BVI Crypto Regulations

The BVI Financial Services Commission acts as the independent regulatory authority responsible for the regulation of financial services in the jurisdiction. Our role is to authorize and license persons to carry on financial services business and to regulate and supervise financial activities to deter financial crime and protect the reputation of the BVI as a responsible member of the international financial community. We also undertake through the Registry of Corporate Affairs the registration of all companies formed in the territory, the formation of Limited Partnerships, and the registration of Trade Marks and Patents.

The VASP Law will become effective on 1 February 2023. Any person who proposes to carry on the business of providing virtual asset services or to operate as a VASP in or from the BVI must apply for registration with the Commission. VASPs in existence when the VASP Act commenced have until 31 July 2023 to make an application to the Commission without prejudicing their ability to continue to provide their virtual asset services while the application is being considered. Any new entity will need to register in advance of commencing any activities as defined under the VASP Act, and is expected to approach the committee in advance.

Crypto Regulation in British Virgin Island

An application for the registration of a VASP shall be made on a form prescribed and published by the Commission, specifying the VASP registration category applied for. It shall also be accompanied by a business plan regarding the type and extent of the virtual asset activities, information on proposed directors, senior managers and compliance officers, together with documents showing such officers comply with the committee’s standards on fitness and properness. The application should be accompanied by the applicant’s compliance proposals with the VASP Act, policies of the Committee of the AML/CTF/PF Legislative Regime, and appropriate application fees.

On approval of a VASP application, the Commission shall register the applicant, issue a practicing certificate, and impose conditions in relation to such registration, including requiring professional indemnity insurance.

Advantages

For this purpose, the Bill defines a “VASP” as any provider of virtual asset services conducted as a business and registered to undertake one or more of the activities listed in the VASP Act, including the following:

• Exchanges between virtual assets and legal tender;
• Exchanges between different forms of virtual assets;
• Transfers of virtual assets;
• Custody or control of virtual assets on behalf of others;
• Participation in financial services related to the issuance or sale of virtual assets
• Performing other activities or operations provided for in the VASP Act or prescribed by regulation.

A person provides virtual asset services if they conduct any of the following activities or operations on behalf of other persons:

• Hosting a wallet or otherwise holding custody or control of a third party’s virtual assets or private keys; or provision of financial services related to the issue, offer or sale of a virtual asset.
• Equipment such as automated teller machines, Bitcoin teller machines, or vending machines, to provide the facility to deal with electronic terminals for transactions in return for providing virtual asset activities that facilitate the exchange of virtual assets with legal tender or other virtual currencies.
• Providing a service related to virtual assets, issuing a virtual asset, or undertaking an activity in a business related to any virtual asset.

Whether any person provides a virtual asset service will depend upon whether the asset in question constitutes a “virtual asset.” For example, derivatives that are based upon cryptocurrencies will need to be considered and may fall within the scope of either the VASP Act or the British Virgin Islands Securities and Investment Business Act (“SIBA”).

Similarly, there are activities that have been carved out as exemptions from the scope of the VASP Law and ancillary infrastructure provisioning for third parties to provide services, including cloud data storage providers and integrity service providers tasked with the verification that indeed the signed documents are reflecting the reality of the signatures.

BVI Cryptocurrency Regulations:

The British Virgin Islands (BVI) enacted a law in respect of guidelines for the use of cryptocurrencies within its jurisdiction. Crypto Asset Act, which was passed into law in 2020, established a framework for regulating activities concerned with cryptos and for granting license to companies dealing with the currency. The following is a summary of the salient aspects of the Crypto Asset Act:

Cryptocurrencies – Definition:

It is defined under the act that a “crypto asset” shall mean any digital representation of value used as a medium of exchange, unit of account, or store of value but shall not be treated as legal tender.

BVI

Capital	Population	Currency	GDP
Road Town	31,122	USD	55,935

Licensing Requirements: The law demands that any businesses dealing in cryptocurrency activities are licensed by the BVI FSC. In this context, it is any business issuing, selling, or trading crypto assets; and also services offered by a business in connection with crypto assets, such as wallet providers and exchanges.

Capitalization Requirements: On the other hand, the legislation dictates that a business must have sufficient capitalization to operate cryptocurrency-related activities-which will be prescribed by the FSC.

Reporting Requirements: The Act ensures that cryptocurrency businesses file periodic reports related to their financial and operational activities with the FSC.

Apart from the Crypto Asset Act, the BVI has other acts or laws which may be applied to its cryptocurrency businesses. This includes the BVI’s Proceeds of Criminal Conduct Act (POCCA) and Terrorism (Prevention) Act (TPA), which cast upon business persons Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) obligations in the jurisdiction, including those dealing in cryptocurrency activities.

Regulatory Framework: The Virtual Assets Service Providers Act of 2022, commonly known as the VASP Act, came into force on February 1, 2023. The Act provides that all persons conducting the business of providing services relating to virtual assets, commonly referred to as VASPs, are required to be registered with the BVI FSC.

In addition to the VASP Act, the FSC has published two supporting documents: the VASP Registration Guidance on how the Virtual Assets Service Providers need to register themselves and the Virtual Assets Service Providers Guide to the Prevention of Money Laundering, Terrorist Financing and Proliferation Financing-to align them with the VASP Act. The first gives more information and some guidance on how to comply with the regulator’s requirements set out in the second.

VASPs are also subject to the Anti-Money Laundering Amendment Regulations 2022 and the Anti-Money Laundering and Terrorist Financing Amendment Code of Practice 2022. These regulations bring VASPs within the BVI’s AML/CTF regime for transactions in virtual assets with a value of $1,000 or more, starting from December 1, 2022.

Government View and Definition

The British Virgin Islands have established themselves as one of those well-known offshore financial centers which wear braces of resilience, adaptability, and innovation in the face of regulatory change, economic uncertainty, and even natural catastrophes. The genuineness and stability of the legal system based on English common law, the tax-neutral treatment in the BVI, the flexibility of its regulatory and judicial framework in a business-friendly manner-all these constitute the uniqueness of BVI entities when making choices for companies, institutions, and individuals that want to support international business operations, including but not limited to cryptocurrency, blockchain technology, and Web3.

The BVI government is in very close contact with the leaders of industries on the island, be it lawyers, accountants, insolvency practitioners, or regulators. Appreciative that a facilitative industry is a successful industry, this collaborative approach means the jurisdiction can deliver what businesses need while identifying and mitigating associated risks proactively.

This facilitative approach can be seen in how the government of the BVI approaches the regulation of virtual assets, as discussed below. The just passed Virtual Assets Service Providers Act, 2022 (VASP Act) available here is another example of the government’s support to BVI to maintain its status as a compliant jurisdiction in line with international standards on certain recommendations of the Financial Action Task Force related to virtual assets. The VASP Act is a product of public consultation wherein the BVI Financial Services Commission (the “Commission”) invited responses, views and comments from all interested parties.

Another very important feature of the VASP Act, analyzed in more detail below in the chapter, is that it is proportionate and relevant. The law provides that companies conducting custody and exchange business, presenting higher risk to end users, are under higher regulatory oversight, while innovative projects based on new technologies and token issues, widely realized by entities incorporated in the BVI, do not fall into the scope of the VASP Act.

Under the VASP Act, a “virtual asset” is defined as a digital representation of value that can be digitally traded or transferred and used for payment or investment. Excluded from this definition are the digital representations of fiat currencies and digital records of credit against a financial institution of fiat currency, securities, or other financial assets that can be transferred digitally.

Cryptocurrency Regulation

The date for the effective enforcement of the VASP Act was February 1, 2023. To date, any entity that intends to offer virtual asset services or act as a VASP herein defined from within or from the BVI is expected to register with the Commission. Whereas existing VASPs were given until July 31, 2023, to file applications with the Commission, new entities must undergo registration with the Commission before commencing any of the activities contemplated in the VASP Act.

The type of VASP registration desired should be indicated in an application for registration as a VASP, made in the form prescribed by the Commission. It should include a business plan detailing the nature and scope of the virtual asset activities; details about proposed directors, senior officers, and compliance officer, along with documents showing that those individual applicants meet the Commission’s criteria for fitting and proper persons; policies and procedures to be applied by the applicant in order to comply with obligations under the VASP Act and the AML/CTF/PF legislative regime; and the appropriate application fee.

Upon approval of an application by a VASP, the Commission shall register the applicant and grant a certificate of registration and may impose any conditions as it shall see appropriate.

According to the VASP Act, a “VASP” is defined as a virtual asset service provider who is engaged in the business of providing virtual asset services and is registered to conduct one or more of the following activities or operations on behalf of another person:

• Exchange between virtual assets and fiat currencies
• Exchange between one or more forms of virtual assets
• Transfer of virtual assets related to conducting transactions for another person
• Custody or administration of virtual assets
• Participation in and provision of financial services related to an issuer’s offer or sale of a virtual asset
• Any other activity or operation specified in the VASP Act, or prescribed by regulations

This will be taken to mean that an entity provides services for hosting wallets, providing financial services pertaining to virtual assets, offering kiosks for virtual asset activities, among others as outlined in the Guidelines, for or on behalf of another person.

Whether or not an entity is carrying on a virtual asset service would depend, amongst other things, on whether the asset constitutes a “virtual asset.” Crypto-based derivative products merit consideration, and may very well fall under the breadth of the VASP Act or SIBA.

Consequently, the list of activities that are excluded from the scope of the VASP Act with regard to a BVI company includes providing any ancillary infrastructure to enable another entity to offer services-acting as a cloud data storage provider or an integrity service provider, whose services would involve verification of signature accuracy.

Although it was not designed specifically for regulation of cryptocurrency, a BVI entity operating in the cryptocurrency, blockchain technology, and Web3 space may fall within the present regulatory regime of the BVI. This may include:

• The BVI Business Companies Act, 2004 (as amended)
• The BVI Securities and Investment Business Act (SIBA) (see below)
• The Financing and Money Services Act, 2009 (FMSA) (see below)
• The Anti-Money Laundering Regulations, 2008 (amended) (AML Regs) (discussed further below)
• The Anti-Money Laundering and Terrorist Financing Code of Practice (discussed further below)
• The Economic Substance (Companies and Limited Partnerships) Act, 2018 (as amended), particularly relevant if the BVI company intends to hold intellectual property rights related to the underlying technology.

In order to avoid duplication in regulation, it has been clarified by the VASP Act that a person who is registered under the VASP Act, and his ‘activity’ is confined to the provision of a virtual asset service, is not required to obtain any license under either SIBA or FMSA.

Sales Regulation

VASP Act

On the face of it, while not clearly exempted, there is general acceptance that the issuance or sale of virtual assets in or from the BVI would not necessarily be regulated under the VASP Act. However, this will be deemed a virtual asset service if the BVI entity, as a business on behalf of another party, provides financial services related to the issuance or the transfer of virtual assets. In this instance, such an entity would have to be registered with the Commission as per the VASP Act.

SIBA

Inter alia, SIBA regulates the offering of investment services within the BVI. It requires that any person carrying on, or holding themselves out as carrying on, investment business of any kind in or from the BVI should do so only through an entity licensed and regulated by the Commission, save for the safe harbors provided under SIBA. The definition of investment business is all-embracing. It encompasses: dealing in investments; arranging deals in investments; managing investments; providing investment advice; safeguarding investments; providing administrative services in relation to investments, and the carrying on of an investment exchange.

The definition of “investments” is also a broad concept and embraces shares, interests in a partnership or fund interests, debentures, instruments granting entitlements to shares, interests, or debentures, certificates representing investments, options, futures, contracts for difference, and long-term insurance contracts. Whether a virtual asset falls within the ambit of the SIBA regime depends upon whether it has characteristics akin to those described in the definition of investments.

Further, pooling vehicle investing in the virtual asset space through subscription and investing such virtual assets in more traditional asset classes should consult BVI legal counsel regarding the need for such activities to be registered as a fund.

Money Transmission Laws and Anti-Money Laundering Requirements

Identified applicable law of the BVI for money transmission – The FMSA that applies to the Business if it operates a money services. For FMSA purposes, businesses that fall under the definition of a money services including, “any services relating to Automated Teller Machines, Money transmission, Cheque exchange, Currency Exchange or the issuance, sale or redemption of money orders or traveller’s cheques.”.

Although there is agreement that the use of the words “money” and “currency” usually denote the fiat currency, and not a cryptocurrency, in this regard, more apposite is the specific exclusion provided under the VASP Act discussed above, that no person registered in terms of the VASP Act who only provides a virtual asset service is subject to the FMSA. The above exemptions hence give light to many virtual asset service providers and mainly the ones dealing with a virtual asset transfer from one account to another. However, this may require caution in the case where a company is defined to be carrying on an activity that falls outside the VASP Act, the above exemption may not be applicable in that circumstance.

The Anti-Money Laundering Regulations, 2022, as amended, and the Anti-Money Laundering and Terrorist Financing Code of Practice, 2022, apply mutatis mutandis to VASPs. With effect from December 1, 2022, these regulations bring VASPs within the ambit of the BVI AML/CTF regime in the case of transactions in virtual assets involving an amount of $1,000 or more.

It is beyond the scope of this chapter to deal in any more detail with the particular requirements of the AML/CTF regime of the BVI, save to note that entities falling within its ambit are normally obliged to do the following:

• Appoint an individual as an AML compliance officer responsible for monitoring compliance with AML legislation, liaising with the supervisory body or bodies, and, importantly under the VASP Act, obtaining approval from CIMA.
• Appoint one particular officer as the reporting officer who would be responsible in the company as a reporting channel for money laundering.
• Provide mechanisms for customer due diligence, monitoring of counter-parties based on risk and their nature, geographical area of operation, and risks associated with new technologies such as virtual assets, record-keeping, and employee training.

Furthermore, the Commission published the Virtual Assets Service Providers guide to the prevention of money laundering, terrorist financing, and proliferation financing. In addition, new regulatory requirements were enacted for intermediaries, placing upon them an obligation to collect sufficient information about transfers of virtual assets.

Finally, lawyers in the Regulated United Europe provide legal support for crypto projects and help with adaptation to MICA regulations.