MFSA’s rigorous approach to MiCA licensing | Kenneth Farrugia

Kenneth Farrugia is Chief Executive Officer, Malta Financial Services Authority (MFSA)

In January 2025, the MFSA approved four firms under the Markets in Crypto Assets Regulation (the MiCA firms). Recently, the MFSA has faced unfair speculation as to whether the swiftness of its authorisation process for MiCA firms has in any way compromised its thoroughness. What follows is an explanation that provides clarity and outlines the extensive groundwork undertaken by the MFSA and the Financial Intelligence Analysis Unit (FIAU) prior to the authorisation in January 2025. It demonstrates the robust approach taken to implementing the regulation.

The MFSA’s authorisation process was not a rapid exercise but rather the culmination of extensive preparatory work. As early as November 2023, the MFSA hosted an industry event to raise awareness about MiCA preparations. Throughout 2024, the MFSA maintained an ongoing dialogue with industry participants, holding multiple supervisory meetings to ensure thorough engagement and understanding.

From June to December 2024, an in-depth review of applicants’ readiness for MiCA was conducted. This review was a key component of the broader ‘2024 thematic exercise,’ where the industry's engagement reflected their preparedness. The MFSA employed a comprehensive assessment toolkit, complemented by engagement meetings, ensuring that all MiCA requirements were verified by at least two officials to eliminate errors or irregularities.

Malta established itself as an early regulatory adopter with respect to crypto assets back in 2018 when it introduced the Virtual Financial Assets (VFA) framework, meaning it has seven years of supervisory experience to draw on and as a result has been able to move quickly in welcoming applications under MiCA. For five years leading up to their MiCA authorisation, the MFSA and FIAU maintained active supervision over the MiCA firms. This long-standing engagement involved regular interactions, enforcement actions, follow ups and remediation efforts, facilitating alignment with existing regulatory standards.

The MFSA’s historical supervision of the MiCA firms ensured each firm’s evolution and readiness to implement the EU Regulation. This was not merely about accredited systems but involved rigorous testing and effective communication to secure a substantial level of assurance, thus demonstrating the MFSA's commitment to diligent oversight.

The authorisation process incorporated exhaustive due diligence and comprehensive fitness assessments. These assessments evaluated key functionaries, governance frameworks, risk management protocols, ICT control frameworks, conduct procedures and compliance with AML/CFT regulations, including sanctions monitoring. Any deviations from established norms were addressed with precision, ensuring that enforcement actions and follow-up measures were diligently enforced.

This rigorous approach guaranteed a high level of assurance, facilitating the clearance required for authorisation. It underscores the MFSA’s dedication to maintaining robust regulatory standards and safeguarding the integrity of Malta’s financial services sector.

While the MFSA acknowledges that continuous improvement is always possible, the critique suggesting undue haste in licensing lacks foundation. It overlooks the intricate and thorough work the authority has executed, which is vital for ensuring the confidence and stability of both the financial system and consumer interests.

The MFSA remains steadfast in its commitment to comprehensive supervision, upholding transparency and excellence in all its regulatory endeavours. The careful planning and execution of authorisation procedures for MiCA demonstrate a deliberate and informed approach that ensures Malta continues to excel as a leader in digital asset regulation.