The Malta Financial Services Authority (“MFSA”) recently launched a consultation process on the proposed regulation of collective investment schemes incorporated with the key objective of investing in Virtual Currencies (“VCs”).
This consultation process is symbolic of the Maltese government’s consistent efforts to become a pioneer in the state-wide implementation of blockchain and the more commonly known technologies such as Bitcoin and Ethereum which exist on the blockchain platform.
Inspired by the massive increase in global investments in VCs, the key goal of the proposed regulations is to ensure protection for investors as well as maintaining market integrity.
The proposed rulebook applies to Professional Investor Funds (“PIFs”) which invest in VCs, and is largely based on existing rules applying to PIFs, however with additional provisions specifically intended to mitigate the potential risks of investing in VCs.
In terms of legal structure, PIFs intending on investing in VCs shall be limited to the SICAV (investment company with variable share capital) and INVCO (investment company with fixed share capital) structures, meaning that each PIF shall be legally required to have a board of directors to manage the overall conduct of business of the collective investment scheme.
The main notions of this new rulebook may be broken down as follows:
1. Competence
The PIF should have a sufficient background knowledge, and preferably previous experience, in the fields of information technology, VCs and the underlying blockchain technology – including the Distributed Ledger Technology.
2. Risk Warnings
The PIF should include risk warnings within its offering documentation, which relate to the PIF’s proposed direct or indirect investments in VCs and the entailing risks of such an investment.
3. Quality Assessment
The PIF should ensure that the appointed Investment Manager carries out any and all research as may be necessary to assess the “quality” of the VCs being invested into – in reference to the different characteristics, possible implementations and potential of each different VC.
4. Risk Assessment
The PIF should ensure that the investment manager carries out any and all research as may be necessary to ascertain the risk profile of the VC being invested in, and to clarify whether the VC in question satisfies the scope of the PIF’s risk management policy.
5. Valuation
The PIF should ensure that the appointed Service Providers have all the necessary standards of business organisation, systems, experience and expertise necessary to conduct all verification and valuation of the PIF’s investments in VCs as may be required.
To conclude, not only does the Maltese government’s intent to regulate the field of VC investment bode well for the potential of future development, investment and implementation of blockchain technologies in Malta, but the ongoing open consultation process indicates that the authorities are recognising the need to consider the opinions of all parties likely to be affected by the mainstream incorporation of blockchain technology. It is evident that Malta is committed to not only embracing blockchain technology, but is set on doing so in the manner most beneficial for all involved parties.
