A crypto fund can be defined as a collective investment scheme managing a portfolio consisting mainly of cryptocurrencies. These types of funds are on the rise, mainly due to the rapid growth in value of several cryptocurrencies. The development of regulatory frameworks within this field has also facilitated the growing interest in the industry. This, coupled with the entry of new, credible and powerful players in the crypto sector, has rendered the idea of investing in crypto a familiar endeavour, and possibly a lucrative investment opportunity, especially for those investors entrusting their capital within the hands of professional fund managers.
In Malta, crypto funds are required to be authorised as Professional Investor Funds (“PIFs”) which are regulated by the Malta Financial Services Authority (“MFSA”). A PIF is a special class of collective investment schemes which is also one of the most commonly used collective investment scheme structures in Malta due to the applicable flexible regulatory framework in place. PIFs are less regulated than Alternative Investment Funds, and are set up for qualifying investors, not for the general public. In fact, the minimum investment threshold for PIFs is EUR 100,000 or its currency equivalent, and such investment may not be reduced below such a minimum.
As for the granting of a collective investment scheme licence for the crypto fund, the MFSA would need to be satisfied that the scheme will comply with the provisions of the Investment Services Act and the MFSA Investment Services Rules applicable to PIFs. A PIF promoted to qualifying investors may be established as an investment company with variable share capital, an investment company with fixed share capital, an incorporated cell company or an incorporated cell of a recognised incorporated cell company, a limited partnership, a unit trust or a contractual fund.
The MFSA has also issued specific rules for crypto funds licensed in Malta through Appendix 1 to the Investment Services Rules which lays down supplementary licence conditions which are applicable to crypto PIFs licensed in Malta.
Part IV of these provide for specific rules applicable to PIFs investing in virtual currencies (‘virtual currencies’ is the designation given to cryptocurrencies under the rules), which include matters relating to the following:
- the Governing Body;
- the Manager;
- the Administrator;
- the Custodian;
- the Compliance Officer;
- the Money Laundering Reporting Officer;
- the Auditor;
- Quality Assessment of Virtual Currencies;
- Risk and Liquidity Management; and
- Verification and Valuation.
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