MaltaUltimate guide to attaining VFA license in Malta

February 22, 2023by Tetra Consultants0
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In a world where the march of innovation and new technologies brings new discoveries every day, the blockchain and cryptocurrency industry stands out as one of the most dynamic sectors globally. Seeing the potential of the industry, Malta grew as a prime hub for the fintech business by creating the first regulatory framework regulating and providing peace of mind to cryptocurrency and blockchain entrepreneurs. 

Malta, known as “Blockchain Island,” is the world’s first fully regulated blockchain and cryptocurrency country. Malta has been a major pioneer in the blockchain and cryptocurrency industries, providing a credible, friendly, and trustworthy environment for digital businesses, thanks to the passage of crypto and blockchain laws. The small island also has an exceptionally competitive tax structure for corporations, with one of the lowest corporate tax rates in the European Union, making it the most advantageous location for forming and running a blockchain company.

Tetra Consultants’ team of licensing experts provides assistance to international clients throughout the process of setting up a cryptocurrency business and obtaining a cryptocurrency license in countries like Malta. Our team ensures that you witness the smooth and straightforward procedure in regard to register company in Malta, corporate bank account opening, and acquiring a Malta VFA license. In this article, Tetra Consultants team of licensing experts has summarized the steps prevalent to attaining a VFA license in Malta. 

Why Malta for cryptocurrency business?

  • Malta was the first jurisdiction to establish a full regulatory framework to support ICOs. This decision to regulate initial coin offerings prompted other regulators across the world to take similar action.
  • Malta’s approach is commendable, given that regulation is frequently viewed as cumbersome and inconvenient for market participants. However, sensible and fair regulation provides legal clarity and peace of mind to those working within the regulated environment. Malta’s regulatory approach has found a delicate balance between not being unduly cumbersome and delivering the confidence that so many issuers have needed.
  • Distributed Ledger Technology (DLT) Assets, which are classed as financial instruments, e-money, virtual tokens, which correspond to what are usually referred to as utility tokens in the crypto space (with restricted transferability rights), and Virtual Financial Assets (“VFAs”) have indeed been distinguished by Maltese lawmakers. Anyone creating virtual tokens is not covered by the VFA regulatory framework, therefore they may proceed with their token creation event without having to create a prospectus or register a whitepaper. Traditional securities legislation applies to individuals who issue financial instruments or e-money. Issuers of VFAs, on the other hand, are governed by the Virtual Financial Assets Act (“VFAA”) and must thus follow the terms of Malta’s unique regulatory framework while issuing a VFA in or from Malta.

What is the governing regulation?

  • In 2018 the Maltese government was the first one to enact three crypto and blockchain legislation aimed at regulating the fintech industry, with the main Act being the Virtual Financial Assets Act. The Act regulates the field of VFAs and provides regulatory certainty in a previously unregulated area. 
  • The VFA Act clarifies how a DLT asset can be classed as a VFA while also providing a complete set of laws aimed at safeguarding both clients and VFA operators while supporting the industry’s growth. The VFA Act establishes severe standards for individuals intending to start and provide a DLT asset in or from Malta, as well as for service providers offering portfolio management services, OTC brokerage services, custodian and nominee services, investment advice, and cryptocurrency exchanges.
  • Token issuers and VFA service providers must follow the licensing criteria and conditions outlined in the VFA Act, VFA rule books, VFA regulations, and any MFSA directives (the Regulator).
  • Any entity that wishes to sell VFAs to the public must first register a Whitepaper with the Regulator before offering such VFAs in or from Malta. The legal framework specifies what information must be included in the whitepaper, how funds raised through the Initial Coin Offering will be utilized, and how KYC and AML processes will be performed. Tetra Consultants’ team of experienced personnel has outlined the steps in detail below. 

What are the types of VFA license?

  • Class 1 VFA License – Authorised to receive and transmit orders and, or provide investment advice in relation to one or more virtual financial assets and, or the placing of virtual financial assets.
  • Class 2 VFA License – Authorised to provide any VFA service and to hold or control clients’ funds, but not to operate a VFA exchange or deal with their own account.
  • Class 3 VFA License – Authorised to provide any VFA service and to hold or control clients’ funds, but not to operate a VFA exchange.
  • Class 4 VFA License – Authorised to operate a VFA exchange and to hold or control clients’ funds, virtual financial assets, or private cryptographic keys and custodian or nominee services solely in relation to the operation and activities of such VFA exchange.

What is the process of attaining a VFA license in Malta?

If you wish to provide VFA-related services and to operate in or from within Malta, you would require a VFA license issued by the Maltese Regulator allowing you to operate within the VFA regime introduced in Malta.

Step 1: Establishing a Company

  • The first step is to identify the type of VFA services offered by the company and determine whether the services are covered under the VFA act by giving the Financial Instrument Test (FIT), as the act allows only certain entities to offer VFA services.
  • The subsequent step will include the process to register company in Malta. If the company operates from outside Malta, it must have a branch in Malta with its registered address. Further, the company shall carry out only those activities for which the license was granted. Moreover, the company shall hold a valid corporate bank account.
  • Tetra Consultants team of incorporation specialists will guide you through the registration of your Maltese entity and consequesntly open a corporate bank account. We expect to complete the registration process within 3 weeks and secure a corporate bank account within 4 weeks. 

Step 2: Appointment of VFA agent

  • The application for Malta VFA license can only be processed through a VFA agent. Hence the company shall engage a VFA agent who will act as a correspondence between the authority and the company.
  • A VFA agent is the one who ensures that the management and board of directors of the entity are fit and proper to show adequate good standing and reputation, has sufficient financial resources, and that its board of administration has appropriate knowledge, experience, and skill in the field of information technology, DLT, and DLT Assets at all times.
  • Tetra Consultants team will support with the engagement of a qualified VFA agent who will act as a representative between you and regulatory authority, that is MFSA. 

Step 3: Preparation and submission of license application

  • The entity will intimate the VFA agent and a statement of intent with MFSA before commencing cryptocurrency activities in Malta. The statement of intent shall contain the following:
    • Comprehensive structure of proposed services offered
    • Identifying the key positions held by the managerial persons
    • Description of how the proposed service does not fall within the scope of traditional financial services legislation
  • Tetra Consultants legal team will subsequently proceed to prepare the important legal documents to accompanied with the license application. The documents will include insurance policy, AML/CFT policy and comprehensive business plan with clauses with respect to adequate cyber security. 
  • With everything in place, we will proceed to submit the license application along with the documents so prepared. After submission of the application, a preliminary meeting shall be held with the applicant and the MFSA. If there is a requirement for any other documents mentioned by the MFSA, then the applicants shall within 60 days submit the complete application.

Step 4: Review of application by MFSA

  • Following license application, the MFSA will assess the application and analyze the information provided. If the authority is pleased with the application, it will provide “in principle” permission for three months from the date of issuance. Within three months, the applicant must satisfy and finish all of the requirements indicated in the “in-principle permission.” After all prerequisites are met, the authorities will give a license to conduct cryptocurrency activities in Malta.

Step 5: Post-licensing compliance 

  • After the grant of license by the authority, the applicant shall have to undergo other requirements with authority before commencing the business activities of cryptocurrency in Malta. However, the applicant can start its services within 12 months from the date of the issue of the license.

Conclusion

Tetra Consultants has extensive experience in this field and is able to provide specialized assistance to your business at all stages of the license application procedure, including Malta company incorporation and registration, drafting legal opinions to establish the legal nature of your services and technologies to determine the applicable legal framework, assistance in the collection & preparation of documentation necessary for license application submission, including business plan, financial projections, and internal policies, drafting Maltese-law-aligned corporate documents governing the provision of your services, assisting in the identification and appointment of key functionaries, including VFA Agent, Money Laundering Reporting Officer (MLRO), non-executive director/s, auditor, etc, providing post-registration follow-up assistance, including advising on applicable annual compliance exercises, providing general legal advice and assistance as required.

So, what are you waiting for? Contact us to find out more about the process of attaining a Malta VFA license, and our dedicated and experienced team will respond within the next 24 hours. Tetra Consultants will not only empower you by helping to navigate the different regulations of Malta, but also aid in facilitating the registration of your company there while providing invaluable, nuanced insights into any potential challenges. 

Tetra Consultants

Tetra Consultants is the consulting firm that works as your advisor and trusted partner in your business expansion. We tell our clients what they need to know, instead of what they want to hear. Most importantly, we are known for being a one-stop solution for our valued clients. Contact us now at enquiry@tetraconsultants.com for a non-obligatory free consultation. Our team of experts will be in touch with you within the next 24 hours.

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