Further to the publication and receipt of feedback on the MFSA’s Discussion Paper on Virtual Currencies (“VCs”), Initial Coin Offerings (“ICOs”) and Service Providers the Government published the Consultation Document where it provided further updates on the proposed Virtual Currencies Act (the “VC Bill”).
The MFSA and the Government are in an agreement that the VC Bill should reflect a principles-based approach adopted by the MFSA in regulating VCs. The Consultation Document introduces a transitory period of six months in order to enable such persons to fully comply with the requirements emanating from the VC Bill. The Consultation Document provides the following updates and changes made to the VC Bill:
The industry was notified that the exact categories of VCs and services that will fall under the scope of the proposed VC Bill will be revised following the feedback received from the public. However, it is expected that Utility Tokens shall be excluded from falling under the scope of VC Bill. This means that there will be no legislation regulating Utility Tokens and will remain unregulated since they are in most cases not considered as financial instruments and therefore not subject to existing legislation.
Moreover, the definition and classification of VCs shall also be revisited since it became evident that the previous definition disregarded a significant segment of VCs when it envisaged a misconception that VCs are Bitcoin and other Altcoins only. In this regard, the proposed bill will now regulate other forms of VCs including hybrid VCs.
Financial Instrument Test
It has been clarified that the Financial Instrument Test will consist of two stages: determining whether the VC qualifies as a financial instrument under existing legislation and whether the VC qualifies as an asset under the proposed VC Bill. Once it is determined that the VC qualifies as a financial instrument the second stage in determining whether it qualifies as an asset shall not be required to be carried out. Moreover, the industry is now notified that the determination resulting from the Financial Instrument Test will need to be verified by an external independent professional reviewer.
ICOs which relate to VCs that do not qualify as financial instruments
The industry was notified that ICOs issuing VCs that do not qualify as financial instruments shall still be subject to minimum transparency requirements and other obligations of the relevant parties involved. Certain high-principles of the legislation applicable to Initial Public Offerings shall still be adhered to by issuers of ICOs, even if the VC does not qualify as a financial instrument. These principles include the necessary information that must be communicated to the investors in the Whitepaper and additional transparency requirements when the issuer intends to trade the VC on an exchange.
Service Providers in relation to VCs and ICOs
The VC Bill shall also provide for the licencing requirements and ongoing obligations of Service Providers related to VCs and ICOs. These requirements shall reflect the high-level principles present in the existing EU financial services legislation in relation to the provision of investment services, financial markets and markets abuse.
The functions and powers of the MFSA
The VC Bill shall grant the MFSA with investigative and supervisory powers in the field of VCs, similar to the powers it possesses in other financial services laws. The MFSA may issue directives and may adopt and publish rules and regulations from time to time. It shall have the power to require information and to overlook the Financial Instrument Test process, including that it may require that the determination of the Financial Instrument Test be audited by an external independent professional reviewer. The MFSA may also suspend an ICO or the trading of a VC on an exchange. The VC Bill shall also set the parameters for the European and International cooperation between the MFSA and overseas regulatory authorities.