MFSA’s Christopher P. Buttigieg, Christos Efthymiopoulos, Abigail Attard and Samantha Cuyle have teamed up to examine the framework for the regulation of crypto assets in Malta, in a paper published in the Law and Financial Markets Review last September.

In recent years, crypto assets have gained popularity, with the regulation and supervision of this sector being a point of discussion in numerous jurisdictions and international fora. Crypto assets present additional money laundering (‘ML’) and funding of terrorism (‘FT’) risks due to their pseudonymous, or in some instances even anonymous, nature. These risks, along with the measures which are being taken to address them through the Maltese Virtual Financial Assets (‘VFA’) Framework, are outlined in detail in the paper.

The VFA Framework offers a legislative and regulatory framework which governs VFA Agents, Issuers of VFAs and VFA Service Providers. The framework lays down a plethora of requirements which aim to achieve both prudential and AML/CFT compliance within the industry. Furthermore, the Prevention of Money Laundering and Funding of Terrorism Regulations (S.L. 373.01) have been amended to ensure that the above-mentioned parties fall within the definitional perimeter of ‘subject persons’ for the purpose of AML/CFT legislation. The way the framework has been structured allows for multiple lines of defence to exist.

Apart from the VFA Framework, other measures which have been taken by the MFSA to combat ML/FT have also been outlined in the paper. These measures include the signing of an updated Memorandum of Understanding with the Financial Intelligence Analysis Unit (FIAU), as well as the establishment of an AML Committee and a Financial Crime Compliance Function within the MFSA structure in order to place a higher focus on AML/CFT supervision. Furthermore, the Authority is investing in various RegTech and SupTech solutions with the aim of automating due diligence procedures.

The paper also critically examines the VFA Framework vis-à-vis the EU’s Fifth Anti-Money Laundering Directive. More importantly, the analysis shows how the framework goes above and beyond the requirements set out in the Directive to provide a more robust and comprehensive framework towards mitigating ML/FT risks posed by this nascent industry. Furthermore, due to the cross-border nature of these risks, the paper also touches upon other actions being taken at an EU level, with further recommendations being set forth in this regard.

Access to the full paper is available here.