The end of offshore licences in Vanuatu: Understanding the new rules

October 16, 2022

The end of offshore licences in Vanuatu: Understanding the new rules

View of Port Vila by Vanuatu Tourism Office/David Kirkland

Following last year’s amendment to the Financial Dealer Licensing Act of 2018, our regulator, the Vanuatu Financial Services Commission (VFSC), is now requiring all applicants for a Financial Dealer License (FDL) to establish a physical presence as well as economic substance in Vanuatu.

In practical terms, this means that, from October 2022 onward, every FDL applicant must send at least one member of its management team to live and work in Vanuatu, rent an office, obtain a domestic business licence, register as a foreign investor, register as an employer and employ local staff.  

This represents a sea change in the way financial dealers do business in our country. For many years, the vast majority of FDL holders were online brokers who operated from abroad, ensured compliance with the VFSC remotely, and never set foot on our shores. This will not be possible anymore.

As the world goes ever more virtual, there has been a noticeable trend in the financial industry in the opposite direction. Jurisdictions across the world are now “going onshore” by no longer awarding licenses to remote applicants. Vanuatu is no exception.

The reason behind the trend is pragmatic. For years the financial industry has been tainted by the scourge of scammers, hackers and other cybercriminals who could operate with impunity due to the borderless nature of our business. There is no better way to attenuate that risk, and protect all market participants in the process, than to put borders back in the equation and require financial dealers to operate within the physical reach of regulators and law enforcement.

In addition to reducing the risk of financial crime, onshoring requirements generally result in attracting financial dealers of the highest quality. Applicants who are willing to establish a physical presence and economic substance in our country demonstrate that they take financial dealing seriously, with all the service levels, operational efficiency, and legal compliance that it entails. 

From now on, retail investors across the world will know that Vanuatu financial dealers are stable businesses with firm ties in our community, and are in it for the long run.  

While there have been regulatory mistakes in the past, and Vanuatu-licensed brokers understandably received bad press at the time, our ambition is that the new Vanuatu FDL will become synonymous with accountability, expertise, efficiency and fairness – the four founding values of our association.

The licence is now permanent – no need for annual renewal – under the condition that the holder actively uses it in accordance with the law. All licensees who did not comply by the October deadline had their FDL withdrawn.  

At the time of writing, a limited number of brokers have managed to meet the new VFSC standard and receive the new FDL. They are all, however, significant players in the industry, with large customer bases and workforces numbering in the hundreds. 

Most have sent more team members to Vanuatu than the legally required minimum of one person. These people are typically experienced professionals in key business units such as compliance, RiskOps, marketing, customer support, IT development, etc. They are able to quickly access company dashboards if needed, and provide information locally on client files or trading volume and activity, which is key for enforcing regulatory compliance. This is precisely one of the capabilities the onshoring rule aimed to promote.

On a human level, VFSC officials and FDL agents now have the pleasure of working face to face with Vanuatu’s brokers and developing strong relationships that will help further our shared goal of growing the country’s financial industry.

If you are a broker interested in obtaining a permanent licence, please get in touch with an FDL agent such as one of the FMA’s founding members (see their logos at the bottom of this page). They are well-equipped to help you every step of the way, including with the facilitation of work visas and helping your team members start a new life with their families in Vanuatu. 

Vanuatu is only beginning its journey on the road to becoming a global fintech hub, and the current regulatory transition is the perfect opportunity for brokers to get in early and help our industry achieve its full potential. Besides being a great place to do business, our country’s pristine beauty and unique quality of life will certainly make your change of address worthwhile.

Picture courtesy of the Vanuatu Tourism Office

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