Following the positive consultation held last year, the MFSA has now issued new rules aimed at providing a robust regulatory framework that seeks to ensure investor protection, market integrity and financial soundness with regard to collective investment schemes that invest in virtual currencies (VCs).

In order to achieve these objectives, the new Supplementary Conditions introduce specific requirements, both during authorisation stage as well as on an ongoing basis thereafter, necessitating a PIF investing in VCs inter alia to:

Competence – ensure that parties involved have sufficient knowledge and experience in the field of information technology, VCs and their underlying technologies, including but not limited to the distributed ledger technology. Proposed service providers must have business organisation, systems, experience and expertise in these fields.

The governing body of the scheme must at all times have at least one member with sufficient knowledge and experience in these fields.

The members of the governing body must create an overall structure to ensure an adequate division of responsibilities in relation to the Scheme and they must carry out all the necessary checks to satisfy themselves that the Scheme’s overall structure is consistent with the prescribed standards and that the terms agreed to in the contracts with the service providers are reasonable and consistent with the standards adopted by the industry.

The governing body of the Scheme must monitor its service providers on an ongoing basis, including through the conduct of onsite inspections at the offices of such providers, and ensure that these are discharging their contractual obligations in a diligent manner. The PIF must also prove that the Investment Committee Member/s has/have a sufficient and proven track record of trading on an established Virtual Currency exchange.

The appointed Manager must have in place an in-house investment committee made up of at least three members and at all times, it must have at least one individual who has sufficient knowledge and experience in these fields.

Risk Warnings – include in its offering documentation, risk warnings in relation to proposed direct and/or indirect investment in VCs.

Quality Assessment – ensure that the appointed investment manager carries out appropriate research in order to assess the “quality” of the VCs being invested into. The appointed Manager must keep a record of the quality assessment and make it available for the governing body of the Scheme.

In assessing the quality of the Virtual Currency to be invested in, the Manager must take into account the following factors:

  1. the Inventor/s and/or Issuer/s, as applicable;
  2. the protocol/s and the underlying infrastructure;
  3. the availability and reliability of information and the providers thereof;
  4. the service providers involved; and
  5. the Exchange/s on which the Virtual Currency is traded.

Risk Management – ensure that prior to investing in any VC on behalf of the PIF, the investment manager assesses whether the risk profile of the said VC falls within the scope of that PIF’s risk management policy and that the manager implements an appropriate, documented and regularly updated quality assessment process. The manager must also ensure that the risks associated with each investment position of the Scheme and their overall effect on the Scheme’s portfolio can be properly identified, measured, managed and monitored on an ongoing basis, including through the use of appropriate stress testing procedures and ensure that the risk profile of the Scheme corresponds to the size, portfolio structure and investment strategies and objectives of the Scheme as provided for in its constitutional document and Offering Document.

The appointed Manager must also employ an appropriate liquidity management system and adopt procedures to monitor the liquidity risk of the Scheme and to ensure that the liquidity profile of the investments of the Scheme complies with its underlying obligations.

The Scheme shall ensure that the appointed Manager regularly conducts stress tests, under normal and exceptional liquidity conditions, which enable it to assess the liquidity risk of the Scheme and monitor the liquidity risk of the Scheme accordingly. The frequency of such stress tests is to be determined on the basis of the nature, scale and complexity of the investments in Virtual Currencies undertaken by the Scheme.

Valuation – ensure that the appointed service providers have the business organisation, systems, experience and expertise necessary to conduct the required verification and valuation of the PIF’s investments in VCs. This also applies where a PIF appoints a third-party Manager.

The verification and valuation function shall be performed by:

  1. An external valuer, being a legal or natural person independent from the Scheme, from the Manager and from any other persons with close links to the Scheme or the Manager; or
  2. The Manager, provided that the valuation task is functionally independent from the portfolio management function and provided that other measures have been taken to ensure that conflicts of interest are mitigated and that undue influence upon employees is prevented.

The Scheme shall ensure that the person responsible for the verification and valuation function has the business organisation, systems, experience and expertise necessary to conduct the required verification and valuation of the Scheme’s investments in Virtual Currencies.


These new rules apply to PIFs, whether investing in VCs directly or indirectly through a trading company/SPV.

Units of collective investment schemes which are/have been created through Initial Coin Offerings (ICOs) shall be deemed to comprise ‘direct’ investments in Crypto Currencies.

The publication of these Supplementary Conditions is just the first step taken by the MFSA towards achieving a comprehensive regulatory framework in which industry participants wishing to provide services in relation to VC may operate.

For more information on Virtual Currencies, ICOs, and Collective Investment Schemes particularly related to VCs, please contact Dr Ian Gauci on Dr Cherise Abela Grech on

Disclaimer This article is not intended to impart legal advice and readers are asked to seek verification of statements made before acting on them.
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