In an age where digital assets are becoming increasingly integral to global finance, Seychelles is taking a pioneering step to ensure a secure and thriving virtual asset market. The Virtual Asset Service Providers Bill, 2024 (Bill No. 12 of 2024) (VASP Bill), which is due to come into force and implemented imminently, sets a robust legislative framework designed to regulate virtual asset service providers (VASPs) and mitigate potential financial crimes such as money laundering and terrorist financing.
SEYCHELLES’ FORWARD-THINKING APPROACH TO FINANCIAL CRIME RISKS
Following the 2021 National Risk Assessment, which highlighted substantial exposure to money laundering and terrorist financing (ML/TF) risks linked to virtual assets, Seychelles recognized the urgency of implementing stringent regulatory measures. The Financial Action Task Force (FATF) recommends that jurisdictions proactively evaluate and address financial crime risks, especially those posed by new technologies. In line with FATF’s Recommendation 15 (New Technologies), this VASP Bill is a testament to Seychelles’ commitment to managing these risks effectively.
KEY FEATURES OF THE SEYCHELLES VASP BILL
The VASP Bill introduces several critical measures aimed at creating a secure and transparent environment for virtual assets.
Here are the key features:
- Licensing Regime: The VASP Bill mandates a licensing system for specific virtual asset products and services including wallet providers, exchanges, broking, and investment providers. This ensures that only authorized entities can operate as VASPs in or from Seychelles, providing a safeguard against unauthorized activities.
- Licensing Criteria: The VASP Bill specifies certain key licensing criteria for VASPs including capital, solvency and insurance requirements, cybersecurity measures, prudential and market conduct requirements, audit requirements, and fit and proper assessments of directors and principal officers.
- Substance Requirements: In order to ensure transparency and accountability, the VASP Bill introduces certain substance requirements that VASPs shall have to meet in order to provide their services in or from Seychelles.
- Registration of Promoters: Promoters of initial coin offerings (ICOs) and non-fungible tokens (NFTs) must register, ensuring transparency and accountability within these innovative financial sectors.
- Prohibition of Unauthorized Activities: The VASP Bill prohibits the promotion or provision of virtual asset products and services without proper authorisation, thereby preventing fraud and misuse. The VASP Bill also prohibits operation of mining facilities, mixer or tumbler services and validator services in or from Seychelles.
- Enhanced Monitoring: The VASP Bill provides for increased oversight via compliance inspections and investigations, and action against online VASPs claiming to be regulated in Seychelles will protect consumers and the integrity of the market.
- Supervisory Measures: Specific control measures to monitor and mitigate ML/TF and other financial crime risks have been introduced in order to ensure that VASPs adhere to high standards of integrity.
EMPOWERING THE FINANCIAL SERVICES AUTHORITY
The Financial Services Authority (FSA) is designated as the regulatory authority responsible for enforcing the VASP legislation. The FSA is empowered to:
- Inspect and investigate cases of non-compliance;
- Grant and revoke licenses;
- Register ICO and NFT promoters;
- Issue guidelines and directives to ensure compliance;
- Request for information;
- Undertake enforcement actions.
This proactive approach empowers the FSA to maintain the integrity of the Seychelles financial landscape.
CONSUMER PROTECTION AND EDUCATION
An essential aspect of the VASP Bill is its focus on consumer protection and education. By raising awareness about scams and virtual asset misuse, the VASP Bill helps safeguard consumers against illicit activities. It mandates sufficient protections for victims of such activities and promotes responsible innovation and use of technology within the virtual asset space.
CONSEQUENTIAL AMENDMENTS
To ensure seamless integration, the VASP Bill includes amendments to related acts such as:
- Anti-Money Laundering and Countering the Financing of Terrorism Act, 2020
- Financial Services Authority Act, 2013
- International Business Companies Act, 2016
- Financial Consumer Protection Act, 2022
These amendments align existing laws with the new regulatory framework for virtual assets, enhancing overall regulatory coherence.
TRANSITIONAL PROVISIONS
When the VASP Bill comes into force, all persons providing virtual asset services (VASPs) must make an application to the FSA under the VASP Bill, by the 31st December 2024, to be issued with a licence or authorised as a registrant promoter of virtual assets in accordance with the terms of the VASP regulations. Meantime, a person may continue to carry out its business activities until its application for a licence is granted or refused or a registrant is authorised to issue an initial coin offering or a non-fungible token and such decision shall be communicated in writing to the applicant by the FSA.
CONCLUSION
The Virtual Asset Service Providers Bill, 2024, marks a significant milestone in Seychelles’ journey towards a secure, transparent, and innovation-friendly virtual asset ecosystem. By introducing comprehensive regulatory measures, the VASP Bill not only addresses current financial crime risks but also lays the foundation for sustainable growth and consumer confidence in the burgeoning field of virtual assets.
As we move forward, Seychelles remains committed to fostering an environment that balances technological innovation with robust regulatory oversight, ensuring the country remains at the forefront of global financial leadership.
For further information, please contact:
Malcolm Moller, Partner, Appleby
mmoller@applebyglobal.com
