VIRTUAL FINANCIAL ASSETS REGULATIONS

SUBSIDIARY LEGISLATION 590.01

VIRTUAL FINANCIAL ASSETS REGULATIONS

1st November, 2018

LEGAL NOTICE 357 of 2018, as amended by Legal Notice 25 and 332 of

2022 and 134 and 296 of 2024.

Part I

Preliminary

The title of these regulations is the Virtual Financial

Assets Regulations.

(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 of

registration

the certificate of compliance

(b)

VFA agent

Appointed in

12,000

12,000

terms of article 7

of the Act



Appointed in

10,000

10,000

terms of article

14 of the Act



Appointed in

15,000

15,000

terms of both

articles 7 and 14

of the Act

(c)

Licences

VFAA Class 1

6,000

For revenue

5,500

up to €50,000

Further tranches

700 per

of €50,000 up to

tranche or

a maximum of

part thereof

€1,000,000

VFAA Class 2

10,000

For revenue up

9,000

to €250,000

Further tranches

800 per

of €250,000 up

tranche or

to a maximum of

part thereof

€5,000,000

VFAA Class 3

14,000

For revenue up

12,000

to €250,000

Further tranches

800 per

of €250,000 up

tranche or

to a maximum of

part thereof

€50,000,000

VIRTUAL FINANCIAL ASSETS

VFAA Class 4

24,000

For revenue

up to

50,000

€1,000,000

Further tranches

of €1,000,000

5,000 per

up to a

tranche or

maximum of

part thereof

€100,000,000

(1)

In these regulations, unless the context otherwise

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 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

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

to two weeks of the coming into force of the Act

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 the purposes of the requirement for a licence for VFA services in

terms 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

VIRTUAL FINANCIAL ASSETS

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;

(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; and

(p)

the Asset Recovery Bureau in the course of and

for the purpose of its functions as delineated in the Proceeds of

Crime Act.

(2)

The exemptions laid down in paragraphs (d), (e), (f), (g)

and (o) of sub-regulation (1) 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

Provided further that the applicability of the exemption

laid down in sub-regulation (1)(d) shall be automatically operative in

the case of a natural person

Provided further that any person who intends to benefit

from the exemptions laid down under paragraphs (d) or (e) of sub-

regulation (1) shall, when requesting a determination in writing from

the competent authority, provide a written declaration to the competent

authority which shall include a statement on the level of activity which

that person plans to conduct, whether such person will be engaging

employees to carry out such activity, the business model and the

identification details and address of every ultimate beneficial owner

Provided further that, following the determination in

writing from the competent authority, any person benefiting from the

exemptions laid down under paragraphs (d) or (e) of sub-regulation (1)

shall submit to the competent authority a written declaration, at the

end of each calendar year, which shall include the following

information

(a)

a statement on the level of activity carried out

during the preceding year, which activity would

have been licensable had that person not been

exempt;

(b)

whether such person engages employees to carry

out such activity and, if applicable, the number of

employees engaged; and

(c)

a confirmation that, from the date on which such

person obtained a determination in writing from the

competent authority in terms of this sub-regulation,

there were no changes to the business model and to

the information provided to the competent

authority on the ultimate beneficial owners.

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

(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.

Licence holders shall, upon the submission of the annual

audited financial statements, pay to the competent authority 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.

(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.

Without prejudice to regulations 7, 27 and 28, none of

the fees established and due in terms of these regulations shall be

refundable, nor shall they be prorated.

Part IV

Control of Assets

(1)

A subject person having the control of assets

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

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

interest of the client.

(2)

Notwithstanding anything stated in article 1894 of the

Civil 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

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

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

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

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

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

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

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

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

opened with a third party

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

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

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

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 and duties under regulation 14 to another subject person

which is qualified and competent to take the control of clients’ assets;

and may place, entrust or deposit all or part of a client’s assets held

under 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 and Appeals

(1)

Where a person falling within the scope of these

regulations fails to comply with any provisions of such regulations or

any rules issued thereunder further implementing such regulations, the

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.

Part VI

Transitory Provisions

Any person, who on the date of the coming into force of

the Virtual Financial Assets (Amendment) Regulations, 2022 is

carrying out an activity in terms of paragraphs (d) or (e) of regulation

4(1), shall within one month from the date of coming into force of the

Virtual Financial Assets (Amendment) Regulations, 2021, seek a

determination in writing from the competent authority in terms of

regulation 4(2) and provide the competent authority with the following

information

(a)

a description of the business model;

(b)

a statement on the level of activity which that

person plans to conduct and the level of activity carried out

during the preceding year, which activity would have been

licensable had that person not been exempt;

(c)

a statement on whether such person engages or

will be engaging employees to carry out such activity and the

number of employees such person has engaged and, or plans to

engage, if applicable; and

(d)

the identification details and address of the ultimate

beneficial owners.

Any person who, on the date of the coming into force of

the Virtual Financial Assets (Amendment) Regulations, 2024 is

registered with the competent authority to exercise the functions of a

VFA agent under articles 7 and, or 14 of the Virtual Financial Assets

Act as applicable prior to 16th April 2024, shall upon the coming into

force of the said Virtual Financial Assets (Amendment) Regulations,

2024 be entitled to a pro rata refund of the annual supervisory fee

established in the Third Column of the Schedule.

(1)

The provisions of regulation 6 shall cease to have

effect

(a)

as of 30 June 2024 with respect to the submission

of white papers relating to e-money tokens and asset-referenced

tokens for registration by the competent authority;

(b)

as of 31 July 2024 with respect to the submission of

white papers relating to virtual financial assets for registration by

the competent authority; and

(c)

as of 31 July 2024 with respect to applications

submitted to the competent authority for a licence to provide one

or more VFA services.

(2)

The supervisory fee due in relation to white papers

registered by the competent authority, as established in the Third

Column of the Schedule, shall no longer be due

(a)

as of 30 June 2024 with respect to such white

papers relating to e-money tokens and asset-referenced tokens;

and

(b)

as of 30 December 2024 with respect to such white

papers relating to virtual financial assets.

(3)

Notwithstanding the provisions of regulation 7, the

provisions of the said regulation shall not apply to licence holders

when their licence is cancelled in accordance with article 66(2) of the

Act.

(4)

Upon the cancellation of a licence in accordance with

article 66(2) of the Act, the licence holder shall be entitled to a pro-rata

refund of the applicable annual supervisory fee, as established in the

Third Column of the Schedule, for that year.

(5)

Upon the deregistration of a white paper relating to an e-

money token in accordance with article 65(3) of the Act, that issuer of

such e-money token shall be entitled to a pro-rata refund of the

applicable annual supervisory fee, as established in the Third Column

of the Schedule, for that year.

(6)

Upon the deregistration of a white paper relating to a

VIRTUAL FINANCIAL ASSETS

virtual financial asset in accordance with article 65(4) of the Act, that

issuer of such virtual financial asset shall be entitled to a pro-rata

refund of the applicable annual supervisory fee, as established in the

Third Column of the Schedule, for that year.

(7)

For the purposes of this regulation

(a)

"asset-referenced tokens" shall have the same

meaning as that assigned to it in point (6) of Article 3(1) of the

MiCA Regulation;

(b)

"e-money tokens" shall have the same meaning as

that assigned to it in point (7) of Article 3(1) of the MiCA

Regulation;

(c)

"MiCA Regulation" means Regulation (EU) 2023/

1114 of the European Parliament and of the Council of 31 May

2023 on markets in crypto-assets, and amending Regulations

(EU) No 1093/2010 and (EU) No 1095/2010 and Directives

2013/36/EU and (EU) 2019/1937, as may be amended from

time to time, and includes any binding legal instruments,

guidelines and other measures that may have been or may be

issued thereunder; and

(d)

"virtual financial assets" means any form of

digital medium recordation that is used as a digital medium of

exchange, unit of account, or store of value and that is not

(i)

electronic money;

(ii)

a financial instrument;

(iii)

a virtual token;

(iv)

an e-money token; or

(v)

an asset-referenced token.

The provisions of regulation 4 shall cease to have effect

as of 30 December 2024.

VIRTUAL FINANCIAL ASSETS