The Malta Financial Services Authority (MFSA) has published a discussion paper on digital currencies, Initial Coin Offerings (ICOs), and related service providers.

The paper comes as a part of the regulator’s efforts to develop a policy framework that supports the innovation and new technologies for financial services in the area of cryptocurrencies whilst ensuring effective investor protection, financial market integrity, and financial stability.

The policy guidelines proposed in the discussion paper is based on the general principles of a policy statement issued by the European Securities and Market Authority (ESMA), which states that firms involved in ICOs and/or other virtual currency activity must carefully consider whether their activities constitute regulated activities in terms of EU or national legalisation. To that end, the paper states:

“The MFSA is proposing that, in order to achieve the objectives of financial regulation, certain VCs and activities pertaining to them would be licenced and regulated under a new legislative framework to be drafted by the MFSA and adopted by the Maltese Parliament, the Malta ‘Virtual Currencies Act’.

“The Virtual Currencies Act and any relevant subsidiary legislation would regulate the carrying on of business associated with VCs falling outside the scope of the existing EU and national financial services legislation and make provision for matters ancillary thereto or connected therewith. The Act would apply a principles-based approach to regulation supplemented by MFSA guidance, rather than detailed rules which would possibly stifle technological innovation.”

In addition, the MFSA has also proposed a test to determine whether digital currencies, including the tokens issued in ICOs, constitute a financial instrument under MiFID and other relevant EU legislation.

The MFSA is seeking feedback from the industry before proceeding with detailed proposals for the legal framework. The consultation is open until the 11 January 2018.