The Malta Financial Services Authority (“MFSA”) has issued a consultation document entitled “Consultation on the Proposed Regulation of Collective Investment Schemes investing in Virtual Currencies”. The document outlines a draft rulebook which would govern the regulation of collective investment schemes investing in virtual currencies (“VCs”). The document also discusses a proposed set of rules applicable to Professional Investor Funds (“PIFs”) which have as their investment objective the investment in VCs. Furthermore, the MFSA has stated that it is presently considering whether or not Alternative Investment Funds and Notified Alternative Investment Funds, should also be allowed to invest in VCs. In the interim, the MFSA has decided that the legal structures for PIFs making such investments should be limited to SICAV and INVCO structures, which are required to have a board of directors responsible for the overall conduct of business of the collective investment scheme.
In this respect, the consultation sets out a series of additional requirements to which the PIF and, where applicable its service providers, shall comply with. Among them, it seems noteworthy to mention the provisions applicable to the investment manager with respect to the quality assessment and the risk management tools to be applied in the light of the VCs features. The main proposed requirements are summarised below:
- Competency: The PIF, and its service providers in certain instances, must have sufficient knowledge and experience in the information technology sector, VCs and their underlying technologies, including but not limited to the Distributed Ledger Technology;
- Clear Risk Warnings: Offering documentation must include risk warnings in relation to the Scheme’s proposed direct and/or indirect investment in VCs;
- Quality Assessment and Research: The PIF, and its service providers if applicable, must ensure that the appointed Investment Manager carries out appropriate research in order to assess the “quality” of the VCs being invested into;
- Risk Management: The PIF, and its service providers if applicable, must ensure that prior to investing in a VC or VCs on behalf of the Scheme, the investment manager assesses whether the risk profile of the said VC (or VCs) falls within the scope of the risk management policy of the Scheme; and
- Valuation: the PIF must ensure that the appointed service providers have the business organisation, systems, experience and expertise necessary to conduct the required verification and valuation of the Scheme’s investments in VCs.
The full consultation document can be found here: https://www.mfsa.com.mt/pages/readfile.aspx?f=/files/Announcements/PressReleases/2017/20171023_VCFunds_PressRelease.pdf.