The Pacific Island nation of Vanuatu is set to enact a comprehensive digital asset and service provider bill as early as September. This move to modernize the financial regulatory framework in the nation, was announced by Vanuatu Financial Services Commission (VFSC) Commissioner Branan Karae during his opening remarks at a digital assets symposium on June 27.
Vanuatu: A Financial Hub
Vanuatu is situated in the South Pacific Ocean and consists of 13 principal islands. It has long been acknowledged as an international financial center and tax haven. As a result, the nation is home to 2,300 registered institutions that provide services in the offshore banking, legal, accountancy, insurance, and trust sectors.
The forthcoming law is designed to create a regulatory framework for virtual asset service providers (VASPs) in Vanuatu. The bill has been in the works since its introduction in 2020, according to Loretta Joseph, a VFSC policy consultant and speaker at the symposium. However, its execution has been postponed as a result of the frequent changes in cabinet members.
Moreover, in March 2022, the country’s prime minister, the Honorable Bob Loughman, gave greenlight to the Satoshi Island crypto project. This announcement followed the news that the country has received 50,000 citizenship NFT applications.
Vanuatu’s appeal as a financial center would be significantly improved by the establishment of a comprehensive regulatory framework for digital assets, which would ensure the security of such transactions. This development is expected to attract additional international financial activities to the country, thereby strengthening its economy.
What Does the Bill Hold?
The enactment of this bill will provide licensing and registration requirements for VASPs, allowing them to legally operate in the region for the first time. Moreover, the government will align the regulation with the standards set by the Financial Action Task Force (FATF), an intergovernmental body focused on combating money laundering and terrorist financing.
Joseph emphasized the importance of such legislation, stating, “The FATF is calling on countries to have legislation around virtual assets. No country in the world can ignore this.”
FATF standards for the bill are important for ensuring that Vanuatu’s financial system remains transparent.
5 Classes of Licenses
The proposed act introduces five classes of licenses, including exchanges between virtual assets and fiat currencies and crypto custody services. The VFSC will be responsible for monitoring all VASP activities to ensure adherence to Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) laws.
A notable feature of the act is the “Fintech Sandbox Utility,” which allows companies seeking licenses to operate for 12 months without one, providing a testing ground for new financial technologies.
Notably, the government imposes strong penalties for non-compliance, with individuals facing fines up to 25 million Vanuatu vatus ($207.7 million) or imprisonment for up to 15 years, while corporations could be fined $2.1 million.
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