On the 4th of July 2018 the Maltese Parliament passed three crypto-asset related bills into law, establishing the first regulatory framework for blockchain, cryptocurrency and distributed ledger technologies (DLTs). The main focus of the legislation were virtual financial assets (VFAs) covered by the Virtual Financial Assets Act (VFA Act).
By establishing the legal basis for the digital economy, Malta has positioned itself as the leading jurisdiction for the crypto economy and many industry giants such as Binance and OKEx have already relocated to this small Mediterranean island state.
Even though the regulation has successfully passed through the Maltese Parliament, it has not yet come into force. The regulation will come into force on such date as the Minister for Digital Economy may establish by notice in the Gazette, which may be expected in the following weeks or months. The legislation will require a substantial amount of preparation to establish the relevant competent bodies that will oversee the implementation and enforcement of the VFA and related Acts.
This legislation will be crucial for the next stage of Rialto.AI’s development and in this article we will take a closer look at the parts of the VFA Act that are relevant to us.
What is a VFA?
According to the VFA Act, virtual financial asset or VFA means any form of digital medium recordation that is used as a digital medium of exchange, unit of account, or store of value and that is not electronic money, financial instrument or a virtual token.
A virtual token is not regulated since it represents a form of digital medium recordation that has no utility, value or application outside of the DLT platform on which it was issued and may only be redeemed for funds on such platform directly by the issuer of such DLT asset.
The new VFA regulation will regulate already widely used cryptocurrencies, i.e. Bitcoin and newly issued cryptocurrencies through government regulated ICOs or perhaps more accurately abbreviated IVOs (initial virtual financial asset offering).
Regulation
Virtual Financial Assets Act (VFA Act) — this act establishes the regulatory regime governing ICOs, cryptocurrency exchanges and other VFA service providers, wallet providers, etc.
Innovative Technology Arrangement and Services Act (ITAS Act), deals with DLT arrangements and certifications of DLT platforms.
Malta Digital Innovation Authority Act (MDIA Act), establishes the Malta Digital Innovation Authority and certifies DLT platforms, regulating the duties and responsibilities of the Authority to certify DLT platforms to ensure credibility and provide legal certainty to users wishing to make use of a DLT platform.
VFA services
The regulation has been written in a way that will in large part replicate how traditional financial products and services are regulated in order to protect the consumers. According to the VFA Act, anyone who would like to offer any of the VFA services listed in the second Schedule (see below) must be in possession of a valid licence granted under the VFA Act by the competent authority.
Reception and Transmission of Orders
The reception from a person of an order to buy, sell or subscribe for virtual financial assets and the transmission of that order to a third party for execution.
Execution of orders on behalf of other persons
Acting to conclude agreements to buy, sell or subscribe for one or more virtual financial assets on behalf of other persons.
Dealing on own account
Trading against proprietary capital resulting in conclusion of transactions in one or more virtual financial assets.
Portfolio Management
Managing or agreeing to manage assets belonging to another person if those assets consist of or include one or more virtual financial assets or the arrangements for their management are such that the person managing or agreeing to manage those assets has a discretion to invest any of those assets in one or more virtual financial assets.
Custodian or Nominee Services
(a) Acting as custodian or nominee holder of a virtual financial asset and, or private cryptographic key; or
(b) Holding a virtual financial asset and, or private cryptographic key as nominee, where the person acting as nominee is so doing on behalf of another person who is providing any VFA service under this Schedule or on behalf of a client of such person, and such nominee holding is carried out in relation to such service.
Investment Advice
Giving, offering or agreeing to give, to persons in their capacity as investors or potential investors or as agent for an investor or potential investor, a personal recommendation in respect of one or more transactions relating to one or more virtual financial assets.
Placing of VFAs
The marketing of newly-issued virtual financial assets or of virtual financial assets which are already in issue but not admitted to trading on a DLT exchange, to specified persons and which does not involve an offer to the public or to existing holders of the issuer’s virtual financial assets.
The operation of a VFA exchange
What does this mean for RIALTO.AI
As we have already mentioned in some of our previous Medium posts, the goal of moving our company iTrade LTD to Malta was to take advantage of the upcoming legislation to offer fully regulated VFA services via our new platform.
Even though the legislation is not yet in force, our goal is to launch a fully compliant virtual financial asset brokerage and portfolio management online service platform in Q4 of 2018 and provide the following services as defined in the second schedule of the VFA Act.
- Transmission and execution of orders
- Reception and transmission of orders in relation to VFAs
- Dealing on own account
- Investment advice
- Investment advice in relation to VFAs
- Portfolio management
- Portfolio management through existing and new algorithms
- Hold or control client’s assets
- Execution of orders on crypto exchanges on behalf of clients
We intend to offer selected services across EU member states and make all services accessible via our online web application.
Conclusion
It would be difficult to overstate the importance of the upcoming changes made possible by the new legislation. For the first time we will have a regulated market for virtual assets, which means that products such as ICOs will have to pass stringent vetting and due diligence processes before they will get approved and offered to the public. Anyone looking to get involved as a broker or an exchange will also have to undergo regulatory scrutiny and acquire a licence.
This should help create a much healthier virtual asset marketplace and prevent the massive scams that have rocked the confidence in the crypto ecosystem over the last 12 months. It also means that institutional players will finally be able to get involved and that has the potential to be a game changer for the crypto economy.
With the token market in double-digit-red free-fall at the moment ($193,492,278,107 down from $835,692,000,000 at the start of the year or -76.8%), the days of wild west ICOs with little more than a sketchily drafted Whitepaper, a cookie-cutter home page and rogue founders running off with investors’ donations (legally that’s what they are) are quickly coming to an end.
From its ashes will rise a new type of crypto market. One where rules of play and expectations are clearly set and enforced. Perhaps that’s not what everyone had hoped crypto would be, but history has shown us once again that in the absence of order there can be only chaos. And that’s no way to invest your hard earned money.
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