Vanuatu has passed an important new law to regulate cryptocurrencies and related services. This was announced by Branan Karae, the head of the Vanuatu Financial Services Commission, at a recent digital asset conference.
The law will be introduced in parliament soon. Although it was first proposed in 2020, political issues and frequent changes in government have delayed its approval.
The primary objective of the bill is to establish a comprehensive regulatory framework for licensing and registering virtual assets service providers (VASPs) in Vanuatu. This structure will enable these providers to operate legally within the country for the first time.
According to VFSC policy consultant Loretta Joseph, aligning with the Financial Action Task Force (FATF) standards is a critical aspect of the bill. The FATF standards aim to mitigate risks associated with money laundering and terrorist financing in the crypto industry.
The proposed legislation includes five classes of licenses covering various services, such as exchanges between crypto and fiat currencies and crypto custody services.
The VFSC will oversee VASP activities to ensure compliance with Counterterrorism Financing (CTF) and Anti-Money Laundering (AML) laws. The VFSC commissioner will have substantial authority, including the power to veto licenses and appoint inspectors to ensure adherence to the Act.
A notable feature of Vanuatu’s new bill is the introduction of a Fintech Sandbox Utility. This provision allows companies to operate for 12 months without an initial license, encouraging innovation and providing a platform for new entrants to establish themselves before fully complying with licensing requirements.
Additionally, the bill imposes severe penalties for conducting VASP activities without a license, with individuals facing fines up to 25 million Vanuatu vatus ($207,700) or imprisonment for up to 15 years, and corporations facing penalties up to $2.1 million.
The economic implications of the bill are particularly significant for smaller nations like Vanuatu. By positioning itself as an international financial center through progressive legislation, Vanuatu aims to attract significant economic activity and investment.
This move is essential for the island nation, which comprises 13 main islands and has a GDP of $1.1 billion as of 2022, according to the World Bank. The bill’s passage marks a crucial step in driving economic growth and innovation in Vanuatu’s financial sector.
