MFSA publishes position paper on tokenisation of collective investment schemes

The Malta Financial Services Authority (MFSA) has released a position paper outlining its stance on the tokenisation of fund units issued by Collective Investment Schemes (CISs).

Tokenisation refers to the process of representing traditional assets in digital format through smart contracts enabled by distributed ledger technology (DLT). In the context of CISs, tokenisation facilitates more seamless transfers and potentially more cost-effective issuance and settlement of fund units.

The MFSA’s paper highlights the benefits of operational efficiency that may be achieved through the use of tokenisation, such as improved automation in due diligence processes and streamlined settlement mechanisms. At the same time, the Authority outlines the regulatory and procedural safeguards that must be upheld. These include clear disclosures in offering documentation and strict adherence to Anti-Money Laundering (AML) and Know Your Customer (KYC) requirements.

The role of the Fund Administrator is identified as central to the successful implementation of tokenisation, given their responsibility in managing the technological and regulatory aspects of the process. Particular emphasis is placed on transparency, investor communication, and the mitigation of cyber security risks.

Christopher P. Buttigieg, MFSA’s Chief Officer Supervision, stated: “This Position Paper marks an important step in ensuring that Malta’s fund sector can innovate with digital technologies while preserving the highest standards of integrity and investor protection. Cognisant of EU developments, the MFSA remains open to innovation, whilst maintaining high standards of supervision.”

Echoing this sentiment, Ian Meli, Head of Investment Services Supervision at the MFSA, noted that while tokenisation poses new challenges – particularly in relation to cyber security – it also brings opportunities for improved efficiency in fund dealings and client onboarding procedures.