Fintech Insights #11 –
Tokenising Fund Units

Malta has uniquely positioned itself at the crossroads of EU legislative initiatives of investment funds and digital assets. The island has steadily built a forward-thinking fintech ecosystem whilst at the same time maintained an investment fund framework which is comparable to those with the EU’s largest jurisdictions by assets-under-management (“AUM”).  This makes Malta the ideal EU jurisdiction to set up a tokenised investment fund.

In June 2025, the Malta Financial Services Authority (“MFSA”) published a detailed ‘Position Paper on Tokenisation of Fund Units’ (the “Position Paper”), reflecting Malta’s ongoing pioneering approach to digital finance and asset management. The paper emphasises that tokenised fund units – digital tokens representing shares or units in a collective investment scheme (“CIS”) – remain subject to existing investment fund regulations not the Markets in Crypto-Assets Regulation (“MiCA”).

The island’s regulatory philosophy has always been rooted in the principles of proportionality, openness to emerging technologies, and ongoing engagement with the fintech sector, an approach that is now also being extended to the tokenisation of units within investment fund structures.

Whilst in the previous fintech insight we analysed how tokenisation can be used as a means to raise funds through capital markets, in this insight we focus on the legal aspect of tokenising the units in investment funds, in light of the MFSA’s Position Paper.

Key Elements of the MFSA Position Paper on Tokenised Funds

The MFSA’s Position Paper confirms that Maltese law permits tokenisation of fund units, subject to prudent safeguards. Tokenisation (the process of representing traditional assets or fund units as digital tokens on a blockchain) is treated as a change of technology, not of legal substance. In the MFSA’s words, tokenisation is a “significant advancement” enabled by blockchain tech, but it must operate “in line with the standards prescribed” under existing fund regulations.

The MFSA states that ‘tokenisation of CIS shares or units is permitted’ for all types of funds recognised under Maltese law, namely, licensed alternative investment funds (AIFs), licensed professional investor funds (PIFs), notified AIFs and PIFs, and UCITS (including SICAVs). This reflects technology neutrality: as long as core objectives (liquidity, transparency, investor protection) are preserved, tokenisation is allowed. UCITS funds may issue tokenised share classes so long as the prospectus clearly discloses this and the normal UCITS safeguards are maintained.

The Position Paper emphasises the continuing role of fund service providers. Depositaries/custodians must explain how they will custody the underlying assets (since tokens represent the same underlying investments). Transfer of a tokenised share remains subject to fund approval of the investor, as under ordinary fund rules. Likewise, fund administrators act as “digital transfer agents”: they manage the tokenised share class on the blockchain, execute smart contracts for issuance, subscriptions and redemptions, and maintain the on-chain register of ownership. The MFSA requires fund administrators to conduct AML/KYC due diligence on each investor’s digital wallet and its holder, just as they would for traditional investors. Importantly, the fund’s base currency remains fiat currency, ensuring that the token’s value ties back to the underlying fund assets and legal currency.

To manage risks, the MFSA calls for enhanced governance and disclosure. The governing body of any tokenising CIS must have sufficient knowledge of blockchain technology. The fund’s prospectus/offering document must clearly disclose the use of tokenisation, inform the MFSA, and highlight the additional risks in the offering documents:  e.g. wallet security, blockchain reliance, smart contract issues; and procedures (issuance, redemptions, transfers) specific to tokenised units. As a non-exhaustive checklist, the MFSA advises stakeholders to include information on any modified AML/KYC checks, issuance/redemption mechanics on-chain, transfer restrictions (e.g. locking periods or network limitations), custodial arrangements for tokens, and tech risks including dependence on the chosen ledger. The Position Paper also outlines risk mitigation: funds should understand and audit the blockchain algorithm and smart-contract standards in use, define protocols for encryption key management (to prevent loss of investor access), and ensure data privacy and GDPR compliance in on-chain transactions.

The MFSA views tokenisation as an opportunity to streamline fund administration – potentially addressing settlement inefficiencies – but insists on strict controls. It notes that tokenisation “could present an opportunity to address settlement inefficiencies and pave the way for a more streamlined and cost-effective transfer agency operating model”. Nevertheless, all standard AML, custody and investor-protection safeguards remain in force.

Maltese CIS Law and Fund Structures

 Under Maltese law, tokenisation does not alter the fundamental licensing regime. The Investment Services Act (Cap. 370) requires that no CIS shall issue or create any units unless it holds a valid CIS licence. This applies equally to digital tokens representing fund shares. In other words, a tokenised share is still a share of the CIS, so the CIS must be licenced as a UCITS or AIF/PIF under Maltese law to lawfully offer it. This is consistent with what we had outlined in the ninth fintech insight that entities must still obtain the relevant licence under applicable regulatory frameworks for example, a tokenised CIS with pooled assets will generally require a fund licence or notification.

Maltese fund structures include contractual funds and SICAVs (companies with variable share capital) which can be used for UCITS, and various classes of AIF/PIF. Both corporate share classes (SICAV shares) and contractual fund units may be tokenised, subject to the above requirements. Malta distinguishes between licensed funds and notified funds: certain retail AIFs must be licensed by the MFSA, whereas professional investor funds (both licensed and notified) are lighter-regulated. The MFSA position paper explicitly includes notified funds among those permitted to tokenise. In all cases, the fund’s rules or memorandum must explicitly contemplate token shares, and the MFSA function responsible for funds must be informed.

Custodians or depositaries under Maltese fund law have an expanded role in tokenised schemes. The MFSA highlights that a fund must describe how asset custody will be maintained on the blockchain. For example, the custodian might hold the corresponding traditional asset (or private keys) and ensure tokens are backed 1:1. The normal segregation and asset-monitoring obligations under the AIFMD or UCITS Directive apply. Likewise, fund administrators remain responsible for computing NAVs and handling subscription/redemption orders if they are handled through blockchain smart contracts.

Tokenisation of funds in light of the EU legal framework

 MiCA (the EU Regulation on Markets in Crypto-Assets) does not apply to tokenised shares or units. MiCA explicitly excludes assets already covered by other financial legislation. As the MFSA notes, tokens representing CIS interests qualify as “financial instruments” under MiFID II. Article 2(4) of MiCA lists “financial instruments” as crypto-assets excluded from MiCA’s scope. In line with ESMA guidance, if a crypto-asset is essentially a unit/share of a fund (i.e. a security), MiFID II prevails. Thus, tokenised fund units remain regulated under the Markets in Financial Instruments Directive and the national conduct rules (e.g. the Maltese Conduct of Business Rulebook) that transpose MiFID II.

The MFSA emphasises that tokenisation only changes the format of the units: their legal classification as financial instruments is unchanged. Consequently, MiFID II conduct-of-business, transparency and suitability rules apply to tokenised shares as they do to ledger entries of shares. Any cross-border offering of tokens must also respect EU prospectus/regulatory disclosure requirements (e.g. UCITS KIID or AIF rules). In short, the entry of blockchain does not exempt funds from EU fund marketing laws.

MiCA itself will become directly relevant if a fund issues tokens that are not “financial instruments” – for example, if a fund created stablecoin-like tokens to distribute dividends or profits. In that case the tokens would fall under MiCA’s asset-referenced token rules. However, under the MFSA’s position, tokenised shares/units remain in the MiFID bucket. More generally, Malta integrated MiCA into national law through Chapter 647 and the MFSA has outlined a procedure for asset-referenced tokens and crypto-asset services therein. Nevertheless, fund managers in Malta can take comfort that their tokenised shares avoid the MiCA regime entirely, instead relying on the familiar MiFID II and CIS frameworks.

Two Hypothetical Use Cases

 To illustrate the MFSA’s framework for tokenising fund units in practice, we consider two hypothetical scenarios:

1. Tokenised Feeder Fund: A Maltese corporate feeder fund issues digital tokens to pool capital from professional investors across Europe, investing in a non-Maltese master fund. The feeder’s prospectus states that subscription and redemption will occur via a permissioned blockchain. The Malta fund manager updates its offering memorandum to disclose token use and associated DLT risks, and files this with the MFSA. The fund’s depositary outlines how it will take legal title over the underlying assets and ensure each on-chain token is backed 1:1. Investors buy tokens using approved wallets; the fund administrator onboards each wallet holder under KYC checks. Redemption involves sending tokens back to the fund’s blockchain address, triggering a smart-contract redemption executed by the fund administrator. Settlement is near-instant and cross-border, with token transfers automatically reflecting in the fund’s on-chain register – all permitted by Maltese law so long as the CIS licence is in place and disclosures made.
2. Cross-Border PIF Settlement: A Maltese Professional Investor Fund (PIF) targeting Asia-Pacific investors tokenises its shares to allow 24/7 trading on a DLT securities marketplace. The fund’s management company liaises with a DLT multilateral trading facility (approved under the EU Pilot Regime) to list its security tokens. Investors overseas subscribe by transferring fiat via a Maltese-regulated payment provider into the fund’s fiat custodian, receiving tokens in return. The MFSA-approved fund rules include protocols for token vesting and wallet safekeeping. AML/KYC data (with customer consent) is shared across the DLT network to streamline compliance checks. If the fund later decides to change blockchains (e.g. migrate tokens from one ledger to another for efficiency), it must update the offering documents and notify the MFSA. Throughout, Maltese governance applies: the fund’s board and key persons must remain fit to supervise the tokenised fund, and all transactions are ultimately settled in fiat currency as per the fund’s valuation policy.

These two examples show how the MFSA’s principles from the Position Paper can translate into practice. The key is that tokenisation automates settlement and improves liquidity, but does not remove regulatory obligations. In each scenario, the fund remains licensed under the Investment Services Act, appoints a qualified MFSA-approved administrator and custodian, and follows MiFID/MiFIR rules in distributing the tokenised interests. The blockchain adds efficiency (speed, transparency, fractional access) but the onus of investor protection and reporting remains with the fund manager.

Why Malta is Attractive for Tokenised Funds

 Malta has cultivated a reputation as an innovation-friendly EU jurisdiction, and this extends to tokenised fund structures. The island’s regulatory approach emphasises proportionality, technology-neutrality and dialogue with fintech innovators. The MFSA was early to regulate blockchain finance, introducing the Virtual Financial Assets Act in 2018, which closely anticipated many MiCA provisions. The MFSA has been practising MiCA’s requirements before MiCA itself. This experience means Malta’s regulator understands digital ledgers and is prepared to handle crypto-asset fund applications.

Malta’s legal ecosystem offers flexibility. Companies, trusts, partnerships and SLPFs can all be used as issuing entities, under legal regimes familiar from English common law. The MFSA’s 2025 paper itself illustrates this tech-neutral stance: it allows both corporate (SICAV) and contractual funds to adopt token classes, provided legal titles are clear and the fund rules are updated. The Maltese fund rules already accommodate multiple share classes and bespoke distribution methods; tokenisation simply becomes a form of share class administration.

Another advantage is Malta’s international outlook. It has numerous double tax treaties, access to EU markets and a common-law environment that is accessible to foreign investors. The MFSA and Maltese government actively promote fintech. For example, Malta’s regulatory sandbox and guidance for innovative tech arrangements encourage firms to test DLT solutions in partnership with the authority.

Moreover, Malta aligns closely with EU directives. Being in the Eurozone and the EU Single Market means a Maltese fund licence or crypto-asset token passport is valid across 27 states. This continuity reassures fund managers that a Maltese token issuance will meet EU standards. Malta’s adherence to outsourcing and governance principles is also pragmatic; for instance, it permits outsourcing of non-critical tasks under MiCA rules, acknowledging the island’s scale. In sum, Malta combines EU-market access with a nimble, innovation-minded regulator – a compelling mix for choosing a jurisdiction to structure a tokenised fund.