty, con­sumer pro­tec­tion and indus­try pro­tec­tion.

There­fore, it is safe to say that Mal­ta has a busi­ness-friend­ly leg­isla­tive frame­work cov­er­ing the whole ‘umbrel­la’ term of Cryp­tocur­ren­cies and the tra­di­tion­al ‘finan­cial instru­ments’.

With­in a Euro­pean Juris­dic­tion, where­by the investors are the tar­get of the Com­pa­ny issu­ing the token, the secu­ri­ty token would gen­er­al­ly qual­i­fy as a secu­ri­ty if it can be trad­ed with­out bound­aries and it can thus fit for cap­i­tal mar­kets. In this regard, the EU Prospec­tus Direc­tive (Direc­tive 2003/71/EC of the Euro­pean Par­lia­ment and of the Coun­cil of 4 Novem­ber 2003 on the prospec­tus to be pub­lished when secu­ri­ties are offered to the pub­lic or admit­ted to trad­ing and amend­ing Direc­tive 2001/34/EC) would be applic­a­ble.

The pub­lic offer­ing of such tokens in Mal­ta can hap­pen if a secu­ri­ties prospec­tus is cre­at­ed and approved by the MFSA, which would need to be pub­lished pri­or to the offer­ing.

The method of intro­duc­tion of a secu­ri­ty token offer­ing in Mal­ta entails the issuer to apply to the MFSA and prospec­tive issuers are required to sub­mit doc­u­men­ta­tion to the com­pe­tent author­i­ty for its approval.

STOs in light of the VFA Act

Malta’s aim is to act as a leader by being the first to attempt some­thing on this scale and all oth­er coun­tries will fol­low.

The VFA Act is an inno­v­a­tive piece of leg­is­la­tion which reg­u­lates Ini­tial Vir­tu­al Finan­cial Assets Offer­ings and out­lines their licens­ing require­ments, enti­tled The Vir­tu­al Finan­cial Assets Act, 2018. In the con­text of this Act, STOs are like­ly to con­sti­tute finan­cial instru­ments if one must under­take the Finan­cial Instru­ment test.

Thus, STOs would cur­rent­ly fall out­side the scope of the above-men­tioned Act and would thus (as pre­vi­ous­ly hint­ed) be sub­ject to the pro­vi­sions of tra­di­tion­al reg­u­la­tion.

The mean­ing of a Vir­tu­al Finan­cial Asset as per the reg­u­la­to­ry frame­work of Mal­ta, is com­put­ed in a ‘neg­a­tive for­mat’. Thus, a VFA is a form of dig­i­tal recor­da­tion that is NOT elec­tron­ic mon­ey, a finan­cial instru­ment and nei­ther a Vir­tu­al (Pure Util­i­ty) Token.

Securities Prospectus

The EU Prospec­tus Direc­tive out­lines the oblig­a­tion to pub­lish a secu­ri­ties prospec­tus upon offer­ing the secu­ri­ty token.

Such oblig­a­tion applies when the offer­ing is to the pub­lic. If it is offered to fam­i­ly and friends or to investors who already have an estab­lished rela­tion­ship, then a prospec­tus would not be nec­es­sary.

As per the Com­pa­nies Act (Chap­ter 386 of the laws of Mal­ta): To the pub­lic” does not include secu­ri­ties which are made only to qual­i­fied investors, an offer made avail­able to less than 150 non-qual­i­fied investors with­in the EU and/or the EEA, where the min­i­mum offer is at least €100,000 per offer, where the nom­i­nal val­ue of each secu­ri­ty is at least €100,000 or not exceed­ing such lim­it there­to with­in a 12 month peri­od, where the offer of total secu­ri­ties with­in the EU and the EEA does not exceed €5,000,000 with­in a 12 month peri­od or where an offer of non-equi­ty secu­ri­ties by cred­it insti­tu­tion is less than €75,000,000 in the EU and the EEA over a 12 month peri­od.

When ask­ing for the admis­sion to trade on a reg­u­lat­ed mar­ket, one can be exempt from such imposed oblig­a­tion and would thus ben­e­fit from the sin­gle pass­port.

The secu­ri­ties prospec­tus shall con­tain all infor­ma­tion which enables the investors to be able to ass­es the assets and the lia­bil­i­ties there­of, the finan­cial sound­ness, prospects of the issuer and rights attached there­to.


Essen­tial­ly STOs are tokens on the blockchain that grant the own­er of such STOs cer­tain rights. This is thus essen­tial­ly what dif­fers STOs from Util­i­ty tokens. The EU Prospec­tive Direc­tive is applic­a­ble to those tokens and hav­ing a secu­ri­ties prospec­tus is seen as an oblig­a­tion, sav­ing some excep­tions. From a Mal­tese Juris­dic­tion per­spec­tive, Mal­ta has a busi­ness-friend­ly leg­isla­tive frame­work and it is with­in a Euro­pean Juris­dic­tion.

With­in a such juris­dic­tion, where­by the investors are the tar­get of the Com­pa­ny issu­ing the token, the secu­ri­ty token would gen­er­al­ly qual­i­fy as a secu­ri­ty if it can be trad­ed with­out bound­aries and it can thus fit for cap­i­tal mar­kets.


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 up with any of our rep­re­sen­ta­tives to seek fur­ther infor­ma­tion, please con­tact us for an appoint­ment.

About Dr. Rebecca Mifsud

Dr Rebec­ca Mif­sud, born 6th May 1994, attend­ed the Uni­ver­si­ty of Mal­ta and is an LLB Hon­ours grad­u­ate. She also grad­u­at­ed in the Mas­ters in Advo­ca­cy and will be sit­ting for her Mal­ta War­rant Exam in 2019. She suc­cess­ful­ly defend­ed her dis­ser­ta­tion enti­tled: ‘Imput­ing respon­si­bil­i­ty for foot­ball injuries inflict­ed by minors in the Mal­tese sce­nario,’ in 2017.

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