Vanuatu imposes licensing regime on businesses dealing in digital assets

Key Points

Financial Dealers in Vanuatu must now hold a Class D License under the Financial Dealers Licensing (Amendment) Act No. 9 of 2021 if dealing in Digital Assets;
A Digital Asset means “an immaterial asset in digital form stored on a distributed ledger technology (such as blockchain) and representing a set of rights or values”;
A Class D License is available to Expert and Sophisticated Investors; and
The regime is overseen by the Vanuatu Financial Services Commission and may serve as the beginning of the regulative regime for Digital Assets in Vanuatu.

Introduction

Financial Dealers who carry on businesses dealing in Digital Assets in Vanuatu such as cryptocurrency, tokens or stable coins are now required to be licensed under the Financial Dealers Licensing (Amendment) Act No. 9 of 2021 (the Act). The license, labelled as Class D License, is only available for Financial Dealers who already hold a Class A, Class B or Class C License.[1] The regime is overseen by the Vanuatu Financial Services Commission (VFSC).

What is a Digital Asset under the Act?

Under the Act a “Digital Asset” is “an immaterial asset in digital form stored on a distributed ledger technology (such as blockchain) and representing a set of rights or values”.[2] In addition, the VSFC has provided, via a Guidance Note, that it “considers as a Digital Asset, any token in electronic/binary form which is representative of either the holder’s access rights to a service or of the ownership of an asset”.[3]

In this regard, the VSFC has stated that a Digital Asset includes a digital representation of value which:

(a) is used as a medium of exchange, unit of account, or store of value but which is not legal tender, even if it is denominated in legal tender;

(b) represent assets such as debt or equity in the promoting company; or

(c) provides access to a block-chain based application, service or product.[4]

However, according to the VSFC a Digital Asset excludes:

(a) any transaction in which a business, as part of an affinity or rewards programme, grants value, which cannot be exchanged for legal tender, bank credit or any Digital Asset; or

(b) a digital representation of value issued by on or behalf of the publisher for use within an online game platform.[5]

Who can get a license?

A Class D License is only available to Financial Dealers who hold a Class A, Class B or Class C License. However, in addition, the VSFC has stated that, given the high-risk and speculative nature of the asset class, a Class D License will only be available to “Sophisticated investors, Expert Investors, Expert Funds, Specialised Collective investment schemes, Professional Collective Investment Schemes (PCIS) and Closed-End Funds (CEF).[6]

What is required from a licensee?

A Class D License Holder is required to do several things under the Act, including but not limited to:

(a) establish a physical presence in Vanuatu – with a number of key personnel present in Vanuatu;[7]

(b) establish a separate Escrow Account for Investor’s funds; and[8]

(c) ensure compliance with Anti-Money Laundering and Counter-Terrorism Financing legislation.[9]

Other regulatory considerations relating to Digital Assets

Due to the emerging scope and use of Digital Assets, business owners should also consider whether their activities with Digital Assets triggers the applicability of other regulatory regimes, for example where the use or storage of a Digital Assets falls within the definition of a “financial product” proper safeguards may apply. Businesses that deal in Digital Assets should also consider the applicability of misleading and deceptive conduct legislation and take care when advertising services regarding Digital Assets to consumers.[10]

Conclusion

In Vanuatu, the recognition of digital assets as an asset class under the Act and the licensing of financial dealers who carry on businesses dealing in digital assets may set the platform for more regulation to come in this space. For example, the VFSC have voiced concerns over the unregulated nature crypto exchanges, so whether legislation may be presented by Parliament remains to be seen. For more information regarding how the Act may affect your business or how to apply for a Class D License, please contact us.

[1]Financial Dealers Licensing (Amendment) Act No. 9 of 2021, s 8. [2] Ibid, s 6. [3] VFSC Guidance Notes on Digital Assets, para 5. [4] Ibid. [5] Ibid. [6] VFSC Guidance Notes on Digital Assets, para 8. [7] Ibid, para 25. [8] Ibid, para 27. [9] Ibid, para 28 [10] Ibid, para 18.