Vanuatu’s Bold Move: Strict Crypto Laws to Ensure Transparency

Vanuatu passed the Virtual Asset Service Providers Act on March 26, a bold step to regulate the crypto space. The act gives the Vanuatu Financial Services Commission (VFSC) complete authority to regulate crypto companies operating in the country. 

The law is FATF compliant with international anti-money laundering and counter-terrorism financing requirements. With the law, Vanuatu aims to attract legitimate crypto companies and keep fraudsters away.

Tough Penalties for Lawbreakers

The new law gives the VFSC considerable enforcement powers. Companies or individuals that refuse to comply with the law face severe penalties, including 250 million vatu ($2 million) fines and 30-year prison sentences. 

Regulatory adviser Loretta Joseph highlighted the severity of the regulations, saying that scammers attempting to take advantage of the system will be dealt with severely in the courts. “God help any scammer who ventures into Vanuatu because you’ll end up in jail,” she said.

Learning from Past Crypto Failures

One of the primary motivators for the new Vanuatu cryptocurrency law is to prevent the kind of scenario that played out with the FTX meltdown. The FTX exchange, a giant in the cryptocurrency industry, folded in 2022 because of the fraudulent activities of its management and founders. Vanuatu does not wish to become a destination for unregulated cryptocurrency activities. Joseph pointed out that small jurisdictions such as Vanuatu tend to become places for nefarious players who desire more relaxed regulatory environments; however, this new legislation clearly states that Vanuatu is not such a jurisdiction.

What the Law Covers – And What It Doesn’t

Interestingly, the new law does not apply to stablecoins, tokenized securities, or central bank digital currencies. While these are similar to cryptocurrencies, the VFSC clarified that they are not part of the Virtual Asset Service Providers Act. That is to maintain the law as specifically targeted towards crypto businesses and money laundering.

The legislation also includes the creation of a regulatory sandbox as another unique feature. In this case, licensed businesses will be able to pilot crypto services for a year before renewal can be considered. This approach gives businesses room to innovate while staying under regulatory supervision.

Strengthening Financial Inclusion and Future Prospects

The VFSC is convinced that these rules will be good for the country in numerous ways. The government took years to determine the risks of virtual assets before developing this law. The VFSC said in a release on March 29 that this action will open up new prospects for Vanuatu, encourage financial inclusion, and facilitate regulated cross-border crypto payments.

While the bill was initially meant to be passed in September 2023, government changes, natural calamities, and the COVID-19 pandemic brought it to a halt. But Vanuatu is now the first Pacific nation to pass stringent crypto regulations, and others will follow suit shortly.

With such strict regulations, Vanuatu is looking to create a safe and reliable crypto ecosystem where only legitimate companies can conduct business.