Vanuatu, a small island nation in the Pacific, has recently passed laws to regulate digital assets and provide a licensing regime for crypto companies. This move has been hailed as a significant step towards creating a safe and secure environment for the crypto industry to thrive in the country.

The Virtual Asset Service Providers Act, passed by the local parliament on March 26, gives the Vanuatu Financial Services Commission (VFSC) the authority to license and regulate crypto companies operating within its borders. The VFSC has also been given the power to enforce the Financial Action Task Force’s Anti-Money Laundering, Counter-Terrorism Financing, and Travel Rule standards, ensuring that all crypto firms comply with these regulations.

According to Loretta Joseph, a government regulatory consultant who worked closely with the VFSC on these laws, they are “very stringent.” She added that the penalties for non-compliance are severe, with fines of up to 250 million vatu ($2 million) and up to 30 years in prison. This tough stance is a clear message to scammers that Vanuatu will not tolerate any fraudulent activities in the crypto industry.

Joseph also highlighted the importance of these laws in preventing another FTX debacle, referring to the collapse of the once Bahamas-based crypto exchange in 2022 due to massive fraud committed by its co-founders and executives. She stated that small jurisdictions like Vanuatu are often targeted by players looking for little to no regulation, but these laws will prevent that from happening.

The VFSC has also clarified that stablecoins, tokenized securities, and central bank digital currencies are not affected by these laws, as they have their own regulatory frameworks. However, the legislation does cover exchanges, non-fungible token (NFT) marketplaces, crypto custody providers, and initial coin offerings.

One notable aspect of these laws is that they allow banks to be licensed to provide crypto exchange and custody services. This move is expected to boost financial inclusion and improve cross-border payments in the country.

The VFSC has been working on this legislation for years, assessing the risks associated with virtual assets and developing a framework that will benefit Vanuatu. The regulator believes that these laws will open up numerous opportunities for the country and promote financial inclusion.

While the bill was initially expected to pass in September 2020, it faced delays due to changes in government, natural disasters, and the COVID-19 pandemic. However, the VFSC and the government have taken their time