- Under the Virtual Asset Service Providers Act passed by Vanuatu, all virtual asset service providers need to obtain full licenses.
- The New crypto regulations serve two purposes: first to combat fraud and also to protect the nation from exploitation brought on by the FTX collapse.
- Vanuatu’s new crypto regulations are expected to enhance cross border payment as well as financial accessibility.
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 (VFSC) was authorized by the local parliament on March 26, with the Virtual Asset Service Providers Act passed to issue licenses for crypto businesses.
Specifically, this law requires the VFSC to comply with Financial Action Task Force recommendations regarding money laundering and financing of terrorism. During investigations, it uses available legal tools and enforcement past penalties to ensure compliance.
Serious consequences are also outlined in the law, with a fine not exceeding 250 million vatu or a jail term not exceeding thirty years.
VFSC Introduces Stricter Crypto Regulations
Loretta Joseph, a consultant who helped draft these laws, told in an interview about the strictness of these regulations, warning that criminals attempting to commit fraud in Vanuatu could be taken seriously. Given some of the events of late related to the FTX exchange collapse in 2022, where the founders were engaged in major fraud, she stressed the importance of having good regulatory systems.
The VFSC confirmed that the new laws include regulations referring to stablecoins, tokenized securities, and central bank digital currencies, which fit the definition of virtual assets. Additionally, the VFSC said that the development of this legislative framework was dependent on years of determining the levels of risk surrounding virtual assets. For this reason, it is expected to create many opportunities for Vanuatu as well as lead to financial inclusion through the provision of regulated services for cross-border crypto payments.
From the beginning, the crypto regulation bill was expected to be approved by VFSC commissioner Branan Karae in September 2024. But Joseph said lawmakers chose not to rush the process. The bill was introduced in 2020 but was shelved by changes in government, natural disasters, and the disruptions of the COVID pandemic.
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