The Pacific Island nation of Vanuatu expects to enact a long-awaited digital asset and service provider bill as early as September. 

Vanuatu Financial Services Commission (VFSC) Commissioner Branan Karae mentioned in his opening remarks at a digital assets symposium, organized by the country's financial regulator on June 27, that the bill is expected to be enacted during the first week of Parliament.

VFSC policy consultant Loretta Joseph, who was a speaker at the conference, told Cointelegraph that the bill had been ready for a few years but had been consistently delayed due to several cabinet changes.

The bill, first introduced in 2020, will establish licensing and registration requirements for virtual asset service providers (VASPs) in the country, allowing them to operate legally within the island nation for the first time. 

Joseph said the bill will help Vanuatu meet the standards set by the intergovernmental body the Financial Action Task Force (FATF). The FATF requires countries to assess and mitigate risks associated with crypto service providers and activity.

“The FATF is calling on countries to have legislation around virtual assets. No country in the world can ignore this,” Joseph said.

Vanuatu’s five crypto licenses

Under the proposed act, five license classes will cover service providers that provide a means of exchange between virtual assets and fiat currencies and those that offer crypto custody, among other functions.

The VFSC will monitor the activities of all VASPs and ensure they adhere to Anti-Money Laundering and Counter-Terrorism financing laws.

The regulator’s Commissioner will have the power to veto licenses and is also allowed to appoint an inspector to ensure licensed VASPs are operating in compliance with the Act.

There will also be a “Fintech Sandbox Utility” — allowing a company seeking to become licensed a way to operate for 12 months without one first.

The act requires any person carrying out VASP activities to be licensed with penalties including fines of  25 million Vanuatu vatus ($207.7 million) or imprisonment for 15 years, while a corporation can be fined $2.1 million.

Joseph noted that many smaller nations, including Vanuatu, are in need of ways to “bring economic prosperity” and that the bill could cement the country as an international financial center.

“They’re islands, they can’t build cars, can’t build a car manufacturing unit.”

“These jurisdictions, which become offshore financial centers, play a very important role in economic traffic and moving money around,” she said.

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Vanuatu, located in the South Pacific Ocean and consisting of 13 principal islands, had a gross domestic product of $1.1 billion in 2022, according to the World Bank.

Its economy is primarily based on agriculture, with 80% of the population engaged in agricultural activities. It is also regarded as a tax haven and international financial center, according to the U.S. State Department.

The country is home to around 2,300 registered institutions offering offshore banking, legal, accounting, insurance and trust services, among others.

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