MFSA issues Consultation Paper on the Financial Instrument Test
News    ·   17-04-2018

AUTHOR: Malcolm Falzon; Donald Vella; Terence Cassar; Alexia Valenzia

The Malta Financial Services Authority (“MFSA”) has issued a consultation paper (the “Paper”) on the financial instrument test (the “Test”) for virtual financial assets (“Assets”).  The Test was first introduced in the MFSA’s discussion paper on initial coin offerings (“ICOs”), virtual currencies and related service providers released on 30 November 2017. 

According to the Paper, the Test will be used to determine whether distributed ledger technology Assets fall within the scope of existing financial services legislation (such  as the Markets in Financial Instruments Directive (“MiFID II”) and the Alternative Investment Fund Manager Directive (“AIFMD”)) or not.  If, following completion of the Test, it is determined that the Asset falls within the scope of existing legislation, then Asset related service providers will be required to comply with existing regulations. For example, launchers of ICOs will need to adhere to, amongst others, the provisions found within the Prospectus Directive when they release their white paper if, following completion of the Test, it is determined that the Asset they are offering falls within the remit of existing financial services legislation.

If, on the other hand, the Asset is determined to fall outside of the scope of existing legislation following completion of the Test, then the Asset-related service provider will be required to comply with the provisions within the proposed Virtual Financial Assets Act (“VFAA”), further details of which have not been released to-date.

The Paper provides more in-depth information on the proposed Test in relation to several different financial instruments, including but not limited to, units in collective investment schemes, money market instruments and virtual tokens (previously referred to as utility tokens).  The Test shall consist of twelve checklists, the first of which focus on virtual tokens under the VFAA while the remaining questions focus on the various financial instruments set out under MiFID II.

The Paper states that the MFSA is considering the introduction of the Test to be a mandatory requirement under the VFAA, which will be applicable both within the context of an ICO as well as during the intermediation of DLT assets which may qualify as virtual financial assets. It is further proposed that non-licenced persons providing a service or performing an activity in relation to an Asset, in or from within Malta, will also be required to conduct the Test to determine the applicable regulatory framework.

The consultation period is open until the 4 May 2018.  The full consultation paper can be found on the MFSA’s website at and participants are required to submit their feedback via a survey which was created specifically for this purpose.

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