Vanuatu has enacted legislation to govern digital assets and establish a licensing framework for crypto businesses wishing to operate within the Pacific island nation, which a regulatory consultant has described as “very stringent.”
On March 26, the local parliament approved the Virtual Asset Service Providers Act, granting the Vanuatu Financial Services Commission (VFSC) the authority to issue crypto licenses and enforce standards related to Anti-Money Laundering, Counter-Terrorism Financing, and the Travel Rule, as set by the Financial Action Task Force (FATF).
Under this new legislation, the VFSC is endowed with extensive investigation and enforcement capabilities, with penalties that include fines reaching up to 250 million vatu ($2 million) and potential prison sentences of up to 30 years.
“Any scammer who attempts to operate in Vanuatu had better think twice, because imprisonment awaits,” stated Loretta Joseph, who consulted on the regulatory framework. “The laws are indeed very stringent.”
“We certainly want to avoid a situation similar to the FTX collapse,” she noted, referencing the infamous Bahamian crypto exchange that fell apart in 2022 amid substantial fraudulent activities spearheaded by its founders, Sam Bankman-Fried and Gary Wang, along with other executives.
“Being a small jurisdiction, Vanuatu is often targeted by those seeking minimal regulation or loose oversight,” Joseph remarked. “This legislation is definitely not that.”
“I’m incredibly proud that Vanuatu is the first country in the Pacific to take such a decisive step,” she added.
### New Legislation Governs a Range of Crypto Firms
The newly established law lays down a framework for licensing and reporting for exchanges, non-fungible token (NFT) marketplaces, crypto custody providers, and initial coin offerings.
The VFSC clarified that the legislation does not apply to stablecoins, tokenized securities, or central bank digital currencies, even if they share certain characteristics with virtual assets.
Additionally, the law permits the VFSC’s commissioner to set up a regulatory sandbox that enables approved companies to provide a range of crypto services for a provisional period of one year, which can be extended.
Joseph emphasized that Vanuatu required a distinct piece of legislation addressing Anti-Money Laundering and Counter-Terrorism Financing obligations, as existing laws were not suitable for virtual assets.
In a statement released on March 29, the VFSC indicated that the legislative framework was developed after extensive evaluation of the risks linked to virtual assets. The new laws are expected to create “numerous opportunities for Vanuatu” while enhancing financial inclusion by enabling regulated crypto cross-border payment services.
VFSC Commissioner Branan Karae had mentioned in June that the bill was anticipated to pass in September, but Joseph clarified that crafting such legislation was not a trivial matter. The process had been underway since 2020, facing delays due to governmental changes, natural disasters, and disruptions caused by the COVID-19 pandemic.