With new virtual asset legislation, Vanuatu joins a global “movement” shaping the future of finance
New opportunities have emerged for fintech investors in Vanuatu since Parliament passed the Virtual Asset Service Provider (VASP) Act on March 26.
The law recognized digital assets as “a medium of exchange, a unit of ac count, or a store of value,” and established six types of VASP licences for virtual asset exchanges (D), transfer services providers (D1), custodians (D2), financial services providers (D3), banks (D4), and token issuers (ITO).
“Vanuatu now has the legal tools to prosecute bad actors who are looking to use its jurisdiction to scam people. No one will be able to claim another Satoshi Island,” said Australian regulatory consultant Loretta Joseph, in reference to a fraudulent 2022 development project off the coast of Santo.
Serious screening at the door
VASPs are to be regulated by the Vanuatu Financial Services Commission (VFSC), just like dealers of foreign exchange, commodities, stocks, and other traditional assets operating under the Financial Dealer Licensing (FDL) Act. The VASP Act can be seen as an extension of the FDL Act since VASP licenses will only be issued to existing holders of all four FDL classes (A, B, C, D).
“We’re asking applicants to go through this lengthy process in order to select only the most serious investors. Vanuatu doesn’t have the resources to supervise a large number of licensees, so we need to properly screen at the door,” explained Loretta Joseph, who was instrumental in drafting the law.
It took her almost five years to complete, in collaboration with the VFSC and two dedicated government committees, the Distributed Ledger Technology Task Force and the Virtual Assets Task Force.
“Labour of love”
“We had to go through a pandemic, a cyclone, and an earthquake. We didn’t have much funding. Everything that could go wrong did go wrong. But we managed to put it together. It was a true labour of love, and I think the result speaks to the resilience of the people of Vanuatu and their elected representatives,” Joseph confided.
Cryptocurrency transactions were initially banned in Vanuatu as a precaution when these technologies were emerging and tied to financial scandals. As digital assets matured into the mainstream, their development paved the way for the VASP Act to regulate innovation responsibly.
“Vanuatu is now equipped with sensible legislation that embraces virtual assets while carefully mitigating risks. It would actually be riskier at this point to not regulate it!” Joseph noted.
Clarity instead of darkness
The VASP Act aligns with international standards set by global organizations, including the Financial Action Task Force (FATF), the Asia Pacific Group on Money Laundering (APG), the International Organisation of Securities Commissions (IOSCO), the OECD, and the EU.
Fintech investors now enjoy regulatory clarity regarding local economic substance, hiring criteria for managers, expertise and operational status, financial soundness and accounting practices, reporting and filing obligations, handling of complaints, and penalties for regulatory violations.
The law also provides a “sandbox” clause, allowing select entrepreneurs to test innovative concepts in a controlled environment before applying for a license. “It’s a great way for them to trial their business models without risking the financial system,” Joseph explained.
Commonwealth leads the way
Drawing on her experience in Nigeria, Mauritius, and the British Virgin Islands, Loretta Joseph, an Advisor to the Commonwealth Secretariat on Virtual Assets, sees Vanuatu as part of a movement of small nations shaping the future of finance. She is now advising Antigua, St. Lucia, and Jamaica on similar laws.
“It’s heartening to see small jurisdictions like Vanuatu lead with agility, while larger economies like the US, the EU and Australia lag behind,” Joseph said. “As the first Pacific island nation to enact such comprehensive legislation, Vanuatu offers legal clarity that attracts investors and sets a global standard for digital finance.”
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