On 13 April 2018 the MFSA issued a Consultation Paper on the Financial Instruments Test following the initial discussion on the matter in the MFSA Discussion Paper on Initial Coin Offerings, Virtual Currencies and Related Service Providers issued on 30 November 2018. Below is an overview of the salient points.

The Financial Instrument Test (the Test) is being introduced with the objective to determine whether a Distributive Ledger Technology (DLT) asset (previously referred to as Virtual Currencies) falls within the scope of:

  1. Existing EU legislation and corresponding national legislation
  2. The proposed Virtual Financial Assets Act (VFAA) or
  3. Is otherwise exempt.

The Test will apply within the context of Initial Coin Offerings and during the intermediation of DLT assets by persons undertaking certain activities in relation to such assets in or from within Malta.

The test will apply in two stages as illustrated below:


The first stage of the Test is the determination of whether the DLT asset qualifies as a Virtual Token (Previously referred to as Utility Token) under the proposed VFAA. In this regard a VT is defined as a DLT asset that has no utility, value or application outside the DLT platform on which it was issued and that cannot be exchanged for funds on such platform or with the issuer of such DLT asset. A VT is exempt from the requirements of the VFAA.

The second stage of the Test is the determination of whether the DLT asset qualifies as a financial instrument under Markets in Financial Instruments Directive (MiFID) and includes:

  1. Transferable securities;
  2. Money market instrument;
  3. Units in a collective investment scheme;
  4. Financial derivative instruments, and
  5. Emission Trading Schemes.

Detailed criteria are set out to assist in qualifying the DLT asset as one of the above financial instruments. The Investment Services Act transposes all the financial instruments listed under the MiFID but also includes two additional instruments, namely:

  1. Certificates or other instruments which confer property rights in respect of any Financial instrument; and
  2. Foreign exchange acquired or held for investment purposes.

These two additional instruments are specifically excluded from the scope of the test considering that these instruments are captured indirectly through the respective definitions of financial instruments under MiFID or are not applicable within the context of DLT assets.

The Discussion paper is proposing as a requirement that the Test and respective determination be confirmed by an external reviewer.

The MFSA is welcoming feedback from the industry till 4 May 2018 before proceeding to issue the final Financial Instruments Test.


This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.

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