VASP Rules in BVI – Regulations and requirements

The world is changing. Global commerce is growing, and virtual assets have claimed a significant and expanding presence in the market. The British Virgin Islands (BVI) have emerged as an important hub of virtual asset transactions. The BVI also boasts a robust set of regulations for virtual asset service providers (VASP). If you are interested in conducting business with virtual assets, this article can guide you. And if you’re ready to jump into the fray of the virtual asset business, Korporatio Inc., can help you get started in the right direction. Our highly experienced business experts can be with you through every step of setting up and running your venture. 

Virtual Assets: A Brief Overview

In general, virtual assets (or digital assets) are items of value that are represented digitally, are recorded on a cryptographically secured distributed ledger, and are not fiat currency (which is issued by the government). Virtual assets can include: 

• Stablecoins,
• Convertible virtual currency,
• Non-fungible tokens (NFTs), and 
• Cryptocurrency.

Those interested may use these types of assets to make payments or investments. Individuals may also want to transfer or trade virtual assets in their businesses. When someone wants to use these assets in the British Virgin Islands, they will likely need the help of a virtual asset service provider. Additionally, that VASP will need a VASP license. 

Should Cryptocurrency Be Regulated?

Like any other major financial activity, dealing in virtual assets, according to most governments, should be regulated. Regulations can shield your business and the public against outside actors’ dangerous activities. Some of these actors have already hit the banking world. Virtual asset regulations reduce risks for holders, transferors, and investors of virtual assets. These reduced risks can make virtual transactions more attractive to potential business associates or patrons. Regulation can benefit everyone involved in the VASP business.

As noted in a U.S. Library of Congress Law Library report, international cryptocurrency regulations have abounded in recent years. These regulations often include anti-money-laundering regulations (AML regulations) and counter-financing of terrorism regulations (CFT regulations). In 2018, the Library of Congress identified 33 nations that had CFT or AML regulations. That number ballooned to 103 nations in 2021. 

In 2022, the British Virgin Islands enacted the Virtual Assets Service Providers Act. This act has made the British Virgin Islands a formidable jurisdiction for conducting digital transactions and housing digital assets. The VASP Act sets forth requirements for VASP crypto and virtual asset licensing. Scroll down for our review of these laws.

The Virtual Assets Service Providers Act (VASP) of 2022 

VASPs handling digital, non-fiat assets in the British Virgin Islands must have a BVI crypto license or VASP license. But what is a VASP? 

What Is a Virtual Asset Service Provider?

Under the BVI laws, a VASP is a virtual asset provider that does one of the following as a business:

• Makes exchanges between one or more forms of virtual assets, 
• Provides or participates in financial services for an issuer’s sale or offer of virtual assets,
• Makes exchanges between virtual assets and fiat currencies,
• Administers or protects virtual assets or instruments that enable control over virtual assets, or 
• Makes (on behalf of others) virtual asset transfers that move virtual assets from one virtual asset account or address to another. 

The above list covers many business activities involving the virtual financial market. However, not everyone who touches the virtual market is subject to the VASP Act’s licensing requirements. 

What Is Not a Virtual Asset Service Provider?

If you are involved in any of the following, you are likely not a VASP who is subject to the licensing requirements of the VASP Act: 

• Accepting virtual assets as payment for goods or services that aren’t mentioned above.
• Making an initial coin offering by selling newly created virtual assets, such as tokens or coins.
• Only creating or selling virtual asset platforms or software applications.
• Providing ancillary infrastructure to others. This includes cloud data storage or integrity services that verify signatures.
• Providing ancillary products or services to virtual asset networks. This could include hardware wallet manufacturing and unhosted wallet provision (but not engaging in these activities on behalf of someone else and as a business). 
• Solely developing or selling unhosted wallet software or hardware.
• Providing closed-loop, non-transferable, and non-exchangeable items that can’t be used for investment or payment purposes.
• Solely engaging in the operation of virtual asset networks without facilitating or engaging in VASP activities.

There are many nuances in the distinction between VASPs and non-VASPs. So seeking professional help before launching your business could be crucial to your success and compliance. 

Requirements to Be a Virtual Asset Provider in the British Virgin Islands

Any individual who seeks to perform VASP activities in the BVI must register their company in the BVI with the Financial Services Commission (FSC). A VASP that receives a certificate of registration must follow several rules of BVI crypto regulation. 

Applying for registration

When applying to register with the BVI FSC, each VASP must include the following: 

• Its physical address in the BVI; 
• A business plan (see below);
• The names and addresses of proposed senior officers and directors;
• A written risk assessment;
• The names and addresses of individuals with controlling interests in the VASP;
• A written manual on how the VASP intends to fulfill the VASP Act’s requirements;
• The names and addresses of shareholders (including their level of shareholding); 
• Internal safeguards and data protection systems the VASP intends to use; 
• The name and address of the VASP’s proposed authorized representative;
• The VASP’s system for handling custodian relationships, assets, and complaints; and
• The name, address, and consent of the VASP’s auditor. 

And what goes in the business plan mentioned above? The business plan must outline the VASP’s or registrant’s:

• Expertise, 
• Experience, 
• Nature, 
• Knowledge, 
• Complexity, 
• Size, 
• Scope,
• Marketing,
• Technology, 
• Human resource capacity, 
• Initial capital and financial projections for the first three years, 
• Business sources, 
• Method of delivery, and 
• Outsourcing arrangements.

The above are the general requirements for a registration application. The BVI FSC may waive a requirement in light of the nature of the VASP.

Registration fees

Registration of a VASP also requires fee payments. The fee amounts depend on the type of services the VASP will provide. During a BVI company setup for a VASP, the following fees apply:

• A registrant who will not be operating as a virtual assets exchange or providing virtual assets custody service must pay a $5,000 application fee and a $7,500 initial registration fee,
• A registrant who seeks to provide virtual assets custody service must pay a $10,000 application fee and a $15,000 initial registration fee, and
• A registrant who will operate as a virtual assets exchange must pay a $10,000 application fee and a $25,000 initial registration fee. 

A registrant must pay an application fee for each service it plans to provide. 

A VASP can also expect to pay thousands in fees to establish the necessary elements of its business. These fees include:

• $200 for an application for approval of a senior officer or director,
• $1,000 for an application for approval of an auditor,
• $1,500 for approval of the appointment of an auditor,
• $2,000 for an application for approval of an authorized representative, and
• $2,500 if the FSC appoints an auditor for the VASP. 

In addition, VASPs must pay fees ranging from $300 to $1,000 if they desire to make business changes or transfer business assets. 

Timeline for Processing a VASP Registration Application

The FSC might ask the VASP to provide more information during the application process. If the FSC requests more information from you, you have 30 days to respond. 

The FSC strives to process registration applications and give feedback within six weeks of submission. And the FSC completes processing within six months of filing. The number of steps you must take to receive your license depends on the quality of your submission to the FSC.

If the FSC grants you authority to run your VASP business in or within BVI territory, then transparency, integrity, and diligent recordkeeping become the linchpins of keeping your business compliant and thriving. So let’s take a look at those values next.

VASP directors, auditors, officers, and authorized representatives must pass muster under the VASP Act 

Typically, each VASP must have the following:

• Two or more directors who fulfill Schedule 1A of the Regulatory Code and comply with FSC guidelines and requirements. These requirements also apply to senior officers.
• An authorized representative who is a knowledgeable physical resident of the BVI or a knowledgeable business. A business representative must be registered, incorporated, or formed under the BVI Business Companies Act (Revised Edition 2020), the Partnership Act (Revised Edition 2020), or the Limited Partnership Act (Revised Edition 2020).
• A financial statement auditor who is qualified under the Regulatory Code and has consented to the position. 

All of the above individuals must be approved by the FSC. 

Keeping a VASP business financially sound

It’s only proper that the VASP Act would require providers to maintain a financially sound business, right? Right. Under the VASP Act, providers must ensure that they can provide for their liabilities and have assets. And the Act requires that VASPs alert the FSC in writing if they don’t meet financial obligations.

Keeping a VASP business transparent

The VASP Act’s transparency guidelines help protect VASP clients and the broader community. These guidelines require VASPs to: 

• Keep client assets identifiable, accounted for, and appropriately segregated;
• Immediately alert clients and the FSC regarding unlawful interference with, or compromise of, assets;
• Notify the FSC and affected clients about steps the VASP is taking to restore client assets after a compromise or unlawful interference; and
• Refrain from engaging in misleading or incorrect statements in advertising. 

Keeping in line with these requirements can prevent clients and the public from falling victim to fraud and financial ruin. These requirements can also boost the reputation and profitability of a VASP business. 

Maintaining the integrity of a VASP

First and foremost, VASPs must protect their business activities against the following:

• Fraud, 
• Crime, 
• Proliferation financing, and 
• Terrorist activities. 

This means that VASPs must comply with AML and CFT requirements under the VASP Act and other laws such as:

• The Anti-Money Laundering and Terrorist Financing Code of Practice, Revised Edition 2020;
• The Anti-Money Laundering Regulations, Revised Edition 2020;
• The Proliferation Financing (Prohibition) Act; and
• The Financial Investigation Agency Act, Revised Edition 2020.

These acts include requirements to trace and collect internet protocol (IP) addresses of customers and other information consistent with the Data Protection Act. 

The VASP Act also requires individuals to receive FSC approval before doing the following:

• Selling a significant interest in a VASP, 
• Transferring a significant interest in a VASP, or 
• Acquiring a significant interest in a VASP. 

Each VASP involved in a significant transfer must take action to seek this approval. Furthermore, VASPs must foot the bill for any fees for seeking approval. 

Reporting and record requirements

If you want to maintain your certification as a VASP in the BVI, you must comply with several meticulous recordkeeping and reporting requirements. Among the records a VASP must regularly keep are easily retrievable records that:

• Enable the auditing of the VASP’s financial statements;
• Show and explain the VASP’s transactions;
• Show any complaints made against the VASP and how the VASP has addressed them; 
• Enable reasonable determination of the VASP’s financial position;
• Show the steps the VASP has taken to guard against money laundering, proliferation financing, and terrorist financing;
• Contain customer due diligence information regarding terrorist financing, money laundering, and proliferation financing laws;
• Enable reasonably accurate determination of the VASP’s financial position; and 
• Enable the VASP to make legally required returns and prepare legally required financial statements. 

Many provisions of the VASP Act’s record laws still apply after a VASP’s registration is canceled or revoked. 

Like many other business entities, VASPs have reporting obligations they must fulfill. VASPs are required to make reports about the following to the FSC:

• Significant complaints and steps taken (or steps the VASP intends to take) to resolve those complaints,
• The VASP’s level of compliance with the VASP Act, 
• The financial position of the VASP, 
• A summary of the VASP’s clients by geographical location,
• Clients’ exposure levels, 
• The VASP’s key performance indicators, and 
• The risks the VASP has faced (including plans to resolve those risks).

Fulfilling VASP Act obligations means an intricate understanding of virtual asset business laws. If you feel you cannot handle all these requirements on your own, that feeling is perfectly natural. Korporatio Inc. can help you make sure your enterprise remains compliant. 

Maintaining VASP Licensing

Registered VASPs must take steps on a yearly basis to keep their licensing. These steps include:

• Filing annual financial statements,
• Filing annual compliance officer reports, and 
• Filing annual returns.

In general, the due date of a VASP’s annual return depends on what financial year the VASP chooses.

Maintaining a VASP or crypto license also requires payment of an annual renewal fee. The following renewal fees apply:

• A registrant who will not be operating as a virtual assets exchange or providing virtual assets custody service must pay a $7,500 annual renewal of registration fee,
• A registrant who will provide virtual assets custody service must pay a $15,000 annual renewal of registration fee, and
• A registrant who will operate as a virtual assets exchange must pay a $25,000 renewal of registration fee. 

These annual costs should be heavily considered before you start your venture. 

We Are Here to Help

When you want to be on the cutting edge of international business development, we are with you. Korporatio can provide the upstart and business support services you need. We are led by entrepreneurs and we understand global markets and the intricacies of international business regulations. We can help you save time, money, and the headaches associated with starting a new venture or keeping an established business afloat. 

Don’t let a tricky new business rubric stand in the way of your dreams. Korporatio Inc., has the know-how and the experience to keep your movements in the world of corporate governance informed and smooth. If you need help establishing a virtual asset business in the British Virgin Islands, we hope you will reach out to us. You can contact us online for more information.