The aim of this article is to help explain and simplify a complex, technical piece of legislation, the British Virgin Islands’ Virtual Asset Service Providers Act (“VASP Act”).
It should be noted that the obligations of virtual asset service providers (“VASP(s)”) to comply with the British Virgin Islands Anti-money Laundering (Amendment) Regulations, 2022 which came into effect on 1 December 2022 are separate from any obligations that are dealt with in this article which focusses solely on the VASP Act which became law on 1 February 2023.
Although an individual could be a VASP, this article relates to British Virgin Islands (“BVI”) registered companies and partnerships.
What is a virtual asset?
The term “virtual asset” has a very broad definition under the VASP Act. A virtual asset is defined as a digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes (excluding a digital representation, or record, of fiat currency). This definition includes tokens, cryptocurrencies and non-fungible tokens.
What is a Virtual Asset Service Provider?
Subject to certain exemptions, under BVI law, a VASP means a BVI registered entity (including a company or partnership) that provides as a business, on behalf of another person, any of the following activities:
- exchange between virtual assets and fiat currencies;
- exchange between one or more forms of virtual assets;
- transfer of virtual assets from one virtual asset address to another;
- safekeeping or administration of virtual assets; or
- participation in, and provision of, financial services related to an issue, offer or sale of a virtual asset.
What is the Virtual Asset Service Providers Act?
It is a piece of legislation that provides for the supervision and registration of BVI VASPs in relation to:
- transactions involving virtual assets;
- conducting business to provide virtual asset services;
- the approval of the provision of virtual assets custody services; and
- the approval of virtual asset exchanges.
What is the purpose of the VASP Act?
The main aim of the VASP Act is to introduce a regulatory framework which sets minimum standards within the virtual assets sector in terms of corporate governance, risk management and compliance to ensure that the reputation of entities registered in the BVI is upheld and that VASP customers are offered a degree of protection.
Are there any exceptions to what constitutes a VASP?
Under the VASP Act companies that carry on limited specific activities, which could be considered as activities that the VASP Act would regulate, are exempt provided that their business is limited to the following:
- the provision of information technology infrastructure such as cloud storage;
- the provision of software development services including the creation or selling of software applications or a virtual asset platform;
- the provision of unhosted wallets whose function is only to develop or sell software or hardware;
- the provision of ancillary services or products to a virtual asset network; or
- are solely engaging in the operation of a virtual asset network without engaging or facilitating any of the activities or operations of a VASP on behalf of customers.
Do your business’s activities get caught by the VASP Act?
Although every business will need to be analysed on its own facts, the following activities would likely be caught under the VASP Act:
- virtual asset payment or transfer services;
- selling virtual assets on behalf of another person or entity;
- carrying on a crypto/NFT launchpad;
- operating staking pools and liquidity pools for profit where a third party owns the virtual assets;
- market making or providing liquidity or other financial services in connection with token issuances, exchange listings or auctions.
Where an entity is engaged in a token issuance on its own behalf, i.e. proprietary trading, this is unlikely to be VASP.
What are the Requirements for Entities Caught Under the VASP Act?
If your entity is caught under the VASP Act you must register with BVI’s Financial Services Commission (“FSC”).
What documents are needed for registration as a VASP?
In order to be registered as a VASP an application will need to be submitted to the FSC along with the following information:
- the names and addresses of the directors and senior officers of the VASP (and at least two of the directors must be individuals);
- the names and addresses of shareholders of the VASP and details of their shareholding;
- details of the auditor of the VASP;
- details of the proposed authorised representative of the VASP (a service which Bolder can provide);
- a detailed business plan;
- a written risk assessment;
- a written compliance manual showing how the applicant, if granted registration, intends to comply with the requirements of the VASP Act and any other BVI regulations;
- the internal safeguards and data protection (including cyber security) systems intended to be utilised; and
- the system to be put in place on how the VASP will handle client assets, custodian relationships and complaints.
In addition, the FSC also has the power to request any additional information it deems appropriate in support of any application.
What are the ongoing requirements for a VASP?
A VASP must at all times have the following functionaries:
- an authorised representative, i.e. an entity that acts as the main point of contact for the VASP and the FSC. Bolder can provide this service on request.;
- an auditor; and
- an individual approved by the FSC who acts as the compliance officer of the VASP.
In addition, a VASP must submit to the FSC audited annual returns within 6 months of their financial year-end.
What is the deadline to register with the FSC?
For entities carrying on virtual asset services prior to 1 February 2023, the deadline for submitting an application to be registered as a VASP is the 31 July 2023. Prior to the deadline a company or partnership should undertake a VASP analysis, prepare to register as a VASP, cease operating as a VASP or migrate out of the BVI.
Any newly formed entity will need to be registered as a VASP before engaging in providing virtual asset services.
What are the regulatory fees associated with a VASP application?
The FSC regulatory fees for the various types of VASP applications are as follows:
|VASP applicant seeking to provide virtual asset custody services||$10,000|
|VASP applicant seeking to operate a virtual assets exchange||$10,000|
|Any other virtual assets service||$5,000|
What are the consequences of carrying on VASP activities without a VASP licence?
Any entity carrying on virtual asset services without being registered under the VASP Act is liable on conviction to a fine of up to US$100,000 and/or for any director, partner or senior officer to be imprisoned for 5 years.
If your BVI entity is, or may be, a VASP, or you are thinking of setting up a VASP in the BVI you should contact BGA Law for a more in-depth analysis.
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