Vanuatu has passed legislation to enact a regulatory regime for digital assets, including a replacement licensing and reporting framework, the Impossible Token (NFT) market, digital asset managers, and initial coin provision (ICO).
The South Pacific Island Diet passed the Virtual Asset Service Provider (VASP) Act on March 26th. Among other measures, the framework has the authority to designate the Vanuatu Financial Services Commission (VFSC) as the licensing office and acquire rules for the Financial Conduct Task Force (FATF) anti-moneylandering, anti-target promotion, and digital assets.
Under the new law, regulators were given potential penalties of up to 250 million VATU (US$2 million) and increased investigation and enforcement rights in prisons for up to 10 years.
“Economically, the VASP Act establishes a stable regulatory framework for digital business transactions,” the VFSC said in a statement on March 29, adding that the framework was developed after a year “assessing risks related to virtual assets.”
According to regulators, the new law “opens numerous opportunities for Vanuatu economically and socially, ensuring that international standards are being complied with.”
Important points of the VASP method
In the new framework, digital assets were defined as “a digital representation of value that could be traded and acted as a medium of exchange, an account unit, or a store of value.”
The Act allows VFSC commissioners to create “FinTech Sandbox Utilities,” a service that uses innovative technology to improve, modify or enhance financial business, allowing approved companies to extend at the end of the period, such as digital assets wallets, custodians, advisories, or exchange services.
However, the VASP Act does not cover the digital representation of national digital currencies, including Fiat currencies, securities and central bank digital currencies (CBDCs), but “in reality it may share some similarities with virtual assets,” the VFSC said.
Additionally, regulators stressed that digital assets are not yet domestic fiat currency and could be a risk to investors.
“Virtual assets and cryptocurrencies are not protected by Vanuatu’s legal fee arrangements,” the VFSC said, warning that “we do not recommend it to retail investors without a complete understanding of the risks involved.”
Loretta Joseph, who consulted the government and regulators in the framework, praised the VASP Act as “a groundbreaking part of the law that takes a bold step towards adopting the future of digital finance.”
She proved that passing the law “embedded markets can lead the way in creating laws that do not only accept digital assets but also mitigate risks.”
“It’s true evidence that small island states can move faster than many of our big neighbors who are purposeful, agile and foresightful,” Joseph said.
Watch: Defi, Reggie Middleton from Booms/Busts & Crypto Regulation
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