Vanuatu, a small island nation in the South Pacific, has taken a significant step towards regulating the cryptocurrency industry. The country’s Parliament recently passed the Virtual Asset Service Provider (VASP) Act, granting the Vanuatu Financial Services Commission (VFSC) the authority to issue licenses and regulate crypto businesses. This move puts Vanuatu in line with a growing number of nations that are implementing oversight for virtual asset service providers.
The new legislation defines virtual assets as digital representations of value that may be traded and function as a medium of exchange, a unit of account, or a store of value. However, it explicitly excludes digital representations of fiat currencies, securities, and central bank digital currencies (CBDCs). Despite this regulatory framework, cryptocurrencies are still not recognized as legal tender in Vanuatu.
The VFSC has emphasized that cryptocurrencies derive their value from market demand and supply, as well as their exchangeability for other assets. By enacting this legislation, Vanuatu aims to create a structured digital business environment that promotes competition, attracts investment, and protects consumers. Additionally, the country hopes to facilitate faster, lower-cost cross-border transactions and enhance financial inclusion.
This move towards regulation comes after years of deliberation. The VFSC began discussions on regulating the crypto industry in 2020 but faced delays due to political changes, natural disasters, and the COVID-19 pandemic. However, in June 2024, VFSC Commissioner Branan Karae reaffirmed the government’s commitment to finalizing the bill, leading to its enactment in March 2025.
The VASP Act sets out strict licensing and compliance requirements for virtual asset exchanges, non-fungible token (NFT) marketplaces, custody providers, and even banks offering crypto exchange and custody services. The VFSC has been granted extensive investigative and enforcement powers to ensure compliance with Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) regulations. Violations of the act can result in severe penalties, including fines of up to 250 million vatu ($2 million) and prison sentences of up to 30 years.
To encourage innovation while maintaining oversight, the VFSC has introduced a regulatory sandbox that allows companies to operate as virtual asset service providers for an initial period of one year, with the possibility of renewal. This provision is expected to enable businesses to test their operations in a controlled environment before obtaining a full license.
Vanuatu’s decision to regulate the crypto industry aligns with recent actions taken by other offshore financial hubs. The Cayman Islands, Taiwan, and Turkey have all updated or tightened their crypto regulations to comply with global AML and investor protection standards. Vanuatu, known for its status as an offshore financial center and tax haven, aims to uphold high compliance standards for digital asset service providers through these new regulations.
The success of Vanuatu’s crypto regulatory framework will depend on effective implementation and enforcement by the VFSC. As the country looks to attract quality crypto businesses while ensuring financial integrity and security, the next few years will be critical in determining the impact of these new regulations on the digital asset industry in Vanuatu.