It’s fair to say that Malta’s first licensing exam for financial services practitioners seeking to become agents for crypto companies wasn’t exactly a success, with two thirds of examinees failing.

Several practitioners who sat for the MFSA’s multiple-choice exam are now expressing their concerns and explaining a different side to the story, arguing that the exam seemed to be designed carelessly, or worse, with the intent of failing people.

“The MFSA [Malta Financial Services Authority] wanted the exam to ensure that candidates were qualified and that they won’t take this industry for granted, which is a good thing,” one practitioner told Lovin Malta. “However, the questions barely tested our substantive knowledge on the subject. They were mostly questions about procedure that you wouldn’t bother studying because the information can be easily looked up.”

The main criticism is directed at the exam paper’s content, which it seems didn’t focus on more significant topics such as knowledge of financial instruments, investor protection and anti-moneylaundering, all key areas in financial services. Rather, the majority of questions focused on procedural and administrative matters, and were worded somewhat dubiously.

“One classic example was a question as to whether a VFA agent requires a license or not under the act. You would think that you need a licence. Actually, that would be the wrong answer, because what you need is a registration.”

Prior to the exam, practitioners had to sit for a course split into four lectures.

Malta is positioning itself as a global hub for crypto-industries (Photo of recent DELTA Summit)

“They basically reviewed similar slides in each lecture, and if you focused only on what was covered in the lectures when studying for the exam, you probably didn’t pass” another practitioner said.

Another criticism brought forward was that the paper seemed to mostly focus on draft documents issued by the MFSA that were still at consultation stage, and thus not yet in force.

The exam proved to be so misleading that only around 5% of practitioners originally passed, prompting the MFSA to take on board a suggestion by the Institute of Financial Practitioners (IFSP) to scrap the negative marking grading scheme. With no negative marking in place, the pass rate shot up to around 39%.

Industry professionals also told Lovin Malta that, while appreciating the MFSA’s attempt at setting a high standard for prospective agents, they felt it was unfair to change the grading rules after the exam was completed, arguing that the preparation for a negative-marking exam is very different to a normal-grading exam. “Arbitrarily changing the rules post-fact is not fair”, they said.

The system also appears to be one that favours larger firms, since VFA agents require a share capital of €150,000 or else a share capital of €75,000 plus professional indemnity insurance.

“Insurers are somewhat hesitant to insure such a new industry as crypto, so we’re basically being told to pay up a share capital of €150,000 or not go into business. A huge disparity has been created between larger firms and smaller ones that are trying to position themselves in this new industry.”

MFSA: ‘Low pass rate shows industry players not adequately prepared’

MFSA chief executive officer Joseph Cuschieri

On its part, the MFSA confirmed to Lovin Malta that it had drafted the exam questions and that the paper had been approved by the IFSP. However, it refused to respond to criticism that the questions focused too heavily on procedure and administrative matters and not enough on substance.

“Given that the crypto asset sphere has its risks, the MFSA is setting high standards in this field,” a spokesperson for the financial services authority told Lovin Malta. “It is however evident, particularly from the low pass rate, the level of the queries being received by the MFSA from stakeholders, and publications penned by professionals disseminating erroneous or inaccurate information that certain members of the industry are not adequately prepared to take on this business.”

“In line with its objective of keeping a high bar in this area, the Authority would like to emphasise that it will not be registering persons who, in its view, are not sufficiently prepared or competent to take on this business.”

“Whilst the MFSA will be compiling a list of approved courses – with only one course having been approved to date – individuals who did not pass will have an opportunity to resit the examination.”

“Further to the above and in view of the high money laundering and funding of terrorism risks associated with this sector, as have already been identified by international standard setters, the Authority is working to ensure high standards to prevent Malta’s financial system from being used for illicit purposes.”

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Tim Diacono

Tim is interested in the rapid evolution of human society and is passionate about justice, human rights and cutting-edge political debates. You can follow him on Instagram or Twitter/X at @timdiacono or reach out to him at [email protected]