Malta & Collective Investment Schemes investing in Virtual Currencies

The Government of Malta has adopted a broad national strategy reflecting its ambition to embrace blockchain innovation. In this regard, the Malta Financial Services Authority (MFSA) has been monitoring developments with respect to Virtual Currencies (“VC”) in order to be able to form a set of rules to protect the investor and market integrity in this field. As a result, the MFSA has published a set of proposed regulations and which is open to a consultation process, where interested parties may send any comments or feedback in writing by the 10th of November 2017.

One measure emerging from these proposed regulations to mitigate the risks in this area is the rule that credit institutions, financial institutions, insurance companies, their subsidiaries or associated companies and retirement pension schemes would not be allowed to deal in VCs for their clients or on their own account once these proposed regulations come into force. Moreover, PIFs investing in Virtual Currencies are set to be restricted to the legal structures of SICAV and INVCO, with a Board of Directors responsible for the overall conduct of business of the Collective Investment Scheme.

The proposed regulation is based on the existing rules of PIFs with certain additional rules aimed to mitigate the potential risks of investing in VCs. The salient points of these proposed regulations can be categorised into five areas;

   1. Competence

The PIF should have sufficient knowledge and experience in the field of information technology, Virtual Currencies and their underlying technologies, including but not limited to the Distributed Ledger Technology.

   2. Risk Warnings

The PIF should include in its offering documentation risk warnings in relation to the Scheme’s proposed direct and/or indirect investment in VCs.

   3. Quality Assessment

The Fund should also ensure that the appointed Investment Manager carries out appropriate research in order to assess the “quality” of the VCs being invested into.

   4. Risk Management

Prior to investing in Virtual Currencies on behalf of the Scheme, the Investment Manager shall assess whether the risk profile of the said Virtual Currency falls within the scope of the risk management policy of the Scheme.

   5. Valuation

Any appointed Service Providers shall have the business organisation, systems, experience and expertise necessary to conduct the required verification and valuation of the Scheme’s investments in Virtual Currencies.