Malta FOREX Companies

Providing a service with respect to foreign exchange which is acquired for held for investment purposes is also licensable under the ISA, however this is not considered a MiFID service and cannot therefore be passported under this EU Directive.

Online forex trading is generally provided in one of two forms, either by dealing on own account or by acting as a riskless principal (often as a ‘white label partner’). With respect to the latter, the entity would be involved in executing two matching trades (one with the client and one offsetting trade with another principal) entered at the same time and price, with the entity acting as counterparty to both transactions. This is considered as execution of orders on behalf of clients. In order for an entity to execute orders on behalf of clients, a category 2 investment services licence is required. On the other hand, an entity which would like to deal on its own account is required to have a Category 3 investment services licence.

The main difference in the requirements which are applicable to a category 2 and a category 3 investment services licence holder relates to the capital requirements which must be satisfied. It is therefore, advisable to review such requirements prior to completing the applications process.

An applicant intending to provide online forex trading, should complete the application process and it is advisable for the applicant to review the capital requirements applicable to Category 2 and Category 3 investment services licence holders.

Virtual Financial Assets (VFA) Service Providers

A VFA Service is defined in the VFA Act as any service falling within the Second Schedule of the VFA Act, when it is provided in relation to a DLT Asset which has been determined to be a Virtual Financial Asset (VFA).

A license will be required for the provision of any of the VFA Services listed under the Act, although certain services are exempted for the purposes of the requirement for a licence. If the DLT assets to be traded or dealt with enter the sphere of other regulated activities, such as securities or iGaming, then more regulators will be called into play. The different regulators work closely and share the vision of promoting Malta as a safe, regulated environment in which this industry may thrive.

Functionaries

An issuer shall appoint and have at all times appointed the following Functionaries who shall have sufficient knowledge and experience in the field of information technology, DLT assets and their underlying technologies and have a good understanding of the Issuer’s business. These Functionaries may need to be approved by the MFSA:

VFA

An issuer of an VFA must at all times have a VFA Agent in place.

The initial role of the VFA Agent shall be that of:

• performing the Fitness and Properness Assessment
• reviewing and endorsing the Financial Instrument Test
• compiling and submitting of the application pack
• ensuring that the Issuer fulfils all the requirements prescribed by the VFA Act and rules and regulations
• issued thereunder
• liaising at all times with the MFSA

Post issuance of the VFA, the role of the VFA Agent is that of ensuring that the issuer is complying with the VFA Act and meeting its obligations, including the fulfilment of annual and ongoing compliance obligations.

Systems Auditor

The Systems Auditor (SA) will review and audit the Issuer’s Innovative Technology Arrangement (ITA) including cyber security arrangements and issue a report prior to the launch of the VFA. The SA is also responsible for preparing annual systems audit report confirming that the Issuer’s ITA is in compliance with guidelines issued by the Malta Digital Innovation Authority (MDIA).

Custodian

The Custodian must be independent from the Issuer and must have appropriate systems and controls to ensure that investors’ funds are reimbursed if the IVFAO is cancelled. The following persons may be appointed as custodians of VFAs: a third party licensed VFA Service Provider, or who is exempt from licensing under the VFA regulations; a third party constituted in a recognised jurisdiction; and for fiat currencies: a central bank; a credit institution authorised in accordance with the provisions of Directive 2013/36/EU; a bank authorised in a third country; a money market fund; an electronic money institution; or a payment institution.

Auditor

The role of the auditor is to audit the Financial Statements of the Issuer and to prepare a management letter in accordance with International Standards on Auditing at the end of each annual accounting period.

MLRO

An MLRO is responsible for issuing policies and ensuring that the systems in place cater for all AML procedures. Moreover, the MLRO has to ensure that, when appropriate, the information or other matters leading to knowledge or suspicion, or reasonable grounds for knowledge or suspicion of money laundering is properly disclosed to the FIAU. The MLRO is the main contact point between the issuer and the FIAU. Moreover, he must ensure that the issuer is complaint with all AML / CFT obligations.

Contact Rudolph Psaila to find out more.