Initial Coin Offering, also known as token generation event, is nowadays a worldwide spread crowdfunding phenomenon which continues to raise serious concerns among operators and regulators of blockchain and DLT space. ICOs were initially launched back in 2013. More than 80% of ICOs in 2017 have turned out to be scams, leaving hard working investors left with nothing. According to the study made by ICO advisory firm Statis Group, total funding of coins and tokens in 2017 amounted to $11.9 billion. During 2018, an approximate amount of 8 billion USD has been raised through these token generation events.

In light of the financial impact and investors exposure, most of crypto-active jurisdictions, have regulated the sector. In Malta, the Act No. XXX of 2018 – Virtual Financial Assets Act (hereinafter referred to as the “VFAA”), and the regulation issued to implement the VFAA, under the definition of Virtual Financial Asset Offering, establish a set of provisions to ensure that investors are adequately safeguarded.

The purpose of this article is to provide guidance through the steps of a token generation event in Malta in line with the newly enacted legal framework.


Step 1 – Establishing a legal person in Malta

A person wishing to act as an issuer shall be a legal person established in Malta.

While other legal forms are admissible, when the Issuer resolves for the incorporation of a limited liability company, as the most popular form of doing business, the provisions of the Company Act shall apply and thus the Company shall:

  • Reserve with the Register of Companies a name that is not the ‘same as’ or ‘too similar’ the name of an existing limited company and the name shall include ‘Limited’ or ‘Ltd’ at the end;
  • Have the registered office situated in Malta,at the business address of the Company or at any address in Malta as may be determined by the Board of Directors from time to time;
  • Specify the purpose and the range of activities that is going to carry out by drafting a Memorandum of Association;
  • Deposit the share capital with a local or overseas bank and obtain prove of such deposit;
  • Subscribe its shares by at least one shareholder, being a legal or natural person;
  • Appoint director/s and company secretary.

Provided that all the necessary documentation is in hand, incorporation of the Company normally takes circa forty-eight hours.

The documentation to be submitted to the Registrar of Companies, prior to the incorporation of the Company varies in accordance with the nationality of the directors and shareholders.


Step 2 –Transitory Period

To any person that on the date of coming into force of the VFA Act (1stNovember 2018) offering VFA, is given a period of three months (commencing from the date of coming into force of the Act), in order to regularise its position and apply for the registration of the white-paper with MFSA.

In order to benefit from the transitory period, the entity established to offer VFA shall:

  • Immediately upon coming into force of the VFA Act, notify to MFSA its intention to operate under VFA Act regime by clearly stating the Issuer’s name, the name of the DLT asset in question, and the date when the offering began or when the application for admission to trading was made, as applicable;
  • Attach to the notification and file with MFSA a legal assessment stating that the activity falls within the scope of the Virtual Financial Assets Act.
  • A copy of the determination made in respect of the Financial Instrument Test should also be attached to the notification.
  • Be actively operating prior to the coming into force of the Act, as the mere incorporation is not deemed sufficient for the transitionary period to apply.

The transitory provision is only applicable to those persons who have commenced an offering or have applied for admission to trading by not earlier than two weeks prior to the coming into force of the Act.

An Issuer will be able to benefit from the transitory period only where the pertinent offering is active and made to the public.

By means of example, where an offering includes both a pre-crowd sale as well as a crowd sale, such offering will be deemed to have commenced at pre-crowd sale stage, provided that such sale is open to the public instead of only a closed number of investors.


Step 3 – Preparatory Phase

The Issuer wishing to issue VFA shall make sure to meet a number of requirements and as such shall:

  • Appoint a VFA Agent registered with MFSA and shall make all communications, meetings, notifications and/or submissions to the authority through his VFA Agent;
  • Prove to meet the fitness and properness requirements during issuing stage as well as on an ongoing basis;
  • Perform the Financial Instrument Test the purpose of which is to determine whether a DLT asset shall qualify as VFA and as such be subject to the VFAA regime.


Step 4 – Appointment of functionaries:

An issuer shall appoint, and have during all times appointed, the following functionaries

  1. VFA Agent;
  2. Auditor;
  3. System Auditor;
  4. MLRO;
  5. An issuer may appoint a custodian for the safekeeping of assets.

Board of Directors of the Issuer:

  • Dual Control Principle;
  • Responsible to complying with Issuer’s obligations;
  • Collective and individual responsibility to maintain sufficient knowledge and understanding of business;
  • Properly informed of financial condition;
  • Where the board delegates its functions, shall not absolve them from duty to supervise the discharge of such delegated functions.

Step 5 – Registration of white-paper with MFSA

Drawing up the whitepaper in accordance with the form and content as prescribed in the First Schedule of the Act (This includes requirements relating to the deployment of smart contacts) and register the whitepaper with MFSA (10 days before commencing the offer of the listing of VFA).

Although the whitepaper echoes the information typically contained in a Prospectus, it features its own peculiarities, particularly with respect to its special focus on the technological aspects of the projects, for instance:

  • Technical description of the protocol, platform and application;
  • Sustainability and scalability of the project proposed;
  • Characteristics and functionality;
  • Underlying protocol, off chain activities and wallets;
  • Interoperability and the consensus algorithm.

The following documents shall be submitted to MFSA via the VFA Agent:

  • A copy of the Financial Instrument Test which must be:
  1. a) Duly signed by Board of Administration; or
  2. b) Endorsed by the VFA Agent;
  • Dated whitepaper signed by Board of Administration;
  • Report from the Systems Auditor;
  • Audited Accounts of Issuer / Group for last 3 years (or years’ operating if less);
  • Certified copy of its Constitutional Documents;
  • Compliance Statement from Issuer + Confirmations from VFA Agent;
  • Application Form and Registration Fees (registration fee Euro 4,000 and annually supervisory fee of Euro 1,000).

Step 6 – Website & Advertisement

The Advertisements relating to initial VFA offerings or admission of VFAs on a VFA exchange shall satisfy the following requirements:

  • Advertisements are to be clearly identified as such and information must be consistent with the whitepaper and cannot be misleading;
  • Advertisements shall contain  a  statement that a whitepaper has been or will be published in accordance with the law and the addresses and times at which copies of the whitepaper are or will be available to the public;
  • All information, whether written or orally disseminated, is to be consistent with the information in the whitepaper even if intended for advertisement purposes.

Step 7 – Ongoing obligations

The regulation provides for ongoing obligation of the issuers in relation to IT framework, cyber security, record keeping and annual returns.

This Article outlines the milestones of the procedure and regulation provided as to date in Malta and is intended to offer generic assistance in relation to the above mentioned matter. It does not cover the subject-matter exhaustively and should neither be considered nor construed as advice or in any way a commitment on the part of Charles Scerri & Associates. Legal advice should be sought in relation to your specific circumstances.

For more information and assistance do not hesitate to contact as at Charles Scerri & Associates.

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