On January 14, 2020, the Malta Financial Services Authority (MFSA) issued a circular regarding the application process for prospective virtual financial asset (VFA) service providers through VFA agents as defined under the Virtual Financial Assets Act.
In addition to having some of the world's largest cryptocurrency exchanges, Malta was the first country in the world to create and implement a comprehensive legal and regulatory framework for cryptocurrency and blockchain technology. The Virtual Financial Assets Rulebook, which was introduced in 2019, provides the detailed regulation applicable to operators of VFAs, and comprises the three following chapters:
- Chapter 1 - Virtual Financial Assets Rules for VFA Agents
- Chapter 2 - Virtual Financial Assets Rules for Issuers of Virtual Financial Assets
- Chapter 3 - Virtual Financial Assets Rules for VFA Service Providers, as amended by the Circular (of December 10, 2019) to Virtual Financial Asset Service Providers in relation to Amendments to Chapter 3 of the Virtual Financial Assets Rulebook
The Second Schedule of the VFA Act and the circular of September 6, 2019 mandate that all VFA service providers in Malta must obtain a licence from the MFSA through a MFSA recognised and registered VFA under the provisions of Article 62 of the VFA Act. According to the act, only a recognised and registered VFA agent can facilitate all required communication, notifications, meetings and submissions concerning the application of VFA service providers in Malta to the MFSA.
This new circular must be read in conjunction with Section 3 of Title 2 of Chapter 3 of the VFA Rulebook, which sets out the application process for prospective VFA service providers, and the Guidelines for the completion of the VFA Service Providers Application Form. The circular stipulates the obligatory provisions for VFA agents and prospective VFA service providers with regard to the following key three areas of the VFA licence application process:
- The preparatory phase.
- The pre-licensing phase.
- The post-licensing/pre-commencement of business phase.
The Application Process
The most recent circular details the non-exhaustive application documents required from the relevant entities and the general guidance on the application process and the application timeline, for the submission of an application to the MFSA.
Application Pack Requirement
The circular specifies the provision of the following non-exhaustive list of documentation and supporting information to be provided to the MFSA as part of the VFA service licence application pack submitted by VFA agents on behalf of VFA service providers following the notification of their intent to apply for a VFA licence:
- Covering letter to the application, an electronically completed application form and the subsequent annexes.
- The application fee, organisational structure charts, audited financial statements for the last three years (where applicable), Memorandum and Articles of Association.
- Audited financial statements for the last three years (where applicable) and three-year financial projections as specified in the financial requirements.
- Business plans, which at a minimum must contain the specified information, in line with the business plan synopsis requirement.
- The completed personal questionnaires of: (i) persons having a qualifying holding in the applicant; (ii) beneficial owners; (iii) members of the board of administration of the applicant; (iv) senior managers; (v) money laundering reporting officers (MLROs); (vi) compliance officers and any other person which the authority may deem necessary.
- Suitability assessments of: (i) members of the board of administration of the applicant; (ii) senior managers; (ii) MLROs; (iv) compliance officers and any other person which the authority may deem necessary.
- The completed entity questionnaire/s of the immediate and ultimate Qualifying Holders (for Qualifying Holders that are entities) and any supporting documents (including Memorandum and Articles of Association, register of members, register of directors and good standing certificate).
- Systems/IT audit report and the terms of reference of internal committees (where applicable).
In addition to the information specified for VFA licence applicants to achieve a complete application pack, the circular details the provisions for the requirements necessary for the issuance of a VFA service licence and commencement of business letter from the MFSA.
The MFSA shall only issue a VFA service licence and the commencement of business letter to applicants that satisfy all its pre-licensing and licensing requirements, respectively. The authority shall also update the VFA Service Provider Application Form and the Guidelines to the VFA Service Provider Application Form accordingly, to reflect the amendments to Chapter 3 of the Virtual Financial Assets Rulebook, as well as the contents of this circular.
Before the introduction of the EU 5th Anti-Money Laundering Directive (5th AMLD) in the Official Journal of the European Union on June 19, 2018, the provisions specified in the VFA Act, the Financial Intelligence Analysis Unit (FIAU) Implementing Procedures, the Prevention of Money Laundering Act and the Prevention of Money Laundering and Funding of Terrorism Regulations (PMLFTR) regulated the measures and procedures that all persons captured under the VFA Act must adopt with regard to anti-money laundering and counter-terrorism financing.
The provisions of the mentioned regulations go beyond the scope of the 5th AMLD, which brought the services offered by virtual currencies, fiat currencies and custodian wallet service providers into the scope of AML regulation at EU level. For example, the enacted VFA Act deems all VFA issuers and VFA service providers to be subject persons. Furthermore, the creation and mandatory use of a VFA agent by VFA issuers and VFA service providers as part of the licensing process ensures a buffer from an AML perspective.
As of May 5, 2020, Malta was near the end of its implementation of the 5th AMLD provisions. The changes introduced by the 5th AMLD entered into force in Malta with effect from January 1, 2020, and the revisions to Malta’s Prevention of Money Laundering Act have also entered into effect.
On February 27, 2020, the MFSA published a circular that introduced the legislative amendments to the Trusts and Trustees Act (Register of Beneficial Owners) Regulations. The circular specified provisions to implement the amendments introduced by Legal Notice 27 of 2020 to transpose the requirements of the 5th AMLD, as applicable to trustees and the Register of Beneficial Owners of Trusts. Although the changes mean increased reporting obligations for trusts, they also make the Register of Beneficial Owners of Trusts more comprehensive and promote transparency of the structure, to encourage better competition. The MFSA expects all firms to adhere to the mandatory reporting requirements and timelines specified for all trustees of a trust with regard to the obliged beneficial ownership information.
Concerning the extended access right to the trusts register by any natural or legal person who demonstrates a legitimate interest in the trust and who has made a written request to the MFSA, the authority expects to have completed the population of the register with the beneficial ownership information of all trusts being administered by trustees in Malta by the end of June 2020. The MFSA hopes the data available will help ensure transparency, supervise information access by interested parties and help in its work in preventing and combating money laundering and terrorism financing.