Vanuatu enacts strict crypto laws to deter bad actors

On March 26, Vanuatu’s parliament passed the Virtual Asset Service Providers (VASP) Act, introducing a comprehensive regulatory framework for digital assets and crypto companies.

The legislation, described as “very stringent” by government consultant Loretta Joseph, grants the Vanuatu Financial Services Commission (VFSC) authority to license and oversee crypto businesses while enforcing international standards like the Financial Action Task Force’s (FATF) Anti-Money Laundering and Counter-Terrorism Financing rules.

The law aims to prevent exploitation of the Pacific island nation by unscrupulous actors seeking jurisdictions with lax regulations.

“God help any scammer that goes into Vanuatu because you’ll go to jail,” Joseph remarked, emphasising the law’s severe penalties, which include fines of up to $2 million and prison sentences of up to 30 years.

The legislation establishes a licensing framework for exchanges, NFT marketplaces, crypto custody providers, and initial coin offerings.

It also allows banks to offer crypto exchange and custody services.

However, stablecoins, tokenised securities, and central bank digital currencies (CBDCs) are excluded from the law’s scope.

The VFSC is empowered to create a regulatory sandbox for approved companies to test crypto services for up to a year.

This approach is expected to encourage innovation while maintaining strict oversight.

The regulator noted that the framework was developed after years of assessing risks associated with virtual assets and aims to improve financial inclusion by enabling regulated cross-border crypto payments.

Joseph highlighted that the law was designed to avoid incidents like the collapse of FTX (CRYPTO:FTT) in 2022, which exposed vulnerabilities in poorly regulated jurisdictions.

“Small jurisdictions are preyed on by players looking for no regulation or light-touch regulation,” she said.

Despite delays caused by government changes, natural disasters, and the COVID-19 pandemic, the VASP Act positions Vanuatu as a leader in crypto regulation within the Pacific region.

The country hopes the framework will attract investment while ensuring consumer protection and compliance with global standards.