Vanuatu Gears Up to Implement Crypto Legislation This September

The Pacific Island nation of Vanuatu expects to endorse adigital asset and service provider bill in September. Branan Karae,Commissioner of the Vanuatu Financial Services Commission (VFSC), announcedthis at a digital assets symposium organized by the country's financialregulator on June 27. The bill is expected to be enacted during the first weekof Parliament.

New Legislation to Regulate Virtual Asset Services

Loretta Joseph, a VFSC policy consultant and speaker at theconference, stated that the bill had been ready for several years but faceddelays due to multiple cabinet changes. The bill, first introduced in 2020,will establish licensing and registration requirements for virtual assetservice providers (VASPs), allowing them to operate legally within the nation.

Joseph explained that the bill will help Vanuatu meetstandards set by the Financial Action Task Force (FATF). The FATF mandates thatcountries assess and mitigate risks associated with crypto service providersand activities. The FATF is calling on countries to have legislation aroundvirtual assets. No country in the world can ignore this, Joseph said.

The proposed act includes five license classes, coveringservice providers that exchange virtual assets and fiat currencies and thoseoffering crypto custody, among other functions.

The VFSC will monitor all VASPsto ensure adherence to Anti-Money Laundering and Counter-Terrorism financinglaws. The Commissioner will have the authority to veto licenses and appointinspectors to ensure compliance.

#Vanuatu is set to pass a long-awaited digital asset and service provider bill in September, establishing licensing and registration requirements for virtual asset service providers (#VASPs) to operate legally. The bill, delayed due to several cabinet changes, aims to meet pic.twitter.com/sK8l5YswBX

Launching Fintech Sandbox

The act also introduces a Fintech Sandbox Utility,allowing companies to operate for 12 months without a license initially. Theact mandates that any person conducting VASP activities must be licensed, withpenalties including fines of 25 million Vanuatu vatus ($207,700) orimprisonment for 15 years. Corporations can face fines of $2.1 million.

Vanuatu, located in the South Pacific Ocean and consistingof 13 principal islands, had a gross domestic product of $1.1 billion in 2022,according to the World Bank. The economy is primarily based on agriculture,with 80% of the population engaged in agricultural activities.

It is alsoregarded as a tax haven and international financial centre, according to the USState Department. The country hosts around 2,300 registered institutionsoffering offshore banking, legal, accounting, insurance, and trust services.

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Vanuatu Finally Approves its Long-awaited Crypto Regulations, which Introduce Stricter Rules

The island nation of Vanuatu has enacted new laws that regulate the cryptocurrency industry on the island, introducing licensing standards for local crypto businesses. These crypto regulations are described as ‘strict’ in nature and are designed to prevent those who could use smaller countries as a ‘shophouse’ for fraudulent activities. The Vanuatu Financial Services Commission […]

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Exclusive: Vanuatu Regulator Brings Brokers to The "Shore". In Person.

In the watchdog series, we provide our readers with direct insights from the regulators that shape the retail trading industry. After an in-depth interview with the Chair of CySEC (who spoke about investors' responsibility and AI integration), and an exclusive comment from the FCA about the consumer duty deadline, today we bring you Nicolas Ritoux, the Communications Officer at the Vanuatu Financial Services Commission. His article sheds light on why and how the quintessential offshore jurisdiction wants to draw in brokers to the Island.

In a recent symposium hosted by the Vanuatu Financial Services Commission (VFSC), the nation's budding fintech industry took center stage as a strategic sector with immense potential for the country's economic growth. The "Virtual Assets: Navigating the Legal Framework" event shed light on Vanuatu's efforts to embrace the world of virtual assets and cryptocurrencies.

As the regulatory landscape undergoes significant changes, industry experts, licensees, regulators, and politicians come together to discuss the challenges and opportunities that lie ahead. Among the key players in this rapidly evolving space are licensees, such as Deriv, TMGM, Axi, and Titan FX that shared valuable insight on their experiences with the new regulatory regime.

WATCH live stream today on the Vanuatu Financial Services Commission's FB page of their Virtual Symposium "Navigating the Legal Framework". Including guest speaker 9.10am (Van time) Loretta Joseph (Chair IDAEA) on Vanuatu’s Virtual Assets Legal Framework Update #DigitalEconomy pic.twitter.com/uSHaXAcy26

The Road to Virtual Asset Regulation

Vanuatu was regarded as an offshore jurisdiction for many years, with hundreds of brokers registered on the island. However, the regulator on the island made its regulations around the financial services industry strict with a mandated physical presence, bringing down the number of registered brokers to only around 60.

The island nation's journey into the world of virtual assets began 18 months ago when the amended Financial Dealers Licensing Act paved the way for trading digital assets. This groundbreaking move opened up opportunities for forex and commodities brokers under Class A, B, and C licenses. However, the Class D license, which covers virtual assets, remained uncharted territory, creating a sense of anticipation among industry participants.

The symposium saw the participation of renowned Australian expert, Loretta Joseph, who has been advising the VFSC about virtual assets since the new law was passed in 2021. Joseph, also an advisor to the Commonwealth Secretariat on Virtual Assets, emphasized the importance of strong licensing requirements and robust compliance models to prevent financial crime. She envisioned Vanuatu as part of a harmonious, globalized framework that would lead the way in the world of virtual assets, setting the stage for a bright future.

Insights from the Licensees

The goal of regulations is to protect the interest of retail investors. However, consultation with the industry players is crucial to clarify the roadblocks, if any. Among the licensees operating under the new regulatory regime in Vanuatu, Deriv, TMGM, Axi, and Titan FX shared their experiences and challenges in navigating the path to compliance.

The Chief Risk Officer of Axi, Simon Hodgkiss, expressed the company's commitment to investing heavily in Vanuatu. However, the shortage of local staffing proved to be a hurdle, leading them to bring in support staff from Australia. Obtaining visas, permits, and licenses further compounded the challenge. Indeed, finding local talent can be challenging as Vanuatu only has a total population of about 320,000.

Dephney Sumsum, the local manager for Axi, highlighted the lack of harmony among various stakeholders, which delayed their progress. Similarly, Dominique Dabu, a local director for Deriv, who had prior experience at the company's Dubai office, mentioned facing struggles during the setup process in Vanuatu. The licensees collectively emphasized the need for smoother collaboration among regulatory bodies to facilitate a seamless process for foreign fintech investors.

James Hudson from Titan FX suggested that licensees should clarify that the beneficial owners of their entities are the same individuals, easing local banks' concerns about associating with 'high-risk' businesses. He even proposed the idea of creating a virtual asset exchange under a Class D license, utilizing a Vatu-backed stablecoin to facilitate funds in and out of the country, thereby reducing dependency on overseas banks and EU watchlists.

To attract crypto companies, Vanuatu will compete with jurisdictions like Dubai, Singapore, and Hong Kong, which are far more developed in infrastructure and provide an excellent talent pool both locally and internationally.

Regulatory Perspective and Political Support

Regulators and politicians at the symposium were vocal about their commitment to fostering a supportive environment for the fintech industry. VFSC's Commissioner, Branan Karae stressed the importance of collaboration among all stakeholders to maximize the benefits of the new regulatory framework. He encouraged a joint effort to attract more fintech businesses to Vanuatu and position the country as a frontrunner in the digital asset space.

The Honourable John Salong Damasing, the Minister of Finance and Economic Management, shared his vision of a future where fintech becomes a strategic pillar of the economy, empowering the local workforce and uplifting the entire community. He emphasized the potential of fintech in generating better career opportunities, stimulating development, and attracting foreign investments.

Robust regulatory framework

The symposium on virtual assets held by the VFSC showcased Vanuatu's determination to embrace the fintech revolution. With a robust regulatory framework and ongoing collaboration among stakeholders, the country is poised to become a key player in the world of virtual assets. Licensees such as Deriv, TMGM, Axi, and Titan FX, along with industry experts, regulators, and politicians, have paved the way for a brighter future in the fintech landscape. As Vanuatu continues to attract virtual asset businesses, it remains steadfast in its commitment to economic growth and development, creating a promising outlook for the nation's financial future.

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