MFSA endorses tokenisation of investment funds in new position paper

The Malta Financial Services Authority (MFSA) has released a position paper outlining its stance on the tokenisation of units in Collective Investment Schemes (CISs), in a move seen as further reinforcing Malta’s ambitions to position itself as a digitally enabled investment hub.

Tokenisation – the process of representing traditional assets in digital form via distributed ledger technology – has the potential to significantly enhance operational efficiency in the fund industry. The MFSA’s paper delves into how smart contracts can be used to facilitate seamless and cost-effective issuance and transfer of fund units.

Central to the MFSA’s guidance is the role of Fund Administrators in managing the transition to tokenised units. The paper stresses that such initiatives must comply with stringent transparency standards, including robust disclosure obligations in offering documents, particularly relating to Anti-Money Laundering (AML), Know Your Customer (KYC), and the treatment of tokenised units.

“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,” said Dr Christopher P. Buttigieg, MFSA’s Chief Officer Supervision. “Cognisant of EU developments, the MFSA remains open to innovation, whilst maintaining high standards of supervision.”

Ian Meli, Head of Investment Services Supervision, noted the balance between opportunity and risk. “This paper indicates the MFSA’s forward-looking approach with respect to tokenisation of units of CISs. Although tokenisation brings about challenges to service providers, particularly in the area of cyber security, this development should lead to operational efficiency in settlement processes, while also contributing to automation in due diligence.”

The release of the paper is seen by industry stakeholders as a signal that Malta continues to encourage innovation in financial services, while anchoring such advancements in a strong regulatory framework.