Vanuatu Passes Laws to Regulate Digital Assets and Provide a Licensing Regime for Crypto Companies

Vanuatu has passed laws to regulate digital assets and provide a licensing regime for crypto companies wanting to operate in the Pacific island nation

The Virtual Asset Service Providers Act was passed by the local parliament on March 26, giving licensing authority for crypto companies to the Vanuatu Financial Services Commission (VFSC).

The legislation also grants the commission powers to enforce the Financial Action Task Force’s Anti-Money Laundering, Counter-Terrorism Financing and Travel Rule standards with crypto firms.

The new law is part of a broader move by the Pacific island nation to regulate the digital assets industry and attract new businesses to the country.

"God help any scammer that goes into Vanuatu because you’ll go to jail. The laws are very stringent," Loretta Joseph, who was a regulatory consultant for the law, told Cointelegraph.

"The thing is, we don’t want another FTX debacle. Vanuatu is a small jurisdiction. Small jurisdictions are preyed on by the players that are looking for no regulation or light touch regulation. This is certainly not that. I’m so proud of them to be the first country in the Pacific to actually take a position and do this."

The legislation provides the commission with sweeping investigation and enforcement powers, with penalties stipulating fines of up to 250 million vatu ($2 million) and up to 30 years in prison.

"They pulled out all the stops. It’s a new generation of legislation for Vanuatu," Joseph, who is the founder of blockchain and Web3 consulting firm, FinTech Law Asia, added.

"It’s a standalone piece of legislation. We couldn’t use any existing legislation because it’s not compatible with the Virtual Asset Service Providers Act."

The law establishes a licensing and reporting framework for exchanges, non-fungible token (NFT) marketplaces, crypto custody providers and initial coin offerings. It also covers crypto payment services and money remitters.

The VFSC said that the legislation doesn’t affect stablecoins, tokenized securities, and central bank digital currencies even though they “may in practice share some similarities with virtual assets.”

It also allows for the commissioner to create a sandbox to allow approved companies to offer a variety of crypto services for a year, which can be renewed.

Joseph said Vanuatu “needed a standalone piece of legislation” that covered AML/CTF requirements, as the country didn’t have existing laws suited to virtual assets.

The regulator said in a March 29 statement that it had developed the legislative framework after years of “assessing the risks associated with virtual assets.”

The laws will open “numerous opportunities for Vanuatu” and improve financial inclusion by allowing regulated services for crypto cross-border payments, the regulator said.

VFSC Commissioner Branan Karae had said in June that the bill was expected to pass by September.

However, Joseph said the legislation was “not something that was done lightly.” It had been in development since 2020 and was subject to various delays due to changes in government, natural disasters and COVID-19 pandemic-related disruptions.