The Pacific island nation just became the latest jurisdiction to officially enter the global market for digital assets.
The words ‘digital asset’ were used for the very first time by Vanuatu lawmakers in an amendment to the Financial Dealers Licensing Act that was gazetted on July 22. They define it as “an immaterial asset in digital form stored on a distributed ledger technology (such as blockchain) and representing a set of rights or values.”
Domestic and foreign businesses who apply for a Vanuatu Financial Dealer License (FDL) will be able to “provide service of distribution, secondary trading, custodial storage, provision of investment advice or other services in relation to digital assets,” according to the amendment.
While digital assets can be used to represent all kinds of financial instruments and derivatives, their most popular application is digital currencies including crypto.
“This is great news for Vanuatu’s financial dealers who had been waiting for the proper framework to respond to the explosive demand for digital asset services by traders around the world,” said Martin St-Hilaire, President of the Financial Markets Association of Vanuatu, which represents 12 prominent licensees and 6 registered agents in the FDL program.
Building in security
Additionally, the amendment strengthened protections in place to fight against financial crime. In addition to stringent financial regulations already in place since the country’s extensive legislative overhaul three years ago, FDL holders trading digital assets will now be required to have a substantial presence in Vanuatu.
Domestic and foreign financial dealers alike will need to set up an office in the country with a manager who normally resides there for at least 6 months of the year; they also have the option of hiring a licensed manager, who will represent them there before the authorities.
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“This is a smart move by legislators because they’re taking two positive steps at once: they’re paving the way for new growth opportunities in the financial sector while doubling down on protecting consumers. Only by having zero tolerance for financial crime can we make our growth sustainable in the long term,” said St-Hilaire.
How caution turned into support
Digital assets have been a hot button issue among the world’s financial regulators in recent years, with one jurisdiction after another introducing their own regulatory framework.
Back in 2018, the Vanuatu Financial Services Commission urged caution by suspending the granting of licenses for blockchain and cryptocurrency dealings and appointing a Distributed Ledger Task Force to work out a legal framework. The recent amendment is the direct result of that task force, in collaboration with the Reserve Bank of Vanuatu, the Vanuatu Chamber of Commerce and Industry, the Financial Investigation Unit, and the State Law Office. The group is currently working on additional legislation, to be announced later this year, that will further support the growth of the digital asset industry.
One recent event that helped spur support for digital assets was last year’s UnBlocked Cash project, in which NGO Oxfam gave digital tokens to residents of Vanuatu affected by Cyclone Harold, allowing them to buy essential supplies right away. This tangible demonstration of the benefits and safety of blockchain currency earned official support from the Reserve Bank of Vanuatu, which has previously deemed such assets ‘illegal’. Today, they are not only fully legal but supported by a clear framework.