Anti-Money Laundering: MFSA strengthens Anti money laundering (AML) supervision with the publication of Guidance on PEPs
The aim of such measure is to tackle international challenges posed by money laundering, and to ensure that such supervision is in line with the MFSA’s international counterparts and supervisory bodies.
In view of the higher risk attributed to PEPs (politically exposed persons), the Prevention of Money Laundering and Funding of Terrorism Regulations require subject persons to apply EDD (Enhanced Due Diligence) measures when they are offering services to PEPs. Family members of PEPs and persons known to be close associates of PEPs shall be subject to the same EDD measures which are applicable to PEPs in view of their similar risk profile.
Virtual Financial Assets (VFA)
MFSA have also issued a Virtual Financial Assets FAQ document, which is spilt as follows:
a. VFA Framework: the VFA Act will come into force 1st November 2018, and the MFSA will consider applications, authorisations, and approvals under the Act from enforcement date.
It is important to note that any Collective Investment Schemes (CIS) wishing to invest in VFAs shall remain bound by the CIS financial services framework. At the moment in time only Professional Investor Funds (PIFs) may invest in VFA.
b. Classification of Distributed ledger technology (DLT) Assets: DLT is the database system in which information is recorded, consensually shares, and synchronised across a network of multiple nodes as further described in the First Schedule of the Innovative Technology Arrangements and Services Act, 2018, whether the same is certified under that Act or otherwise.
It is imperative to remember that a DLT Asset is either (a) a virtual token, (b) a virtual financial asset, (c) electronic money, or (d) a financial instrument, which assets are all intrinsically dependent on, or utilises, distributed ledger technology.
The MFSA has issued a test plus guidelines on how to identify which DLT asset applies. Should a DLT asset be determined by the Test to be a Virtual Token, any activity performed in relation thereto would remain unregulated. Should a DLT asset be determined by the Test to be a financial instrument or electronic money, the respective framework would apply. For example, DLT assets which qualify as financial instruments can only be traded on trading venues falling within scope of MiFID. A DLT asset would need to meet all of the requirements of electronic money in order to qualify as electronic money under the Financial Institutions Act. Whereas stable coins may exhibit certain similarities to electronic money, it should not be construed that they automatically qualify as such. Should a DLT asset not be determined by the Test as (i) a VT, (ii) a financial instrument or (iii) electronic money, such DLT asset would qualify as a VFA. The Act and the VFA Framework would therefore apply.
c. VFA Agents: a VFA agent means a person registered with the competent authority under this Act, and authorised to carry on the profession of: (i) advocate, accountant, or auditor; (ii) a firm of advocates, accountants or auditors, or corporate service providers; (iii) a legal organisation which is wholly owned and controlled by persons referred to in paragraph (i) or (ii). Whereas the Act does not prohibit a Systems Auditor from applying for registration as a VFA Agent, it is noted that such dual appointment should not prevent the said person from exercising independent professional judgement the MFSA shall be reviewing such applications on a case-by-case basis.
d. Initial VFA Offerings: “issuer” means a legal person duly formed under any law for the time being in force in Malta which issues or proposes to issue virtual financial assets in or from within Malta.
The same entity can be used for multiple Initial VFA Offerings. Both for the same and different VFAs. This notwithstanding, it is noted that the Issuer’s board of administration shall be required to be fit and proper for the purposes of every such offering.
MFSA will only be in a position to consider requests for whitepaper approval under the Act once the Act enters into force on 1st November 2018 and the corresponding framework is in place. This notwithstanding, it is noted that the MFSA will initially be accepting only applications from persons wishing to be registered as VFA Agents in terms of article 7 and/or 14 under the Act. Upon the registration of such persons, the MFSA shall be in a position to start accepting and considering requests for whitepaper approval.
e. VFA Service Providers: “VFA service” means any service falling within the Second Schedule of the Act when provided in relation to a DLT asset which has been determined to be a virtual financial asset.
A licence is required when providing VFA Service. There are 4 classes of VFA Services Licences. These are detailed in the VFA Regulations and Chapter 3 of the VFA Rulebook. The class of VFA Services Licence required depends wholly on the type of VFA Service which shall be provided. Licensing and supervisory fees shall be applicable and are as detailed in the VFA Regulations.
f. AML/CFT Requirements: The Act stipulates that VFA Agents, Issuers and VFA Services Licence Holders are subject persons. The term ‘subject person’ is defined as having the same meaning assigned to it under regulation 2 of the PMLFTR.
g. Transitory Provisions.