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MALTA: Cryptocurrency Fraud Prevention Efforts on Full Display as MFSA Sets High Standard for Sector

As the European Union’s MiCA Regulation looms, the Malta Financial Services Authority (MFSA) is solidifying its reputation as a forward-thinking supervisor. The authority’s dedication to creating a safe and compliant crypto ecosystem in Malta is evident through its meticulous approach to regulating the virtual financial assets sector.

Setting High Standards

The MFSA’s commitment to ensuring investor protection, financial market integrity, and financial stability is showcased in its recently published “Nature and Art of Supervision” report. This comprehensive overview highlights the authority’s efforts to regulate a high-risk sector that demands stringent checks and balances.

A Proactive Approach

Malta was one of the first jurisdictions to introduce a framework similar to MiCA - the Virtual Financial Assets Framework - in November 2018. The MFSA devised this framework to promote innovation and new technologies for financial services while ensuring effective investor protection, financial market integrity, and financial stability.

The VFAA: A Filter for Serious Market Players

The Virtual Financial Assets Act (VFAA) has proven to be an effective filter, allowing only serious market players with strong compliance frameworks to operate in the sector. The act’s stringent fitness and properness checks assess reputation, competence, conflicts of interest, independence of mind, and commitment, ensuring that service providers maintain a robust compliance framework.

Valuable Experience and Expertise

The MFSA has gained valuable experience in the past five years, continuously challenging its knowledge and understanding of the industry. This expertise will be crucial as Malta prepares to transition to the MiCA Regulation, which is set to replace the current VFA framework.

Key Milestones Achieved

Milestones have been achieved since the inception of the VFAA in November 2018:

  • As of June 30, 2023, the authority has received 32 applications for Virtual Financial Assets Service Provider licenses, with 15 authorized, 14 withdrawn or refused, and three still in process.
  • The MFSA conducted 140 supervisory engagements between 2021 and 2022, including inspections, thematic assessments, and AML/CTF examinations.

Proactive Supervision and Enforcement Measures

The MFSA’s oversight extends beyond authorizations, encompassing proactive supervision and stringent enforcement measures:

  • The authority issued six administrative measures or penalties, took two enforcement actions in relation to unauthorized activity, and issued 71 warnings.
  • The MFSA has extensive collaboration with national and international bodies, including the Financial Intelligence Analysis Unit (FIAU) and the National Coordinating Committee on Combating Money Laundering and Funding of Terrorism (NCC).

Public Outreach

The “Nature and Art of Supervision” publication also highlights the MFSA’s focus on public outreach, aiming to increase consumer awareness about the risks and benefits associated with investing in crypto assets. The authority recently embarked on a comprehensive consumer outreach campaign featuring online resources aimed at fostering a balance between prudence and confidence.

Conclusion

By empowering consumers and ensuring a compliant ecosystem, the MFSA is fortifying both regulatory integrity and consumer well-being in Malta’s crypto landscape. As the authority continues to regulate the sector, its commitment to creating a secure, compliant, and consumer-centric crypto landscape under MiCA Regulation remains unwavering.