Consultation Paper on the proposed MFSA rules aimed to achieve higher investor protection under the VFA Act.

The MFSA has issued a consultation paper on the proposed additional regulation in relation to Initial VFA Offerings to complement the Virtual Financial Assets Act (“VFA Act”) and the proposed rules set forth in other consultation documents, in providing investors more protection when investing in Initial VFA Offerings.

Enhanced investor protection is being proposed in this ‘Consultation Paper on achieving a higher degree of investor protection under the Virtual Financial Assets Act’ (“Consultation Paper”) through the following:

Appointment of a Custodian

In the proposed rulebook applicable to issuers of Initial VFA Offerings, there is a requirement for the issuer to appoint a Custodian for the safekeeping of its assets and investors’ funds. In the absence of such appointment all references to the Custodian shall refer to the issuer.

The Consultation Paper is now providing further clarifications on how such safekeeping shall be made. It is proposing that such safekeeping is performed as follows:

a. For VFAs – an issuer may appoint a Custodian constituted either:

  1. In Malta and licensed under the VFA Act; or

  2. In a recognised jurisdiction provided that the issuer shall outline in the whitepaper the arrangements that will be put in place to ensure adequate safekeeping.

b. For fiat currencies – with a:

  1. Central bank;

  2. Credit institution authorised in accordance with the provisions of Directive 2013/36/EU;

  3. Bank authorised in a third country; or

  4. Qualifying money market fund.

c. The MFSA is also considering custody to be performed through a technology arrangement duly certified by a systems auditor.

Monitoring of milestones

Since both the Act and the proposed rules applicable to VFA Agents require the issuer to inform the investors through a roadmap setting out its milestones, the Consultation Paper is now requiring issuers to disclose progress by means of a public announcement on the date set out for each milestone and in the case of deviations , to highlight such deviations in order for the investor to be informed and afforded protection.

Maximum investment limit for retail investors

In order to achieve higher investor protection, the Consultation Paper is proposing to adopt a similar approach to that adopted in Investment-based Crowdfunding, where a maximum investment cap is set in relation to retail customers.

The maximum investment amount being proposed is that of EUR 5,000 per issuer over a period of 12 months, for investors falling within the definition of ‘retail investors’ as defined in MiFID.

Please feel free to contact us on the Consultation Paper on achieving a higher degree of investor protection under the VFA Act.