The scope of the Virtual Financial Assets Act, Chapter 590 of the Laws of Malta (“VFA Act”), is largely aligned with the Regulation of the European Parliament and of the Council on Markets in Crypto-Assets (“MiCA Regulation”), the latter applying to persons who “are engaged in the issuance of crypto-assets or provide services related to crypto-assets in the Union”. The definition provided by the Regulation on crypto-assets is quite extensive and wide, however, its scope is limited by several exemptions under its Article 2(2) and (3). Nonetheless, certain definitions between the MiCA Regulation and the VFA Act differ. One example of this is the wider definition of crypto-assets under Article 3 of the MiCA Regulation, which is then limited by Article 2(3) of the same Regulation. In contrast to this, the VFA Act’s definition of Distributed Ledger Technology (“DLT”) assets list is limited to virtual tokens and virtual financial assets (“VFAs”).
The Issuance of Crypto-Assets in the EU
Under the proposed MiCA Regulation, the process of issuing crypto-assets will require the notification of a crypto-asset whitepaper to the competent authorities before commencing the issuance of a crypto-asset to the public. This must be done at least 20 working days before the publication of the said crypto-asset whitepaper. Although crypto-asset whitepapers will not be subject to an ex-ante approval, under the MiCA Regulation the competent authorities are now granted ex-post powers. Whitepaper notifications are to be accompanied with an explanation as to why the crypto-asset in question falls within the scope of the MiCA Regulation rather than under other financial services legislations, such as MiFID II.
In contrast to this, issuing VFAs to the public under the VFA Act is subject to registration, which includes the appointment of a Money Laundering Reporting Officer and the undertaking of Systems Audits, the latter which assess any innovative technologies used by the issuer during the VFA offering. In addition to this, issuers are also required to submit a ‘Financial Instrument Test’ determination, confirming that the asset is a VFA which falls within the scope of the VFA Act. This is also part of the registration process of the whitepaper.
Framework for Crypto-Assets Service Providers (“CASPs”)
The crypto-asset services identified within the MiCA Regulation are largely aligned with those in the VFA Act. However, the MiCA Regulation falls short from identifying ‘dealing on own account’ as a service in itself. It has explicitly prohibited CASPs from dealing on own account on a trading platform which they operate. In contrast, under the VFA Act, ‘dealing on own account’ is a listed service.
It is also noteworthy that, with reference to the ongoing obligations of CASPs, both the MiCA Regulation and the VFA Rules for VFA Service Providers provide for organisational requirements, such as cybersecurity policies, market abuse policies, a business continuity plan, and others. However, the MiCA Regulation generally imposes less onerous organisational and governance requirements when compared with the VFA Rules issued by the Malta Financial Services Authority.
The effect of the MiCA Regulation on Stakeholders
MiCA would create an environment in which a larger cross-border market for crypto-assets and crypto-asset service providers could develop. This would further grasp and reap the full benefits of the European Union (“EU”) internal market. This EU framework would significantly reduce the complexity as well as the financial and administrative burdens for all stakeholders, such as service providers, issuers and consumers and investors. Furthermore, harmonising operational requirements for service providers, as well as the disclosure requirements imposed on issuers, could also benefit consumer and investor protection and financial stability.
Throughout the consultation process, most stakeholders (including CASPs) have been overall supportive of this proposal. It is underlined that this sector is very much looking for legal certainty across the EU in order to further its development.