Virtual Financial Assets Regulations, 2018

Suppliment tal-Gazzetta tal-Gvern ta’ Malta Nru. 20,082, 2 ta’ Novembru, 2018

L.N. 357 of 2018

VIRTUAL FINANCIAL ASSETS ACT

(CAP. 590)

Virtual Financial Assets Regulations, 2018

IN EXERCISE of the powers conferred by article 38 of the

Virtual Financial Assets Act, the Minister responsible for the

regulation of Financial Services, acting on the advice of the Malta

Financial Services Authority, has made the following regulations

Part I

Preliminary

(1) The title of these regulations is the Virtual Financial Title and

commencement.

Assets Regulations, 2018.

(2) These regulations shall come into force on the 1st

November 2018.

(Regulations 6 and 7)

Fees

First Column

Second Column

Third Column

Application/

Supervisory

Notification Fee

Fee

€

€

(a)

Whitepaper

8,000

2,000 upon the submission

registration

of the certificate of

compliance

(b)

VFA agent

Appointed in terms

12,000

12,000

of article 7 of the

Act

Appointed in terms

10,000

10,000

of article 14 of the

Act

Appointed in terms

15,000

15,000

of both articles 7

and 14 of the Act

(c)

Licences

VFAA Class 1

6,000

For revenue

up to

5,500

€50,000

Further

700 per

tranches of

tranche or

€50,000 up to

part thereof

a maximum of

€1,000,000

VFAA Class 2

10,000

For revenue

up to

9,000

€250,000

Further

800 per

tranches of

tranche or

€250,000 up to

part thereof

a maximum of

€5,000,000

VFAA Class 3

14,000

For revenue

up to

12,000

€250,000

Further

800 per

tranches of

tranche or

€250,000 up to

part thereof

a maximum of

€50,000,000

VFAA Class 4

24,000

For revenue

up to

50,000

€1,000,000

Further

tranches of

€1,000,000 up 5,000 per

to a maximum tranche or

of

part thereof

€100,000,000

€0.90

(1)

In these regulations, unless the context otherwise Interpretation.

requires –

"the Act" means the Virtual Financial Assets Act;

"assets" means movable and immovable property of any

kind and excludes financial instruments as defined in the Second

Schedule to the Investment Services Act, whether issued in Cap. 370.

Malta or not;

"collective investment scheme" shall have the same

meaning assigned to it under the Investment Services Act;

"competent authority" means the Malta Financial Services

Authority established by the Malta Financial Services Authority Cap. 330.

Act;

"control of assets" means the holding or control of assets

belonging to, or on behalf of a client, by a subject person acting

in the course of rendering a VFA service under the Act, and

includes custody of assets

Provided that, for the purposes of these regulations,

the terms "hold", "control", " "place", "safeguard" and "deposit"

shall be deemed to encompass custody services provided in

relation to virtual financial assets, and shall extend to any

physical or digital representation of such assets or to a right to

transact such assets or any physical or electronic device, keys,

codes or any other information which gives the custodian control

or access to such virtual financial assets, including private

cryptographic keys belonging to the client;

"client" means any natural or legal person to whom a VFA

service is provided, and shall include any person whose assets

are held under the control of a subject person;

"credit institution" shall have the same meaning assigned to

it under the Banking Act;

"custodian" means a licence holder in possession of a

Category 4a or 4b investment services licence, as the context

requires, issued in terms of the Investment Services Act;

"Directive 2013/36/EU" means Directive 2013/36/EU of

the European Parliament and of the Council of 26 June 2013 on

access to the activity of credit institutions and the prudential

supervision of credit institutions and investment firms, as

amended from time to time and includes any implementing

measures that have been or may be issued thereunder;

"electronic money institution" shall have the same meaning

as assigned to it under the Financial Institutions Act;

"market maker" means a person who holds himself out, on

a continuous basis, as being willing to deal on own account by

buying and selling virtual financial assets against that person’s

proprietary capital at prices defined by that person;

"money market fund" means a money market fund

authorised under Regulation (EU) 2017/1131;

"payment institution" shall have the same meaning

assigned to it under the Financial Institutions Act;

"Regulation (EU) 2017/1131" means Regulation (EU)

2017/1131 of the European Parliament and of the Council of 14

June 2017 on money market funds;

"revenue" means the net revenue which shall be calculated

in the following manner: the gross revenue indicated in the

annual audited financial statements and that is derived from

activities for which a licence was issued in terms of article 13 of

the Act, less any commissions, where applicable, that are directly

related to the acquisition of the said gross revenue, paid or

payable to third parties;

"subject person" means a person who is in possession of a

licence under the Act or is acting under an exemption from the

requirement of such a licence in terms of these regulations;

"third country" means a country which is not a Member

State or an EEA State;

"written consent" means any freely given, specific,

informed and unambiguous consent that is clearly evidenced in

writing and affirmatively executed by signature or equivalent

means of irrevocable and duly recorded, including by digital

means, expression of consent.

(2) Words and expressions used in these regulations which are

also used in the Act but which are not defined herein shall have the

same meaning as in the Act.

Part II

Exemptions

The provisions of article 3 of the Act shall not apply to any Exemption from

person who has commenced an offering in terms of article 3 prior to drawing

registering a

two weeks of the coming into force of the Act

whitepaper.

Provided that the exemption laid down in this regulation

shall only apply to those persons whose offering will continue until not

later than the 31 January 2019

Provided further that persons whose offering will continue

after the 31st January 2019, shall, by not later than the said date, draw

up a whitepaper and register it with the competent authority in terms of

article 3 of the Act.

(1) The following persons are hereby being exempted for Exemption from

the purposes of the requirement for a licence for VFA services in terms licensing.

of article 13 of the Act

(a) the Central Bank of Malta and the members of the

European System of Central Banks (ESCB) and other national

bodies performing similar functions in the European Union,

other public bodies charged with or intervening in the

management of the public debt in the European Union and

international financial institutions established by two or more

Member States which have the purpose of mobilizing funding

and providing financial assistance to the benefit of their

members that are experiencing or threatened by severe financing

problems;

(b) the competent authority and any person who is

appointed thereby in the course and for the purpose of its

regulatory and supervisory functions;

(c) a liquidator or a curator in bankruptcy acting in the

course of the liquidation or bankruptcy;

(d) persons dealing on own account in terms of the Act

and not providing any other VFA services or performing any

other activities in virtual financial assets unless such persons

(i)

are market makers; or

(ii)

deal on own account when executing client

orders

Provided that persons exempt under paragraphs

(f), (g) and (n) are not required to meet the conditions laid

down in this point in order to be exempt

Provided further that for the purposes of this

exemption, dealing on own account shall mean the trading

by a person in his own name and against proprietary capital

resulting in conclusion of transactions in one or more

virtual financial assets.

(e) persons who provide VFA services exclusively for

their parent companies, for their subsidiaries or for other

subsidiaries of their parent undertakings;

(f) a person licensed in terms of paragraph 5(c) of the

First Schedule to the Investment Services Act to act as custodian

in relation to a collective investment scheme or holding an

equivalent authorisation issued by a European regulatory

authority providing services in Malta in exercise of a European

right

Provided that such person shall solely be exempt

from the provisions of the Act for the purposes of providing the

VFA service listed in paragraph 5 of the Second Schedule to the

Act to a collective investment scheme;

(g) A person licensed to provide the services of

management of investments in terms of paragraph (4) of the First

Schedule to the Investment Services Act to a collective

investment scheme or holding an equivalent authorisation issued

by a European regulatory authority providing services in Malta

in exercise of a European right

Provided that such person shall solely be exempt

from the provisions of the Act for the purposes of providing the

VFA services listed in paragraphs 4 and, or 6 of the Second

Schedule to the Act to a collective investment scheme;

(h) a person, being an individual, who manages assets, in

terms of paragraph 4 of the Second Schedule to the Act, in

relation to a portfolio which includes virtual financial assets, for

his spouse, descendants and ascendants in the direct line and

their relative spouses, or his brothers and sisters, as long as such

portfolio is owned by the person to whom such services are

provided and does not constitute a collective investment scheme,

and as long as the person providing the service does not do any

of the following

(i) receive, directly or indirectly, any remuneration

or other benefit for the service;

(ii)

hold himself out as providing a VFA service; or

(iii) solicit members of the public to take such

services;

(i) a person who acts as manager, in terms of paragraph 4

of the Second Schedule to the Act, of a portfolio which includes

virtual financial assets belonging to him and to no other person,

as long as

(i) such portfolio has not been established for

investment purposes in the interest of other beneficiaries

where such interest is legally enforceable; and

(ii) such portfolio does not constitute a collective

investment scheme;

(j) a person providing a VFA service where that service

is provided in an incidental manner in the course of a

professional activity and that activity is regulated by legal or

regulatory provisions or a code of ethics governing the

profession which do not exclude the provision of that service

Provided that for the purposes of this paragraph, a

service shall be deemed to be provided in an incidental manner

in the course of a professional activity if the person providing

such a service does not

(i) receive, directly or indirectly, any remuneration

or other benefit for the service;

(ii)

hold himself out as providing a VFA service; or

(iii) solicit members of the public to take such

services;

(k) a person providing investment advice in terms of

paragraph 6 of the Second Schedule to the Act, in the course of

providing another professional activity not covered by the Act,

provided that the provision of such advice is not specifically

remunerated;

(l) supranational institutions, such as the European

Central Bank, the European Investment Bank, the European

Investment Fund, the European Development Finance

Institutions and bilateral development banks, the World Bank,

the International Monetary Fund and other supranational

institutions and similar international organisations, in the event

that such institutions or organisations manage collective

investment schemes and in so far as those collective schemes act

in the public interest;

(m) securitisation special purpose entities;

(n) collective investment schemes licensed under the

Investment Services Act or otherwise authorised by a European

regulatory authority, providing services in Malta in exercise of a

European right; and

(o) a person providing custodian or nominee services in

terms of paragraph 5 of the Second Schedule to the Act who is

authorised in terms of article 43(3) of the Trusts and Trustees Act

to act as a trustee, provided that such person does not provide

any other service in terms of the Second Schedule to the Act.

(2) The exemptions laid down in paragraphs (d), (f), (g) and (o)

shall not be automatically operative but their applicability shall be

subject to the determination in writing by the competent authority

Provided that the applicability of the exemption laid down

in paragraph (o) shall not exempt such person from satisfying any

regulations, rules or authorisation conditions issued by the Authority

that such person must satisfy to carry out the service set out in

paragraph 5 to the Second Schedule to the Act.

(3)

Any person who intends to apply any of the exemptions

laid down in paragraph (e) shall notify the authority thereof, prior to

the application of such an exemption.

The provisions of article 29 of the Act shall not apply to

Exemption from

the requirement

of article 29.

(a)

any advertisement issued or caused to be issued by

(i)

the Government of Malta; or

(ii)

the Central Bank of Malta; or

(iii) any international organization the members of

which include Malta;

(b) any advertisement issued or caused to be issued by

any person who is under these regulations exempt from the

requirement of a licence, provided that the advertisement strictly

relates to matters in respect of which such person is exempt;

(c) any advertisement issued or caused to be issued

solely to

(i)

licence holders; or

(ii) a person whose ordinary business involves the

acquisition and disposal of virtual financial assets; or

(iii) a person who is acting under an exemption from

the requirement of a licence under these regulations

provided that the advertisement relates to matters in respect

of which such person is exempt;

(d) any advertisement contained in a publication

published and circulated principally outside Malta, or in a sound

or television broadcast transmitted principally for reception

outside Malta, or any other communication using any other

medium, originating outside Malta, unless the advertisement is

directed to persons in Malta, or is otherwise intended to be made

available to persons in Malta not being persons falling within the

scope of paragraph (b) of this regulation

Provided that the exemption described in this

regulation shall not apply where the advertisement is issued,

broadcast or transmitted by

(i)

a licence holder; or

(ii)

a licence holder in exercise of a European right

within the meaning of article 2, and subject to the

provisions of article 60 of the Act.

Part III

Fees

Any person shall, upon submission of a whitepaper for

registration or upon submission of an application for the granting of a

registration, a licence or any other kind of authorisation, irrespective

of whether the whitepaper is registered or whether the application is

eventually accepted or not, pay to the competent authority the

respective fee as established in the Second Column of the Schedule.

There shall be paid to the competent authority the

following annual supervisory fees, as applicable

(a) licence holders shall, upon the submission of the

annual audited financial statements, pay an annual supervisory

fee as established in the Third Column of the Schedule

Provided that the first annual supervisory fee shall be

due immediately once a licence is granted and, where applicable,

shall be equal to a proportion of the minimum fee. The first

annual supervisory fee payable shall be proportionate to the

period remaining between the date of the granting of the licence

and the established date for the submission of the annual audited

financial statements;

(b) VFA agents shall, upon the anniversary of the date of

the granting of registration, pay the annual supervisory fee

established in the Third Column of the Schedule

Provided that the first annual supervisory fee shall be

due immediately once an authorisation is granted.

(1) A person applying for a licence in terms of article 13

of the Act shall be classified at the discretion of the competent

authority into one of the four categories which determine the

requirements of licence holders as follows

VFAA Class 1

Licence holders authorised to receive and transmit

orders and/ or provide investment advice in relation

to one or more virtual financial assets and/ or the

placing of virtual financial assets. Class 1 Licence

Holders are not authorised to hold or control clients’

assets or money.

VFAA Class 2

Licence holders authorised to provide any VFA

service but not to operate a VFA exchange or deal

for their own account. Class 2 Licence Holders may

hold or control clients’ assets or money in

conjunction with the provision of a VFA Service.

VFAA Class 3

Licence holders authorised to provide any VFA

service but not to operate a VFA exchange. Class 3

Licence Holders may hold or control clients’ assets

or money in conjunction with the provision of a

VFA Service.

VFAA Class 4

Licence holders authorised to provide any VFA

service. Class 4 Licence Holders may hold or

control clients’ assets or money in conjunction with

the provision of a VFA Service.

(2) The competent authority shall set out in the licence the

nature of the activities which particular licence holders may carry out.

None of the fees established and due in terms of these Non-refundable

regulations shall be refundable. Nor shall they be prorated, other than or prorated fees.

the first annual supervisory fee as established in regulation 7.

Part IV

Control of Assets

(1) A subject person having the control of assets Assets held

belonging to a client in the course of rendering a VFA service to such under

client, shall hold such assets solely for and on behalf of and in the distinct

interest of the client.

(2) Notwithstanding anything stated in article 1894 of the Civil Cap. 16.

Code or in the agreement entered into between the subject person and

the client or the fact that a client’s assets held under the control of a

subject person are registered in the name and title of or are otherwise

vested in the subject person, such assets shall be deemed to constitute a

distinct patrimony, separate from that belonging to the subject person

and from that of other clients the assets of whom are also held under

the control of the subject person.

(3) Except as expressly provided in the agreement entered into

between the subject person and the client and notwithstanding the

provisions of the Civil Code, the control of assets belonging to a client Cap. 16.

by a subject person shall not give or be deemed or construed to give to

the subject person any rights over such assets nor shall it create any

form of loan between the subject person and the client and this

notwithstanding the nature of the assets or the rights or obligations of

the subject person in relation to the assets.

(1) A client whose assets are held under the control of a

subject person enjoys a right of ownership in such assets

notwithstanding that they may be registered in the name and title of or

are otherwise vested in the subject person. Where such assets are held

by the subject person as part of a common pool of identical assets or

are otherwise held in a clients’ or common account, the client shall

have an undivided share in ownership of all the assets held collectively

by the subject person in such a pool or account.

(2) The records, accounts and other statements held or issued

by the subject person in terms of regulation 14(3) shall, saving any

proof to the contrary, constitute evidence of their contents and of the

right of ownership of the client as provided in sub-regulation (1).

(1) The creditors of a subject person shall have no claim

or right of action on or against the assets held under the control of the

subject person for and on behalf of and in the interest of any client and

such assets shall not be affected in any manner by the provisions of

laws and regulations in force regulating the insolvency or bankruptcy

of the subject person.

(2) In the event of any such insolvency or bankruptcy or

related order or resolution, or in the event that the competent authority

so requires, the subject person or any administrator or receiver or other

officer appointed to represent it by any court or otherwise, shall on

demand of any client or of the competent authority, immediately

transfer the control, possession and title to all assets held by or in the

name of the subject person on behalf of the client to another subject

person or to such other person as may be instructed by the client or by

the competent authority.

(3) In the event that any assets held under the control of the

subject person are, at the request of any creditor of the subject person,

made subject to any precautionary or executive act or warrant granted

by any Court in terms of the Code of Organization and Civil

Procedure, the client on whose behalf such assets are being held or the

competent authority may, by application to the Court, request the

release of the assets from such act or warrant and the Court shall, on

the production of evidence as it may deem fit, accede to the application

without undue delay.

(4)

Security interests, liens or rights of set-off over assets

belonging to a client and enabling a third party to dispose of the

client’s assets in order to recover debts that do not relate to the client

or provision of services to the client are not permitted except where

this is required by the applicable law in a third country jurisdiction in

which the assets belonging to the client are held.

(5) Where a subject person is obliged to enter into agreements

that create such security interests, liens or rights of set-off, it shall

disclose that information to clients indicating to them the risks

associated with those arrangements.

(6) Where security interests, liens or rights of set-off are

granted by the subject person over assets belonging to the client, or

where the subject person has been informed that they are granted,

these shall be recorded in the client’s contracts and the subject person’s

own accounts to make the ownership status of the client’s assets clear,

such as in the event of an insolvency.

(1) The delivery of the assets of a client to a subject Applicability of

person and from a subject person to a client or another subject person Duty

Documents and

for the purpose of the control of assets in terms of these regulations Transfers

Income Tax Act.

shall not be deemed to constitute a chargeable transfer for the purposes

of the Duty on Documents and Transfers Act and for the purposes of Cap.364.

article 5(1) of the Income Tax Act, where the delivery of such assets Cap.123.

does not constitute a change in the beneficial owner of the assets.

(2) For the purpose of this regulation, beneficial owner means

a person who is the real owner of, or who is otherwise beneficially

entitled to, the assets held under control by the subject person, as is

provided in regulation 11.

(1) A subject person having the control of assets Functions and

belonging to a client shall safeguard such assets and the interest of the duties

subject person.

client therein.

(2) The subject person shall carry out such functions and duties

as shall be required in accordance with these regulations, the terms and

conditions of the agreement entered into with the client, the conditions

of any licence, and such other requirements as may be laid down by

the competent authority.

(3) The subject person shall maintain proper and adequate

records and accounts of all clients’ assets held under control.

The records and accounts shall identify the clients to whom such

assets belong and shall clearly indicate that the assets of every client

are separate and distinct from the assets belonging to the subject

person and from other clients' assets held by the subject person. The

records and accounts shall, upon due notice being given to the subject

person, indicate where any pledge or other right over assets held under

the control of the subject person has been given by the clients to any

third parties, and where any order by any Court has been made in

connection with such assets.

(4) The subject person shall maintain accurate records and

accounts in a way that ensures accuracy, and in particular their

correspondence to the virtual financial assets and money held for the

clients and that they may be used as an audit trail.

(5) The subject person shall conduct, on a regular basis,

reconciliations between its records and accounts and those of any third

parties with whom client’s virtual financial assets and money have

been deposited in accordance with regulations 15 and 16.

(6) The subject person entrusted with the control of assets

belonging to clients shall, to every extent reasonably possible,

segregate in a proper manner the assets of every client from the assets

belonging to the subject person and from the assets of other clients

Provided that the subject person may, with the written

consent of the client and in accordance with the terms and conditions

of the agreement entered into with the client, the conditions of any

licence and such other requirements as may be laid down by the

competent authority and without prejudice to the client's right of

ownership over the assets held under control, place and keep such

assets in a common pool of identical assets or otherwise deposit them

in a clients’ or common account.

(7) The subject person shall make appropriate arrangements for

the protection of clients' assets held under control and shall ensure that

such assets are placed under adequate systems to safeguard such assets

from damage, misappropriation or other loss and which permit the

delivery of such assets only in accordance with the terms and

conditions of the agreement entered into with the client.

(8) Where it is not reasonably possible for the subject person to

carry out any of the duties specified in this regulation due to the nature

of the assets and of the arrangements whereby control is exercised, the

said duties may be varied with the written consent of the client and in

accordance with the terms and conditions of the agreement entered

into with the client, the conditions of any licence and such other

requirements as may be laid down by the competent authority.

(9) The subject person shall take the necessary steps to ensure

that any client’s virtual financial assets deposited with a third party in

accordance with regulation 15 are identifiable separately from the

virtual financial assets belonging to the subject person and from the

virtual financial assets belonging to that third party, by means of

differently titled accounts on the books of the third party or other

equivalent measures that achieve the same level of protection.

(10) The subject person shall take the necessary steps to ensure

that the money belonging to the client held in accordance with

regulation 16 with a central bank, a credit institution or a bank

authorised in a third country, a money market fund, electronic money

institution or a payment institution, are held in an account or accounts

separately identifiable from any accounts used to hold money

belonging to the subject person.

(11) The subject person shall implement adequate

organizational arrangements to minimise the risk of the loss or

diminution of assets belonging to the client, or of rights in connection

with those assets, as a result of misuse of the assets, fraud, poor

administration, inadequate record-keeping or negligence.

(12) If, for reasons of applicable law, including the law relating

to property or insolvency, a subject person cannot comply with the

provisions of this regulation to safeguard clients’ rights, the subject

person shall implement arrangements to ensure that clients’ assets are

safeguarded to meet the objectives outlined in this regulation.

(13) The competent authority may issue rules providing

requirements which have an equivalent effect in terms of safeguarding

clients’ rights if the applicable law of the jurisdiction in which the

assets belonging to the client are held prevents the subject persons

from complying with the provisions of this regulation.

(1) A subject person may deposit virtual financial assets Deposit of client

held by it on behalf of its clients into an account or accounts opened virtual

assets with third

with a third party

parties.

Provided that such third party shall

(a) hold either a licence under this Act to provide the

VFA service listed in paragraph 5 of the second Schedule

thereto, or is exempt from licensing under regulation 4(1)(o); or

(b) be constituted in a recognised jurisdiction, provided

that the subject person shall disclose to its clients and to the

Authority, the arrangements that will be put in place to ensure

adequate safekeeping of assets.

(2)

The subject person shall exercise all due skill, care and

diligence in the selection, appointment and periodic review of the third

party and of the arrangements for the holding and safekeeping of those

virtual financial assets.

(3) The subject person shall, in particular, take into account the

expertise and market reputation of the third party as well as any legal

requirements or market practices related to the holding of virtual

financial assets that could adversely affect the rights of its clients.

(1) A subject person shall, on receiving any client money,

promptly place such money with any of the following

(a)

a central bank;

(b) a credit institution authorised in accordance with the

provisions of Directive 2013/36/EU;

(c)

a bank authorised in a third country;

(d)

a money market fund;

(e)

an electronic money institution; or

(f)

a payment institution

Provided that for the purposes of paragraphs (e) and (f),

such money shall only be placed with such institutions for purposes

encompassed by their respective licences under the Financial

Institutions Act.

(2) Where the subject person does not place client money with

a central bank, it shall exercise all due skill, care and diligence in the

selection, appointment and periodic review of the credit institution,

bank, money market fund, electronic money institution or payment

institution where the money is placed and the arrangements for the

holding of such money. The subject person shall furthermore, consider

the need for diversification as part of its due diligence.

(3) Where the subject person places client money in

accordance with sub-regulation (2), it shall, in particular, take into

account the expertise and market reputation of such institutions or

money market funds with a view to ensuring the protection of the

rights of its clients as well as any legal or regulatory requirements or

market practices related to the holding of clients’ money that could

adversely affect such rights.

(4) The subject person shall ensure that clients give their

written consent to the placement of their money in a money market

fund, electronic money institution or payment institution.

(5) Where the subject person places client money with a credit

institution, bank, money market fund, electronic money institution or

payment institution of the same group as the subject person, it shall

limit the money placed with any such group, entity or combination of

any such group entities so that money does not exceed 20% of all such

monies.

(6) The requirement prescribed in sub-regulation (5) can be

waived by the competent authority where the subject person is able to

demonstrate that, in view of the nature, scale and complexity of its

business, and also the safety offered by the third parties considered in

sub-regulation (5) and including in any case the small balance of client

money the subject person holds, the requirement prescribed in sub-

regulation (5) is not proportionate.

(7) The subject person shall periodically review the assessment

made in accordance with sub-regulation (6) and shall notify the initial

and reviewed assessments to the competent authority.

(1) A subject person shall not use virtual financial assets Use of client

which it holds on behalf of a client for its own account or for the virtual

assets.

account of any other person or client of the subject person, unless both

of the following conditions are met

(a) the client has given his prior written consent to the

use of the virtual financial assets on specified terms; and

(b) the use of that client’s virtual financial assets is

restricted to the specific terms to which the client consents.

(2) The records of the subject person shall include details of

each client on whose instructions the use of virtual financial assets has

been affected as well as the number of virtual financial assets

belonging to each client who has given his consent, so as to enable the

correct allocation of any loss.

(3) The subject person shall take appropriate measures to

prevent the unauthorised use of client virtual financial assets for its

own account or the account of any other person.

(4) The subject person shall adopt specific arrangements for all

clients to ensure that the borrower of client virtual financial assets

provides the appropriate collateral.

(5) The subject person shall monitor the continued

appropriateness of the collateral referred to in sub-regulation (4) and

take the necessary steps to maintain the balance with the value of

client virtual financial assets.

(1) The subject person shall appoint a single officer of

sufficient skill and authority with specific responsibility for matters

relating to the compliance by the subject person with its obligations

regarding the safeguarding of client assets.

(2) The subject persons shall decide whether the appointed

officer is to be dedicated solely to this task or whether the officer can

discharge responsibilities effectively whilst having additional

responsibilities.

(3) The appointed officer shall draw up periodic reports on

compliance by the subject person with its obligations regarding the

safeguarding of client assets. Such reports are to be provided to the

subject person’s board of administration.

The subject person shall ensure that its external auditors

report at least annually to the competent authority on the adequacy of

the subject person’s arrangements under these regulations

Provided that this information shall form an integral part of

the report which is to be submitted annually to the competent authority

in terms of article 50(6) of the Act.

(1) The subject person shall make information pertaining

to clients’ assets readily available to the following entities

(a)

the competent authority;

(b)

an auditor appointed in terms of article 50 of the Act;

and

(c)

appointed insolvency practitioners.

(2) The information to be made available in terms of sub-

regulation (1) shall include the following

(a) related internal accounts and records that readily

identify the balances of assets held for each client;

(b) where client money is held by the subject person in

accordance with regulation 16, as well as details of the accounts

where client money is held and the relevant agreements with

those entities;

(c) where virtual financial assets are held by the subject

person in accordance with regulation 15, as well as details of

accounts opened with third parties and the relevant agreements

with those entities;

(d) details of third parties carrying out any related

outsourced tasks and details of any outsourced tasks;

(e) key individuals of the subject person involved in

related processes, including those responsible for oversight of

the subject person’s requirements in relation to the safeguarding

of client assets; and

(f) agreements relevant to establish client ownership

over assets.

(1) A subject person having the control of assets Liability of the

belonging to clients shall be liable for any loss or prejudice suffered by subject person.

the clients due to the subject person’s fraud, wilful default or

negligence including the unjustifiable failure to perform in whole or in

part the subject person’s obligations arising under these regulations,

the terms and conditions of the agreement entered into with the clients,

the conditions of any licence or such other requirements as may be laid

down by the competent authority.

(2) For the purposes of this regulation, subject person includes

such other subject person to whom functions, duties or assets may be

delegated or entrusted in terms of regulation 22.

(1) A subject person may delegate part of the functions Subject person

and duties under regulation 14 to another subject person which is may

functions and

qualified and competent to take the control of clients’ assets; and may duties to entrust

assets to another

place, entrust or deposit all or part of a client’s assets held under subject person.

control with such other subject person.

(2) The liability of the subject person for its own acts or

omissions shall not be affected or reduced as a result of the subject

person delegating functions and duties, or entrusting all or part of the

assets belonging to a client, to another subject person.

(3) Where the subject person delegates or entrusts functions,

duties or assets in terms of sub-regulation (1) to a person which is a

group company, without prejudice to the liability of such person, the

subject person shall be liable for any loss or prejudice suffered by the

clients as a result of the acts, omissions or insolvency of such person.

(4) Where the subject person delegates or entrusts functions,

duties or assets in terms of sub-regulation (1) to a person which is not a

group company, without prejudice to the liability of such person, the

subject person shall be liable for any loss or prejudice suffered by the

clients as a result of the acts or omissions of such person unless the

subject person can prove that such person was and remains qualified

and competent to carry out the functions and duties delegated and that

the subject person exercised reasonable care to oversee that the

functions and duties delegated were undertaken by such person

competently.

(5) The liability of the subject person under sub-regulations (3)

and (4) may be varied or reduced with the written consent of the client

and in accordance with the terms and conditions of the agreement

entered into with the client, the conditions of any licence and such

other requirements as may be laid down by the competent authority

Provided that the subject person discloses fully to the client

any risks that may be associated with the nature of the arrangements

whereby control is to be exercised and that the agreement with the

client shall clearly define the extent of liability of the subject person.

(6) Where the subject person delegates or entrusts functions,

duties or assets in accordance with specific written instructions from

the client, the subject person shall not be liable for any loss or

prejudice suffered by that client as a result of the acts or omissions of

the person to whom functions, duties or assets are delegated or

entrusted as requested by the client.

(7) For the purposes of this regulation, "group company" in

relation to a subject person means any body corporate which is the

subject person’s subsidiary or parent company or a subsidiary of the

subject person’s parent company, and the terms "parent" and

"subsidiary" shall be construed in accordance with article 2(2) of the

Companies Act.

The subject person shall have the right to charge fees to the

client and to be reimbursed for expenses in accordance with the terms

and conditions of the agreement entered into with the client. The

subject person may, if authorised to do so by the terms and conditions

of the said agreement, exercise a right of retention over the client’s

assets held under control, to the extent of any lawfully due but unpaid

fees and expenses, until such fees and expenses are paid.

(1) Without prejudice to any requirements as may be laid

down by the competent authority, an agreement for the control of

assets belonging to a client may be terminated by the client, by the

subject person, or by order of the competent authority.

(2) Upon the termination of an agreement for the control of

assets, the subject person shall convey for no consideration the assets

held for the client, as instructed by the client or by the competent

authority, without prejudice to the subject person’s right to payment of

any lawfully due fees or expenses in terms of the agreement entered

into with the client and to any obligations arising in favour of the client

thereunder.

Part V

Administrative Penalties ad Appeals

(1) Where a person falling within the scope of these Administrative

regulations fails to comply with any provisions of such regulations or penalties,

administrative

any rules issued thereunder further implementing such regulations, the measures and

appeals.

competent authority may, by notice in writing and without recourse to

a court hearing, impose on such person an administrative penalty and

other administrative measures in accordance with article 48 of the Act.

(2) A right of appeal to the Financial Services Tribunal shall lie

from the decisions which the competent authority shall take under

these regulations and the provisions of article 51 of the Act shall apply

mutatis mutandis.