Vanuatu adopts crypto regulations: here’s what you need to know

The island nation of Vanuatu has passed regulations for the cryptocurrency industry in a bid to attract compliant firms while deterring bad actors.

According to a March 31 press release, the country’s Parliament approved the Virtual Asset Service Provider (VASP) Act last week, officially bringing digital assets under a formal legal framework.

The law hands regulatory powers to the Vanuatu Financial Services Commission (VFSC), which will oversee licensing and enforce compliance with global standards like the FATF’s anti-money laundering and travel rule policies.

As previously reported by Invezz, the new framework has been in the works since 2020, developed by the VFSC in partnership with the Distribution Ledger Technology Taskforce Committee, the Virtual Assets Task Force Committee, and digital asset regulatory consultant Loretta Joseph. 

What the VASP Act Covers

The VASP Act defines virtual assets as “digital representations of value” that can function as a medium of exchange, unit of account, or store of value. 

However, it excludes fiat-backed assets, securities, and central bank digital currencies (CBDCs) from its scope.

Cryptocurrencies are also not recognised as legal tender in Vanuatu, despite the new regulations.

Under the new law, crypto firms, including exchanges, NFT marketplaces, custody providers, and ICO projects, must register and operate under a licensing regime that offers various classes of licences based on the nature and scale of services provided.

It also establishes a Fintech Sandbox Utility, allowing licensed entities to trial crypto services for up to a year or beyond before implementation.

While the new law regulates virtual assets, it does not make them legal tender in Vanuatu.

However, the VFSC acknowledges that cryptocurrencies have market-driven value, as they can be exchanged for other assets.

Despite the legal clarity, the VFSC warned retail users of the risks.

In its official announcement, the agency reminded the public that statutory compensation schemes do not cover crypto investments in Vanuatu and urged them to avoid such investments without a full understanding of the risks.

Virtual assets may be considered an asset class only for Sophisticated Investors, Expert Investors, Expert Funds, or professional collective investment schemes, it added.

It added that virtual assets should be considered an asset class only for Sophisticated Investors, Expert Investors, Expert Funds, or professional collective investment schemes.

It is also expected to attract investment, promote innovation, and boost cross-border payments, with the potential to “improve financial inclusion” across the Pacific island nation.

More countries move to regulate crypto

Vanuatu’s move is part of a broader global shift, as more countries race to bring cryptocurrencies under proper oversight. 

For instance, the European Union has rolled out its benchmark Markets in Crypto-Assets regulations late last year to implement a bloc-wide standard on crypto asset issuance and service providers.

In Asia, countries like Hong Kong, Singapore, and South Korea have already taken the lead with licensing frameworks for crypto exchanges and custody services.

Meanwhile, in the United States, President Donald Trump’s administration has vowed to clarify crypto regulations.

Smaller jurisdictions have also become especially proactive.

The Cayman Islands, for example, introduced its own VASP framework in 2020 under the oversight of the Cayman Islands Monetary Authority.

More recently, Pakistan formed a national crypto council to draft and oversee the regulation and integration of blockchain technology and digital assets into its financial system.

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