3 Learnings on ICOs and STOs from Malta

Malta is probably one of the most interesting jurisdictions worldwide when it comes to launching an ICO or STO. Max Kops, who is consulting projects before and during token offerings has been at the Malta Blockchain Summit in November 2018 and explored Malta as a location for token offerings. He shares his 3 key learnings from the summit with us.

1. STOs made easy? Not really!

Many people expected the new ICO bills to make the launch of tokenized securities in Malta much easier. However, most of the changes it includes affect Utility Tokens and not securities. The Financial Instrument Test which allows projects to get their token classified brings more clarity for projects — but, since most of the projects apply for a Passporting into other EU countries, it is not possible to bypass essential requirements of issuing a Security Token within the EU. Passporting means that the company aims to file the prospectus in all EU countries so that upon approval and publishing it, the project can also market their offer in those countries. Filing the prospectus in other EU countries still brings the same requirements with it — local regulations of Malta cannot loosen the requirements of the other countries. Mentionable is the environment in Malta: Many people from this sphere reside on the Blockchain Island and turn it into a hotspot. Although, projects should look into other locations to launch in as well.

2. Security Tokens are considered as the next “Big Thing”

Speaking to many people working on a token launch as well as with funds, the sentiment is obvious: Security Tokens are discussed everywhere, funds step away from Utility Tokens or even avoid them completely and startups convert their utilities into securities. Especially in Malta, many exchanges and Security Token platforms are currently working on their license. As it seems now, the first ones could obtain them in Q1 2019. Many more will follow.

3. Financial Instrument Test

This test that can be done with the authorities to assess a project. It classifies the token into one of four categories — each with different requirements to be fulfilled in order to comply with the regulation. For example, virtual currencies are separated from Security Tokens, furthermore they can be classified as a VFA or electronic money. The VFA (virtual financial assets) class is a novelty. If you are classified as such, specially licensed VFA agents need to be included into the ICO launch. Currently, many lawyers are preparing to obtain the respective licenses. The definition of a VFA is a bit more tricky. According to the VFA Act (p. 8), a VFA means “ any form of digital medium recordation that is used as a digital medium of exchange, unit of account, or store of value and that is not (a) electronic money; (b) a financial instrument; or © a virtual token“. Therefore, it is a very specific case to be classified as a VFA by the Maltese law.

What’s next?

Since the ICO bills are quite new, the environment on Malta is still getting ready for the market. It could be argued that the VFA regulations are quite complicated and costly due to mandatory agents that need to be paid. On the other hand, Malta offers very clear views on that topic while many other jurisdictions don’t and leave their businesses in uncertainty.

To get in touch with Max and learn more, go and visit his website.

Note: This insight has been written on 17.12.2018