Are Whitepaper ICOs' Prospectus? The Strict Requirement of Malta VFAA Act 2018 on Publication of Whitepapers

The Virtual Financial Assets Act , 2018 (VFAA Bill) was tabled in parliament on Tuesday, 24 April 2018 by Parliamentary Secretary for Financial Services, Digital Economy & Innovation Hon. Silvio Schembri MP. The Bill is currently going through the normal parliamentary process. Procedurally, a bill is suppose to go through three readings in parliament. Members of parliament will debate and may propose amendment before it is forwarded to the President for ascension. The law is then Gazetted by the responsible Minister.

The Act outlines prerequisites for offering virtual financial assets (e.g. Initial coin offering) in or from Malta. Although the compliance process is important, our interest here is to briefly sketch the significant requirements that will have, in our opinion, immediate impact on ICOs (or Initial Offerings). The first major impact of the Act is the attention given to whitepapers. This will perhaps be one of the significant regulatory constraint impose of DLT projects by the Act. It is a requirement that is more or less inspired by and fashioned in the lines of prospectus requirement in the trading of regulated financial instruments. The bad press that whitepapers have been receiving over the years may not have helped.

While the bill is mostly for virtual assets issued in and from Malta, it will have far reaching implications on the drafting and publication of whitepapers. Possible demonstrative effects are expected to manifest beyond the Jurisdiction of Malta. In short, if the Bill comes to pass as is, we expect both formal replications of the requirements in various levels of details in other jurisdictions, and also informal pressure to adjudge appropriateness or prospect of other whitepapers issued for cryptocurrencies in other jurisdiction. The current laissez-faire approach to crafting of Whitepaper will be brought to an abrupt end when the Bill is Gazetted.

The Bill

The Bill provides that a virtual financial asset is registered as specified by the Act (i.e. as a utility token) unless it is determined to by both the issuer and the VFA Agent to be a financial instrument, whereupon it will be required to abide by the applicable laws. Where that token is established as a utility token (or as the bill provide – a virtual financial asset), the whitepaper will be required to satisfy a whole list of requirements contained in the act and schedule one. In other words, the Bill makes drafting, drawing up, publication and distribution of Whitepaper in relations to issuance of a utility token in Malta a regulated activity.  

General Principles, requirement and Responsibilities

  • Appointment of Agent: The bill requires the issuer to appoint a Virtual Financial Asset Agent (VFA Agent) for their virtual asset project.

  • Signature: Whitepapers will require to be signed by the issuers and the Virtual Financial Asset Agent confirming that the whitepaper is in compliance with the Act’s requirement. It is mandatory that the parties sign the whitepaper ten days prior to its publication. On approval, the whitepaper will remain valid for a period of six months.

  • Malta MFSA Test: The Whitepaper will also be required to be subjected to the test issued by competent regulator (MFSA Financial Instrument Test). This test is a requirement for all ICOs and is meant to establish if the proposed virtual asset falls within the legal perimeter of the VFA Act or comes under existing rules on financial instruments (MIIFID II).

  • Summary: Whitepapers will be required to have a brief summary, in a non-technical language, of the key information of the offering, with the view of aiding investors make informed decision when considering investing in the virtual asset. Civil liability is attached to those persons who have tabled the summary including any translation thereof and applied for its notification.

  • Responsibility: The whitepaper will also require to have details of the persons responsible for the whitepaper, and their declaration that to the best of their knowledge the information contained in the whitepaper is in accordance with the facts and that the whitepaper makes no omission likely to affect its import.

  • Information in the Whitepaper: The Act requires information provided in a whitepaper be presented in such details and format that will enable investors to make informed assessment of the prospects of the issuer, the proposed project and of the features of the virtual financial asset (or token as is popularly known). These requirements cover inclusion of information on issuer’s due diligence, their financial track record, third party details and their contracted relationship including financial implications of the relationship.

  • Offer of the project: The whitepaper will be required to provide rationale of the offer, detail technical description of the protocol, platform and application, detail description of the functionality of the token, its sustainability and scalability, associated and or anticipated challenges and risks.

  • Security of Issuers Wallet: The issuers will be required to include in the whitepaper detailed description of their wallet, its security and safeguarding against hacking of the protocol, and any off-chain activities and to any other wallets used by the issuer.

  • Business and Market Details: The whitepaper will also be required to provide a description of the life cycle of initial virtual financial offering (i.e. ICO); description of its past and future milestones, targeted investor base, exchange rate of the token, the token’s interoperability with other protocols, manner of allocation of funds raised at the ICO, the amount to be raised and purpose of the issue, the total number of token to raised, their features and their distribution, the consensus algorithm where applicable, and the incentive mechanism to secure transactions and applicable fees.

  • Crowd-sale Details: The issuers will also be required to provide in the Whitepaper; description of the estimated speed of transactions in case of a new protocol, applicable taxes on the offering, any soft cap and hard cap for the offering, the period in which the offer is open, any person underwriting or guaranteeing the offer, any reasonably known restrictions on the free transferability of the virtual financial assets being offered, the DLT exchange(s) on which they may be traded, method of payment, specific notice of refund if soft cap is not reach including the manner and timeframe of the refund, the general risks associated with the token and investment therein, and procedure for excise of any right of pre-emption. As regards initial investors, the whitepaper should provide details on the bonuses applicable early investors including discounted purchase prices for the token.

  • Details of Smart Contract: On the smart contracts, the whitepaper will be required to provide a detail description, adopted standards, its underlying protocol, functionality and associated operational costs, details of the person who performed an audit on it, any restrictions embedded in the smart contract deployed, including any investment and or geographical restrictions. The whitepaper should also provide description of the oracle programme used, including detailed description of their characteristics and functionality, and period during which voluntary withdrawals are permitted by smart contract if any.

  • Benefit of third parties: the whitepaper will be required to include details of estimated expenditures, details of payees, contract fees agreed for the VFA Agent, product endorsers etc.

  • Issuers Financial Record: If the issuer has existed for three years, it will be required to submit details of its financial track record



The proposed MFSA Financial Instrument Test that every ICO will be required to subject their whitepaper to is meant to help in establishing the legal exposure of a token to either the VFAA 2018, or the existing rules under the Markets in Financial Instruments (MiFID II) - Directive 2014/65/EU. In both cases, ICO’s will have to publish either a prospectus or a whitepaper both of which will be subject of detailed legislative  guidelines and sanctions.


While the rationale behind the detailed provisions for the drafting, content and responsibility for the whitepaper are self-evident, impact of these rules on the DLT projects will take time to establish. Our common hope is that this will not bureaucratically stifle innovation in the emerging technology.