Malta A crypto and Digital Ledger Technology Hub Dr Maria Paloma Deguara Partner – DF Advocates

or assets that are DLT - enabled DF Advocates - Malta In terms of the general body of laws of Malta, there is no specific provision that provides for the regulation of cryptocurrencies and, or assets that are DLT - enabled DLT – digital ledger technology (eg blockchain – it is an electronic ledger which is immutable and auditable. It may permissioned or permissionless.) The current legislative and regulatory framework

Electronic Commerce Act; Consumer Affairs Act; Data Protection Act; DF Advocates - Malta However, the possibility of a sale of objects representing value via electronic means is legally possible in terms of: Civil Code; Commercial Code; VAT Act; Electronic Commerce Act; Consumer Affairs Act; Data Protection Act; Copyright Act. D The current legislative and regulatory framework (2)

Current legislative framework (3) The regulatory lacuna has left a high degree of uncertainty as to the classification of ICOs, tokens, and cryptocurrencies used as a medium of exchange and unit of account in particular

Consultation document on regulating the crypto sphere DF Advocates - Malta The National Blockchain Strategy 02 November 2017 Consultation document on regulating the crypto sphere 01 April 2017 Government approves national blockchain strategy 04 May 2018 Expected promulgation of the VFA Act The national blockchain strategy was put in place with a view of putting Malta on the map spearheading crypto regulation ensuring that Malta remained at the forefront of latest technological products. Strategy reached its aim in the promulgation of the three acts – the VFA, MDIA, and Technology Arrangement Services Act PIF – professional investor fund The updated rulebook allows pifs to invest in VCs 03 January 2018 MFSA issues updated rulebook for PIFs investing in VCs

Why Malta? First European Country to effectively approach crypto regulation holistically (Q2 2018) 01 Approachable regulators 02 Effective system of taxation 03 It is expected that government shall exempt capital on the disposal of VFA.

01 02 03 Virtual Financial Assets Act Malta Digital Innovation Authority Act 02 Technology Arrangement Services Act 03

DF Advocates - Malta 03 01 02 The Proposed VFA Act Provides for the Classification of cryptocurrencies 01 Regulates ICOs 02 Provides for the licensing of certain services in relation to cryptoassets 03

A virtual financial asset; or A financial instrument. DF Advocates - Malta In terms of the proposed Act, we understand that DLT-enabled assets will be classified as either: A virtual token; A virtual financial asset; or A financial instrument. A virtual token is defined as a DLT asset that has no utility, value or application outside of the DLT platform on which it was issued and that cannot be exchanged for funds on such platform or with the issuer of such DLT asset – in other words, what is generally identified as a utility token. A virtual financial asset is defined and regulated within the proposed Bill itself as will be seen in the next slide. Financial instruments have the same meaning assigned to them in terms of MiFID and are regulated within the provisions of the Regulation and the Directive and thus fall outside the scope of the Bill. Classification of cryptocurrencies

DF Advocates - Malta The Bill defines Virtual Financial Assets (or VFAs) as any form of digital medium recordation used as a digital medium of exchange, unit of account or store of value. However, the Bill carves out from the definition electronic money (in terms of the E-money Directive), financial instruments (as defined in MiFID) and virtual tokens. Virtual Financial Assets

The VFA proposes to regulate initial VFA offerings. DF Advocates - Malta The VFA proposes to regulate initial VFA offerings. As such, an Initial VFA Offering needs to comply with the transparency and disclosure requirements outlined in the Bill. Initial VFA Offerings issued in or from within Malta can only Be issued by a Malta- Registered issuer The competent authority – the MFSA – would need to receive a copy of the whitepaper at least 10 working days prior to launching of the ICO in order for it to review same and give its stamp of approval. Approval will be given if all the requirements listed within the Act are adhered to and shall include a statement by the board of administration of the issuer that the whitepaper is in compliance with the Act and that the VFA Agent is in agreement such determination. Regulating ICOs

In terms of the Bill, a whitepaper needs to include, inter alia: DF Advocates - Malta In terms of the Bill, a whitepaper needs to include, inter alia: A technical description of the protocol, platform and/or application Together with associated benefits Sustainability and scalability of the project Safeguards against cyber threats to the underlying protocol, off-chain activities and wallets The approach taken by the legislator is that of requiring issuers to draw up the whitepaper on the basis of a Prospectus-light. As such, requirements would include (1) a detailed description of the issuer, the VFA agent, the development team, advisors and other service providers, (2) the life-cycle of the of the initial VFA offering and the project, (3) details of the target investor base, (4) the amount and purpose of the issue, (5) the distribution of the VFAs, (6) mining, transaction and/or any other applicable fees; (6) any applicable taxes; (7) soft and hard caps, and so on and so forth. The aim of the above requirements is for the regulatory framework to put in place standard disclosure and transparency requirements which could be used as industry standard-setting disclosures aimed at providing for investor protection and market stability. Regulating ICOs

In the case of initial VFA offering, DF Advocates - Malta In the case of initial VFA offering, the Issuer must appoint and retain at all times, a VFA Agent. A VFA Agent, in terms of the Bill, should be either an advocate, accountant, or auditor in Malta The role of the VFA Agent is to assist the Issuer in satisfying the requirements of the Act and any applicable rules and regulations, provide professional advice in relation to the listing and trading of the VFAs on exchanges, and act as a reference point between the MFSA and the Issuer in relation to the issue, inter alia. The VFA Agent

The provision of any VFA service is subject to licensing requirements. DF Advocates - Malta The provision of any VFA service is subject to licensing requirements. The form and content of the application process shall be specified in ad hoc Rules to be issued by the MFSA. It is expected that the said Rules shall be published in conjunction with the promulgation of the Act. A VFA services shall include: (1) Reception and transmission of orders, (2) execution of orders on behalf of other persons, (3) dealing on own account, (4) portfolio management, (5) custody and nominee services, (6) investment advice, (7) placing of VFAs, and (8) operating a VFA exchange Licensing of VFA Services

Expected timeframes November 2017 01 Publication of the updated Rulebook for Professional Investor Funds investing in cryptocurrencies November 2017 to date 02 Circulation of draft bills amongst stakeholders for consultation May 2018 03 Promulgation of thee Acts and implementation of the regulatory framework through legal notices and rules

Benefits of the proposed framework: DF Advocates – Malta Your Gateway into a regulated EU system Benefits of the proposed framework: Provides a concrete and holistic approach to cryptos; Provides service providers a seal of approval from a recognised brand name – the MFSA – an EU regulator; Provides potential investors with sufficient comfort that licensed entities are regulated and monitored by a regulatory authority thereby providing more ligitimacy to the sector Moreover, operating in and from within Malta provides various advantages including Malta enjoys the status of a full member of the European Union. A legislator which is embracing upcoming fields of technology such as DLT. The MFSA, in its capacity as the single Maltese financial services regulator, while meticulous, is also flexible, accessible and proactive. Competitive labour costs and expenses compared with mainland Europe. A skilled workforce with experience and knowledge in the sector. Use of the English language in business, as well as in official documents, legislation, and regulations. Competitive tax environment.

Thank you for your attention DF Advocates - Malta Your Gateway into a regulated EU system Thank you for your attention Questions?