The Seychelles has introduced the Virtual Asset Service Providers (VASP) Bill, 2024, to regulate virtual asset activities. Here's what founders should be aware of.
Key points
- Who: All Virtual Asset Service Providers (VASPs) operating in Seychelles
- What: Must obtain a license from the Financial Services Authority (FSA) and comply with new regulations as outlined in the Virtual Asset Service Providers (VASP) Bill, 2024
- Why: To enhance investor protection and align with global standards
- When: By December 31, 2024
- Where: Seychelles, with local office and resident directors required
- How: By adhering to licensing requirements, substance rules, and avoiding prohibited activities as outlined in the 2024 VASP Bill
📌 If you're an existing Legal Nodes customer who has registered a Seychelles company for virtual asset activities, our team has already reached out to you to suggest the next steps. For additional support, contact your VLO directly via your Legal Nodes account.
Detailed overview of the Seychelles VASP Bill 2024
The Virtual Asset Service Providers (VASP) Bill, introduced in July 2024, marks a significant shift in Seychelles' approach to regulating virtual asset activities. Here are the key details of the new law:
- Comprehensive Licensing System: The VASP Bill introduces a mandatory licensing regime for virtual asset services, including wallet providers, exchanges, brokers, and investment services. This ensures only authorized entities can operate in the Seychelles, enhancing market integrity.
- Stringent Licensing Criteria: VASPs must meet specific requirements, including capital and solvency standards, cybersecurity measures, and fit and proper assessments for key personnel. This helps maintain high operational standards within the industry.
- Substance Requirements: To promote transparency and accountability, VASPs must establish a local presence, including an office and at least one resident director, and conduct regular meetings in the Seychelles.
- Regulated Activities: The bill covers a wide range of virtual asset services, ensuring comprehensive oversight of the sector.
- ICO and NFT Oversight: Promoters of Initial Coin Offerings (ICOs) and Non-Fungible Tokens (NFTs) must register with the FSA, bringing these innovative financial products under regulatory purview.
- Prohibited Activities: The bill explicitly bans certain high-risk activities, including operating mining facilities and mixer/tumbler services, to mitigate potential financial crimes.
- Robust Compliance Framework: VASPs must implement comprehensive compliance procedures, including cybersecurity measures and regular reporting to ensure ongoing adherence to regulatory standards.
- Enhanced AML Measures: The bill strengthens existing anti-money laundering laws to include VASPs, reinforcing the Seychelles’ commitment to combating financial crimes in the virtual asset space.
Permissible activities
The Act outlines the permissible activities for which a license may be issued:
- Virtual Asset Wallet Providers: Custodial services that enable the management, transfer, and safekeeping of virtual assets, Initial Coin Offerings (ICOs) and Non-Fungible Tokens (NFTs), for and on behalf of clients.
- Virtual Asset Exchange: Services facilitating the exchange between (1) virtual assets, ICOs, NFTs, and fiat currencies for and on behalf of clients or (2) one or more forms of virtual assets, ICOs, NFTs, and fiat currencies for and on behalf of clients; as well as transfer, safekeeping, and management of these assets.
- Virtual Asset Broking: Services that facilitate the exchange or safekeeping of virtual assets, ICOs, NFTs, and fiat currencies through a virtual assets wallet provider and virtual assets exchange for and behalf of clients.
- Virtual Asset Investment Providers: Services offering investment and fund management portfolios of virtual assets, ICOs, NFTs, and delivering investment advice for these assets.
For detailed clarification of each activity, refer to the Virtual Assets Service Providers (VASP) Act 2024.
Prohibited activities
The Act expressly prohibits the following activities:
- Operating a mining facility, mixer, or tumbler service in or from Seychelles.
- Using specific words such as "blockchain," "cryptocurrency," "currency," "deFI," "digital wallet," "hot/cold wallet," "exchange," "ICO," "NFT," "virtual," "virtual coin," or "Web 3" in registered business or trade name, unless the entity is a licensee or registrant under the VASP Act.
Costs associated with VASP licensing in Seychelles
The VASP Bill introduces a fee structure for licensing and operations. Here's a breakdown of the costs:
- Base Application Fee: SCR 75,000 (approximately USD 5,750) for a VASP license application.
- Registration Fee: SCR 22,500 (approx. USD 1,700)
- Additional Annual Fees: Depending on the specific activities, VASPs will need to pay the following annual fees:
- Virtual Asset Wallet Provider: SCR 300,000 (approx. USD 23,000)
- Virtual Asset Exchange: SCR 175,000 (approx. USD 13,400)
- Virtual Asset Broking: SCR 150,000 (approx. USD 11,500)
- Virtual Assets Investment Provider: SCR 75,000 (approx. USD 5,750)
- Company Registration Fee: USD 130 for setting up an International Business Company (IBC), with an annual renewal fee.
- Additional Licenses: VASPs may need to procure separate licenses from the FSA depending on their activities, incurring additional charges.
These costs can be found in the Second Schedule of the Virtual Asset Service Providers Bill, 2024 and in the Licensing and Registration Fees, Financial Services Authority (Jul. 5, 2022).
Please note: these costs are not set by Legal Nodes or associated with Legal Nodes. They are decided by the Seychelles authorities, and they may change.
Evolution of VASP Regulation in Seychelles
Historically, Seychelles has been a popular jurisdiction for cryptocurrency exchanges and virtual asset businesses due to its favorable regulatory environment. Notable exchanges like OKX, KuCoin, and MEXC Global have been incorporated in Seychelles. However, this lack of regulation also posed significant risks.
In 2022, Seychelles conducted a National Risk Assessment (NRA) for virtual assets and VASPs. The NRA concluded that there were very high risks of money laundering and terrorist financing if VASPs were allowed to operate without regulation. This assessment, coupled with pressure from the Financial Action Task Force (FATF), led to the development of new regulatory measures.
The introduction of the VASP Bill in 2024 marks Seychelles' shift towards a more regulated environment, aligning with global standards and following the path of other crypto-friendly jurisdictions like the Cayman Islands and British Virgin Islands. This new framework aims to mitigate financial crime risks while fostering responsible innovation and sustainable growth in the virtual asset sector.
While Seychelles' regulatory regime is still in its early stages compared to more established frameworks like those in the UAE, it represents a crucial step towards creating a balanced environment that protects consumers and encourages legitimate VASP operations. VASPs operating in Seychelles should carefully consider their licensing and compliance strategies in light of these new regulations.
👉🏻 Learn how to strategically select VASP-friendly jurisdictions for your project
Amendments to other acts
The VASP Bill includes amendments to several related acts to ensure comprehensive integration of the new regulations. These amendments affect the following key pieces of legislation:
- Anti-Money Laundering and Countering the Financing of Terrorism Act, 2020: Updates to strengthen AML/CFT measures in the context of virtual assets.
- Financial Services Authority Act, 2013: Modifications to extend the FSA's regulatory powers to cover VASPs.
- International Business Companies Act, 2016: Changes to align IBC regulations with the new VASP requirements.
- Financial Consumer Protection Act, 2022: Enhancements to ensure adequate protection for consumers engaging with virtual asset services.
These amendments collectively aim to create a cohesive regulatory framework that addresses the unique challenges posed by virtual assets while maintaining consistency with existing financial regulations.
Future implications of the 2024 VASP Bill
The 2024 VASP Bill in Seychelles introduces significant changes to virtual asset regulation:
- Mandatory licensing for VASPs by end of 2024
- Regulation of wallet providers, exchanges, broking, and investment services
- Local office and regular meetings required
- Prohibition of mining facilities and mixer/tumbler services
This framework aims to enhance investor protection, foster innovation, and align with global standards. It positions Seychelles as a potentially more reputable jurisdiction for virtual asset businesses, balancing crypto-friendly policies with necessary oversight.
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How to navigate the complex landscape of VASP regulations with confidence
In today's rapidly evolving crypto ecosystem, new business models are constantly emerging worldwide. These innovative ventures must navigate a complex web of regulations, including financial laws, securities regulations, consumer protection measures, and VASP-specific legislation.
Legal Nodes offers comprehensive support to help you navigate this landscape:
- Operate legally as a VASP: Our team guides you through obtaining necessary licenses and authorizations.
- Stay compliant with relevant laws: We assist in identifying and adhering to regulations specific to your crypto business model.
- Maintain ongoing regulatory adherence: We help implement robust compliance procedures to ensure your business stays up-to-date with requirements.
Additionally, we provide specialized services tailored to the unique needs of crypto and web3 projects. Explore some of our playbooks and guides below to learn more:
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