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Malta: The Friendliest Jurisdiction For Your ICO

Welcome to Malta – “The Blockchain Island.”

The tiny island of Malta is gaining the reputation as “The Blockchain Island” by many newspapers around the world. Situated in the middle of the Mediterranean Sea, Malta has been at the forefront of keeping a stable economic growth. In the past ten years, Malta has welcomed many igaming and gaming companies to operate on the island, which has brought many opportunities to locals and foreign workers alike. New friendly regulations regarding ICOs, crypto exchanges and blockchain related technologies are to be enacted by the Maltese government in the coming months. Through this law, Malta will remain at the forefront of this ever-growing industry. Since the blockchain sector is steadily gaining momentum, Malta has successfully attracted many big corporations to move to the island.

Why are businesses and start-ups opening up an ICO?

It is evident that initial coin offerings (ICOs) are continuously increasing in number. It is reported that over 100 ICOs are launched every month. Companies, most of which being start-ups, are moving their business plan from issuing initial public offering (IPO) to operating an ICO. In fact, ICOs have a lot of advantages over IPOs. The purpose of launching an ICO is to get funds from investors without giving away equity and ownership. Since ICOs work on a decentralised platform, they lack any bureaucracy which IPOs face.

Another advantage of ICOs is that they do not have any shares tied to a specific company; instead they sell their tokens, which are bought by their investors supporting the project. Furthermore, ICOs do not require verification of their project by any third parties, such as central banks. This is crucial, since the process is quick with no extra charges to be paid to third parties. Moreover, ICOs are launched as means of a crowdfunding process supporting their upcoming projects or other tradeable virtual assets operated on the platform. Tokens issued can be exchanged for services offered or used as cryptocurrencies, in accordance with the project’s business plan. The crowdfunding is done by contributors using their cryptocurrencies or fiat currencies to support such projects, which in turn can be used on the platform. Moreover, most tokens issued are classified as utility tokens, hence having no form of securities tied to it.

Regulation of ICOs

Since ICOs are gaining popularity, central, state, and transnational governments around the world have taken a varied stance to this technological phenomenon. Some jurisdictions decided to ban ICOs, while others tried to implement strict regulations, discouraging companies from raising funds in this way. The threat that countries face is from an investor protection point of view, as fraudulent ICOs have managed to defraud unsuspecting investors. Although uncertainty is still widely seen in the financial sphere, many jurisdictions are testing their way to attract ICOs to their countries. Malta is a perfect example, which has developed progressive, yet investor protective laws to help support the blockchain and ICO sector to grow.

A tiny island is becoming a magnet for blockchain technology innovation

Malta has set its position as a leader in the blockchain sphere. Dr Joseph Muscat, Malta’s Prime Minister tweeted that: “We aim to be the global trailblazers in the regulation of blockchain-based businesses and the jurisdiction of quality and choice for world class fintech companies.” Since the introduction of the three bills which have successfully passed the third reading in parliament on 3rd July 2018, many ICOs are seeking guidance from local law firms to open up their projects on the island. Karl Schranz, E&S Group director and an advisor in Tokenomics stated that one of the most recurring questions asked by ICO founders is “about Malta’s certainty in the industry, [however] they cease to ask about the tax rate they need to pay [which can] impact the ICO.” Through these set laws, Malta is expecting more blockchain based companies to set up base on the island.

Dr Christian Ellul, a director of E&S Group and an ICO advisor stated that “Malta has a clear legal framework for ICOs, on what the law accepts and what it doesn’t accept. Additionally, this law has put Malta at an advantage for ICOs to move forward. In fact, Malta is paving its way to become the widely dubbed “Blockchain Island”. Most ICO startups come from various countries around the world, most notably China and South Korea. In fact, these two jurisdictions have put tough regulations on ICOs and exchange companies discouraging them from operating their business in their country. Since the concept is at its initial stages, governments do not want to take any financial risks that can jeopardise other industries. When asked about the banks’ stance on the blockchain sphere, Dr Ellul stated that “We are seeing many banks and central banks opting out from this technology. In fact, in Malta, banks still need to adapt and implement this new way of doing money.”

What is the procedure to set up an ICO in Malta?

• The Virtual Financial Assets Act (VFAA), which was unanimously passed by parliament, clarifies the process which ICO Issuers (VFA Issuers) need to adhere to.

• ICOs (VFA Offerings) need to seek guidance from certified VFA Agents to make sure that the white paper presented is up to standard with the law;

• Each VFA Offering falling under the VFAA needs to present its white paper to the competent authority 10 days before the VFA Offering is to be launched to the public;

• Services that require a license by the competent authority are those where the services provider is providing: Investment Advice Services, Portfolio Management, Exchange Platforms and Custodian Services;

The principal authority that governs under the VFAA is the Malta Financial Services Authority (MFSA). This would also be the competent authority that governs VFA Agents. VFA Agents are defined under the VFAA as, “A person registered with the competent authority (MFSA) under the VFA Act and authorised to carry on the profession of -(a) advocate, accountant or auditor; or (b) a firm of advocates, accountants or auditors, or corporate services providers; or (c) a legal organisation which is wholly owned and controlled by persons referred to in paragraphs (a) or (b), whether in Malta or in another recognised jurisdiction, or any other class of persons holding authorisations, qualifications and, or experience deemed by the competent authority as possessing suitable expertise to exercise the functions”.

Hereunder are steps that VFA Issuers need to follow, when issuing a VFA Offering to the public:

• Before starting a VFA Offering, the VFA issuer needs to appoint a licensed VFA Agent to perform and countersign the Financial Instrument Test with the purpose of determining the nature of the token; whether it is to be a VFA, a virtual token, electronic money or financial instrument.

• The VFA Agent has to check if the client has a clear business plan to start their VFA Offering. • Before submitting the white paper to the MFSA for approval, the VFA agent has to ensure that the White Paper follows all the requirements, listed in the VFAA.

• VFA Agents need to complete a fit and proper test on the VFA Issuer to ensure they are in an acceptable position to issue a VFA offering to the public and have a legitimate opportunity to meet the objectives stated in the white paper. • All relative documentation and other important information of the issuer need to be submitted to the MFSA by the Agent.

• The VFA Agent is to ensure that all necessary due diligence documentation is in place and kept up to date in accordance with relevant anti-money laundering law and regulations.

If you wish to establish your VFA Offering or provide any VFA Services in Malta, contact E&S Group today. Our advisory services include reviewing the white paper, assisting in Token design, drafting of T&C, Tokenomics, meeting the required soft and hard caps provided by the VFA Offering and, more importantly, due diligence and corporate procedures.

Set up a meeting today, by sending an email on [email protected] or by telephone on +356 2010 3020. E&S Group has successfully advised over 80 ICOs from concept stage all the way through their actual offering.


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