Definitions and scope of the Act

VASPA is divided into six parts, each addressing specific aspects of VASP operations. Part I introduces VASPA, defining key terms such as “virtual assets”, “virtual assets service”, and “VASPs”. It outlines the scope of VASPA, emphasising its application to entities operating within or from the British Virgin Islands (BVI). The Financial Services Commission (FSC) and the Financial Investigation Agency (FIA) are granted powers to oversee compliance and enforce regulations.

Registration requirements for VASPs

Part II of VASPA focuses on the registration requirements for VASPs. It prohibits unregistered entities from providing virtual asset services and mandates a detailed registration process. Applicants must provide extensive information, including business plans, risk assessments, and compliance measures. The FSC evaluates applications based on criteria such as financial soundness, organisational structure, and the “fit and proper” status of directors and officers. Registered VASPs are required to maintain financial stability, appoint authorised representatives and comply with audit requirements.

General obligations and compliance standards

Part III of VASPA outlines the general obligations of VASPs, emphasising transparency, record-keeping, and client asset protection. VASPs must report significant changes in their operations, maintain accurate records, and safeguard client assets. They are also required to comply with applicable ML/TF/PF and sanctions regulations, adopting measures to trace and collect customer information. Misleading advertisements and statements are strictly prohibited, and the FSC is empowered to enforce compliance.

Custody and exchange services for virtual assets

Part IV of VASPA addresses virtual asset custody and exchange services. VASPs providing custody services must implement robust security measures, ensure asset segregation, and disclose risks to clients. Virtual asset exchanges are subject to stringent requirements, including organisational and financial adequacy, risk mitigation, and public interest considerations. The FSC may impose conditions on exchanges, such as geographic restrictions and client eligibility criteria.

Regulatory sandbox for innovation

Part V of VASPA introduces the concept of a regulatory sandbox, allowing VASPs to test innovative financial technologies under controlled conditions. Entities seeking to participate must apply for approval and comply with the applicable sandbox regulations. The FSC may exempt sandbox participants from certain provisions of VASPA, provided they adhere to ML/TF/PF and sanctions requirements.

Miscellaneous provisions and enforcement

Part VI of VASPA includes miscellaneous provisions, such as the establishment of a VASP register, enforcement powers, and penalties for non-compliance. The FSC is authorised to revoke registrations, impose administrative penalties and issue directives to ensure adherence to VASPA. Existing VASPs operating before VASPA’s commencement should have applied for registration within six months (by July 2023) to continue their operations.

Flexibility and integration with other regulations

VASPA also provides for the amendment of its Schedule, enabling the Cabinet to update penalties and other provisions as necessary. It integrates the Regulatory Code(Revised Edition 2020) (the RC) to enhance compliance and governance standards for VASPs. Specific rules relating to VASPs under the RC have not yet been developed.

Conclusion

In summary, VASPA represents a significant step toward regulating the virtual asset industry in the BVI. By establishing a robust legal framework, VASPA seeks to promote transparency, protect investors, and mitigate risks associated with virtual asset transactions. It underscores the BVI’s commitment to fostering a secure and compliant environment for virtual asset services and other FinTech initiatives.

Further reading

• VASPA