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Malta is the first country in the world to create and implement a fully comprehensive legal and regulatory framework for cryptocurrency and blockchain technology. The stable system and forward approach that Malta offers creates the ideal setting to attract further investment. In fact, Malta has attracted some of the world’s largest cryptocurrency exchanges who have relocated or set up offices on the island.

The Maltese legal framework consists of three main pieces of legislation, namely:

i. The Virtual Financial Assets Act (the “Act“);

ii. The Malta Digital Innovation Authority Act; &

iii. The Innovative Technology Arrangements and Services Act.

The most important and relevant piece of legislation is the Act, which regulates, inter alia, Initial Virtual Financial Asset Offerings, Virtual Financial Assets (“VFA“) and the provision of VFA services. Under the Act, cryptocurrencies are classified as ‘Virtual Financial Assets’.

Furthermore, Chapter 3 of the VFA Rulebook is also highly relevant in this regard, as it applies to VFA service providers seeking to obtain a VFA licence, and those who have already been issued a VFA licence.

1. The Financial Instrument Test

Under the Maltese framework, the starting point of any assessment is the financial instrument test, which is a test that determines the classification of the DLT asset as either:

i. a virtual financial asset;

ii. a financial instrument;

iii. e-money; or

iv.a virtual token (a.k.a. utility token).

This classification ultimately determines the applicable regulatory framework. Therefore, a person applying for a VFA licence (the “Applicant“) must, prior to submitting the application, undertake the financial instrument test, which shall be signed by its administrators, and endorsed by its compliance officer. The DLT asset/s must be classified as VFAs in order for the VFA framework to apply. This is because the Act defines a VFA exchange as a DLT exchange operating in or from within Malta, on which only VFAs may be transacted.

2. Licencing Requirement

The Act states that no person shall provide, or hold itself out as providing, a VFA service in or from within Malta unless such person is in possession of a valid licence granted under the Act by the competent authority, i.e. the Malta Financial Services Authority (“MFSA“).

Where the Applicant is a natural person, then such person must be resident in Malta. On the other hand, where the Applicant is a legal person:

  • i. it must be constituted either in Malta, or in a recognised jurisdiction;
  • ii. its purposes or objects must be limited to acting as a licence holder and carrying on any activities ancillary or incidental thereto, and do not include purposes or objects which are not compatible with the VFA services of a licence holder; &
  • iii. its actual activities are compatible and connected with the VFA services of a licence holder.

The provision and operation of a VFA Exchange will be subject to the requirement to obtain a Class 4 VFA Licence which applies to:

“Licence holders authorised to provide any VFA service. Class 4 Licence Holders may hold or control clients’ money in conjunction with the provision of a VFA Service.”

3. VFA Agent Requirement

An Applicant seeking licensing to operate an exchange must appoint a VFA Agent which is registered with the MFSA. The Applicant shall ensure that all communications, meetings, notifications and/or submissions to the MFSA are made through its VFA Agent.

Indeed, an application for a VFA services licence can only be made through a VFA agent. However, once the application is submitted and the Applicant is approved, then the requirement to have a VFA agent in place no longer subsists.

4. The Application Process of VFA Service Providers

The application process consists of three phases:

(i) the preparatory phase;

(ii) the pre-licensing phase; and

(iii) the post-licensing / pre-commencement of business phase.

Preparatory Phase

The Applicant must notify the MFSA in writing, through its VFA Agent, of its intention to apply for a VFA licence. The statement of intent shall include:

  • i. a comprehensive written description of the proposed structure;
  • ii. the VFA service for which licencing is being sought, identifying the persons proposed to hold key positions thereto; and
  • iii. a legal opinion that the proposed activity does not fall within the scope of traditional financial services legislation.

The MFSA, upon receipt of the aforementioned statement of intent, shall schedule a preliminary meeting with the Applicant. Following such meeting, the Applicant has 60 days to submit a complete application pack.

Pre-Licensing Phase

Once the MFSA is satisfied with the information set out in the application and the completion of the fitness and properness assessment, it will issue an ‘in principle approval’, which shall be valid for a period of three months from the date of the issue thereof.

During those three months Applicants must finalise any outstanding issues raised during the application process, and any pre-licensing conditions as determined by the MFSA in the in-principle approval. Upon satisfaction of these requirements, a VFA Services Licence shall be issued by the MFSA.

Post-Licensing and Pre-Commencement of Business Phase

Licence holders may be required to satisfy, within set timeframes, a number of post-licensing matters, as determined by the MFSA, prior to the commencement of business. The licence holder shall commence its VFA services business within twelve months of the date of issue of the VFA services licence.

5. Fitness and Properness

Applicants are required to meet the fitness and properness requirements both during application stage as well as on an ongoing basis thereafter. In assessing whether a person is fit and proper, the MFSA shall require that the following three criteria are satisfied, namely integrity, competence and solvency.

Furthermore, the fitness and properness assessment shall be applicable to every:

  • i. person that has a qualifying holding in the Applicant;
  • ii. beneficial owner;
  • iii. member of the Board of Administration of the Applicant;
  • iv. senior manager;
  • v. MLRO;
  • vi. compliance officer;
  • vii.r isk manager (where applicable); and
  • viii. any other person who will effectively direct the VFA business of the Applicant.

6. Fees & Capital Requirements

The fees for a Class 4 VFA licence are as follows:

  • i. Application fee of €24,000; &
  • ii. Annual supervisory fee of €50,000.

Furthermore, a class 4 VFA licence holder is required to have a minimum share capital of €730,000.

7. Key Functionaries

The licence holder is required to appoint, and have in place at all times, the following functionaries:

  • i. Auditor;
  • ii. MLRO;
  • iii. Compliance Officer; &
  • iv. Board of Administration.

Whereas, the appointment of the following functionaries is optional:

  • i. Systems Auditor; &
  • ii. Custodian

As aforementioned, a VFA agent must be appointed in order to assist with the licence application process.

8. On-Going Obligations

There are several on-going obligations which the licence holder must satisfy. These include organisational, governance, prudential and conduct of business requirements.

Organisational requirements involve:

  • i. establishing a board of administration which must have at least two individuals in satisfaction of the ‘dual control principle’;
  • ii. formulating governance policies;
  • iii. having adequate and effective risk management and compliance policies and procedures in place;
  • iv. having measures in place to safeguard clients’ money.

Moreover, there are also prudential requirements which must be satisfied, relating to own funds, liquidity, share capital and fixed overhead requirements.

Furthermore, the licence holder must have policies and procedures in place which deal with:

  • i. Conflicts of interest;
  • ii. Risk management;
  • iii. Remuneration;
  • iv. Record keeping;
  • v. Listing criteria;
  • vi. Custody;
  • vii. Order matching;
  • viii. Settlement.


This document does not purport to give legal, financial or tax advice. Should you require further information or legal assistance, please do not hesitate to contact Dr Giulio Sammut and Dr Anna Grech.