Vanuatu has enacted legislation aimed at overseeing digital assets and establishing a licensing framework for cryptocurrency firms seeking to operate in the Pacific island territory, which a government regulatory consultant has described as “exceptionally rigorous.”
The national assembly approved the Virtual Asset Service Providers Act on March 26, granting crypto licensing authority to the Vanuatu Financial Services Commission (VFSC) alongside the capacity to enforce the Financial Action Task Force’s Anti-Money Laundering, Counter-Terrorism Financing, and Travel Rule directives with cryptocurrency companies.
The VFSC possesses extensive investigative and enforcement powers under this legislation, with penalties outlining fines of up to 250 million vatu ($2 million) and possible imprisonment for as long as 30 years.
“God help any con artist who enters Vanuatu because you’ll find yourself in prison,” Loretta Joseph, who consulted with the regulator regarding the laws, told Cointelegraph. “The regulations are exceptionally rigorous.”
“The fact is, we don’t want to witness another catastrophe like FTX,” she continued, alluding to the former Bahamas-based crypto exchange that crumbled in 2022 owing to extensive fraud perpetrated by its founders, Sam Bankman-Fried and Gary Wang, along with other officials.
“Vanuatu is a small jurisdiction. Smaller jurisdictions are often targeted by those seeking minimal regulation or lenient oversight,” Joseph noted. “This is absolutely not that.”
“I’m immensely proud of them for being the first nation in the Pacific to genuinely take a stand and implement this,” she remarked.
New Vanuatu legislation governs a variety of crypto enterprises
The statute establishes a licensing and reporting system for exchanges, non-fungible token (NFT) platforms, crypto custody services, and initial coin offerings.
The law notably permits banks to be licensed to offer crypto exchange and custody services. Source: Parliament of the Republic of Vanuatu
The VFSC indicated that the legislation does not influence stablecoins, tokenized assets, and central bank digital currencies despite the fact that they “may in practice exhibit certain similarities to virtual assets.”
The legislation furthermore allows the VFSC’s commissioner to create a sandbox that enables approved enterprises to offer a range of crypto services for one year, with the possibility of renewal.
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Joseph stated that Vanuatu “required a standalone piece of legislation” addressing Anti-Money Laundering and Counter-Terror Financing obligations, as the nation lacked existing laws suited for virtual assets.
The regulator asserted in a statement dated March 29 that it had devised the legislative framework after years of “evaluating the risks associated with virtual assets,” and the laws would unlock “numerous opportunities for Vanuatu” while enhancing financial inclusivity by providing regulated services for crypto cross-border transactions.
VFSC Commissioner Branan Karae mentioned in June that the bill was anticipated to pass that September, but Joseph remarked that the legislation was “not something created lightly.” It had been under development since 2020 and faced delays due to shifts in government, natural disasters, and disruptions related to the COVID-19 pandemic.
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