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The Pacific island nation of Vanuatu has taken a decisive step in regulating digital assets by passing the Virtual Asset Service Providers Act on March 26. This landmark legislation establishes a strict licensing and oversight framework for crypto companies under the Vanuatu Financial Services Commission (VFSC).
Aimed at preventing illicit activities, the law enforces Financial Action Task Force (FATF) standards on Anti-Money Laundering (AML), Counter-Terrorism Financing (CTF), and the Travel Rule. Crypto exchanges, NFT marketplaces, and custodial services will now require formal approval to operate within the country.
VFSC has been granted extensive investigative and enforcement powers, with violations carrying penalties of up to 250 million vatu ($2 million) or 30 years in prison.
Regulatory consultant Loretta Joseph, who assisted in crafting the law, warned bad actors to stay away, stating, “God help any scammer that goes into Vanuatu because you’ll go to jail.”
Aiming to Prevent Another FTX-Style Disaster
Vanuatu’s stringent approach stems from concerns that small island nations are often targeted by unregulated crypto firms seeking lax oversight. Joseph emphasized that the country is determined to avoid an FTX-style disaster, referring to the collapse of Sam Bankman-Fried’s fraudulent exchange in 2022.
Unlike loosely regulated jurisdictions, Vanuatu is positioning itself as a secure hub by enforcing strict compliance while allowing a one-year regulatory sandbox for crypto firms to test their operations. However, stablecoins, tokenized securities, and CBDCs are excluded from the new framework.
Vanuatu Takes a Bold Step Towards Crypto Regulation
The VFSC commissioner highlighted that the framework was developed after years of risk assessment and would create “numerous opportunities” for the nation while ensuring consumer protection and financial stability.
Initially expected to pass in 2023, the bill faced delays due to political shifts, natural disasters, and COVID-19 disruptions. With this move, Vanuatu becomes the first Pacific country to implement a dedicated digital asset regulatory structure.
