The virtual financial assets act : does it facilitate or restrict the use of initial coin offerings as a method of crowdfunding?

Abstract

The Maltese virtual financial assets (VFAs) framework has been implemented for the purpose of providing legal certainty in the sphere of distributed ledger technology (DLT) within the financial sector. The aim of this research is to determine whether the regulation of VFAs in Malta encourages or hinders the raising of funds through the use of an initial coin offering (ICO). This shall be established by analysing whether the applicable measures are proportional to the risks they set out to mitigate. Where measures are too excessive and onerous on the capital seeker, the adoption of the ICO process would likely be overlooked over other alternatives of capital raising. As a precursor this study shall provide an analysis of existing literature with regards to DLT in the FinTech sector, as well as to its adoption within unregulated jurisdictions. This shall allow the reader to gain a greater understanding of the Maltese VFA framework and the manner in which ICOs are regulated in Malta. As outlined in the study below, the framework adopts an independent classification of crypto-assets and sets out the process for the launch of Initial Virtual Financial Assets (IVFAO). Apart from establishing specific requirements for the purpose of ensuring investor protection, the VFA regime also introduces a number of functionaries, such as the VFA agent. The concluding observations shall discuss the findings of this study, discuss the limitations of this research, and propose recommendations for improvements to the VFA regulatory regime.