BVI Crypto Regulations

The BVI Financial Services Commission functions as the sole regulatory authority for financial services in the territory. Our role involves authorizing and licensing individuals or companies engaged in financial services and overseeing regulated financial activities to prevent any unlawful or unauthorized financial services operations within or originating from the BVI. Additionally, through the Registry of Corporate Affairs, we handle the registration of all companies formed in the territory, as well as the formation of Limited Partnerships and the registration of Trade Marks and Patents.

The VASP Act is set to become effective on February 1, 2023. Any entity desiring to offer virtual asset services or act as a VASP within or from the BVI is required to register with the Commission. Existing VASPs at the time of the VASP Act’s commencement must submit an application to the Commission by July 31, 2023 (allowing them to continue their virtual asset services during the application review). New entities must register before initiating any activities governed by the VASP Act and should contact the committee beforehand.

Crypto Regulation in British Virgin Island

To register as a VASP, the application must be submitted on a Commission-approved form, specifying the requested VASP registration category. It must be accompanied by a business plan outlining the nature and scale of virtual asset activities, details of proposed directors, senior managers, and compliance officers, along with documentation demonstrating their compliance with the committee’s fitness standards. The application should also include the applicant’s strategies for meeting the requirements of the VASP Act and the AML/CTF/PF Legislative Regime Committee policies, along with the applicable application fees.

Upon approval of a VASP application, the Commission will register the applicant, issue a practicing certificate, and impose suitable conditions on registration, which may include the obligation to obtain professional indemnity insurance.

Advantages

The bill defines a “VASP” as a provider of virtual asset services operating as a business and registered to perform various activities specified in the VASP Act. These activities include:

• exchanges between virtual assets and legal tender,
• exchanges between different forms of virtual assets,
• transfers of virtual assets,
• custody or management of virtual assets,
• participation in financial services related to the issuance or sale of virtual assets
• other activities or operations outlined in the VASP Act or regulated by prescribed regulations.

Engaging in the following activities or operations on behalf of others categorizes an individual as providing virtual asset services:

• Hosting a wallet or having custody or control of another person’s virtual assets, wallet, or private keys.
• Offering financial services linked to the issuance, offer, or sale of virtual assets.
• Supplying equipment like automated teller machines, Bitcoin teller machines, or vending machines to facilitate transactions through electronic terminals, thereby promoting virtual asset activities that actively facilitate the exchange of virtual assets with legal tender or other virtual currencies.
• Involvement in providing virtual asset services, issuing virtual assets, or participating in virtual asset-related business activities.

Determining whether an entity engages in virtual asset services hinges on whether the relevant assets qualify as “virtual assets.” For instance, cryptocurrency-based derivatives warrant careful consideration and may fall under the purview of either the VASP Act or the British Virgin Islands Securities and Investment Business Act (“SIBA”).

Likewise, attention should be given to the activities that exempt companies from the scope of the VASP Act, including the provision of ancillary infrastructure for others to offer services, such as cloud data storage providers or integrity service providers responsible for verifying the accuracy of signatures.

BVI Cryptocurrency Regulations:

The British Virgin Islands (BVI) has instituted legislation to oversee the use of cryptocurrencies within its jurisdiction. The Crypto Asset Act, introduced in 2020, establishes a framework for regulating crypto-related activities and issuing licenses to businesses operating in the industry. Here are the key stipulations of the Crypto Asset Act:

Definition of cryptocurrencies:

The act defines a “crypto asset” as any digital representation of value utilized as a medium of exchange, a unit of account, or a store of value that is not legal tender.

Licensing Requirements: The legislation necessitates that businesses involved in cryptocurrency activities obtain a license from the BVI Financial Services Commission (FSC). This encompasses activities such as issuing, selling, or trading crypto assets, as well as services provided by businesses related to crypto assets, including wallet providers and exchanges.

Capitalization Requirements: To engage in cryptocurrency-related activities, the legislation mandates businesses to maintain sufficient levels of capitalization as stipulated by the FSC.

Reporting Obligations: Businesses engaged in cryptocurrency activities are obligated by the legislation to regularly submit reports to the FSC. These reports include information on their financial and operational activities.

Apart from the Crypto Asset Act, the BVI has additional statutes and regulations that may be applicable to businesses operating in the cryptocurrency industry. For instance, the BVI’s Proceeds of Criminal Conduct Act (POCCA) and Terrorism (Prevention) Act (TPA) impose Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) obligations on businesses operating in the jurisdiction, including those involved in cryptocurrency-related activities.

Regulatory Framework: The Virtual Assets Service Providers Act of 2022, known as the VASP Act, came into effect on February 1, 2023. This legislation governs entities providing virtual asset services, commonly known as VASPs, and mandates that all VASPs must register with the BVI Financial Services Commission (FSC).

In addition to the VASP Act, the FSC has issued two additional documents: the VASP Registration Guidance, outlining the registration process for Virtual Assets Service Providers, and the Virtual Assets Service Providers Guide to the Prevention of Money Laundering, Terrorist Financing, and Proliferation Financing, providing guidelines for compliance with the VASP Act. These documents offer supplementary information and guidance on adhering to the regulatory requirements.

The Anti-Money Laundering (Amendment) Regulations, 2022, and the Anti-Money Laundering and Terrorist Financing (Amendment) Code of Practice, 2022, are also applicable to VASPs. These regulations integrate VASPs into the BVI’s Anti-Money Laundering/Countering the Financing of Terrorism (AML/CTF) regime for transactions involving virtual assets valued at $1,000 or more, effective from December 1, 2022.

Government Perspective and Definition

The British Virgin Islands (BVI) has positioned itself as a prominent offshore financial center known for its resilience, adaptability, and innovation in the face of regulatory changes, economic uncertainties, and natural disasters. Companies, institutions, and individuals, including those operating in the realms of cryptocurrency, blockchain technology, and Web3, choose BVI entities to support their international business endeavors, drawn to the familiarity and stability of the BVI’s legal system rooted in English common law, its tax-neutral treatment, and the business-friendly flexibility of its regulatory and judicial framework.

The BVI government collaborates closely with industry leaders on the island, encompassing professionals like lawyers, accountants, insolvency practitioners, and regulators. Recognizing the value of a cooperative industry, this collaborative approach ensures that the jurisdiction can effectively meet the needs of businesses while proactively identifying and mitigating associated risks.

This cooperative stance is particularly evident in the BVI government’s approach to regulating virtual assets, as detailed below. The recently enacted Virtual Assets Service Providers Act, 2022 (VASP Act), accessible [here], exemplifies the government’s commitment to maintaining BVI’s compliance with international standards and adhering to specific recommendations from the Financial Action Task Force concerning virtual assets. The VASP Act stems from a public consultation process, during which the BVI Financial Services Commission (the “Commission”) actively sought feedback, opinions, and comments from all stakeholders.

A significant aspect of the VASP Act, to be explored in detail later in this chapter, is its balanced and relevant nature. The legislation is proportionate, imposing higher regulatory oversight on companies involved in custody and exchange business, which are deemed higher risk to end users. Meanwhile, activities such as innovative technology-based projects and token issuances (historically carried out by BVI incorporated entities) generally fall outside the scope of the VASP Act.

According to 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 purposes. Specifically excluded from this definition are 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 enforcement of the VASP Act commenced on February 1, 2023. Any entity aiming to offer virtual asset services or function as a VASP (as defined below) within or from the BVI must undergo registration with the Commission. While pre-existing VASPs had until July 31, 2023, to submit their applications to the Commission (allowing them to continue providing virtual asset services during the application review), new entities must complete registration with the Commission before initiating any activities outlined by the VASP Act.

To register as a VASP, the application must be submitted in the Commission’s approved format, specifying the sought-after VASP registration category. The submission should include, among other things, (a) a business plan outlining the nature and scope of the intended virtual asset activities, (b) particulars of the proposed directors, senior officers, and compliance officer, supported by documentation demonstrating their alignment with the Commission’s fit and proper criteria, (c) the policies and procedures the applicant plans to adopt to meet obligations under the VASP Act and the AML/CTF/PF legislative regime, and (d) the relevant application fee.

Upon approval of a VASP application, the Commission will register the applicant, issue a registration certificate, and impose any conditions it deems appropriate (including the requirement to secure professional indemnity insurance).

As per the VASP Act, a “VASP” is defined as a virtual asset service provider engaged in providing virtual asset services as a business and 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
• Safekeeping 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 specified activity or operation in the VASP Act or as prescribed by regulations

An entity involved in activities such as hosting wallets, providing financial services related to virtual assets, offering kiosks for virtual asset activities, or engaging in other activities as outlined in the Guidelines will be considered as carrying on a virtual asset service for or on behalf of another person.

Determining whether an entity is carrying on a virtual asset service depends on factors such as whether the asset qualifies as a “virtual asset.” For instance, crypto-based derivative products require careful consideration and may fall under the purview of the VASP Act or the BVI Securities and Investment Business Act, 2010 (“SIBA”).

Similarly, attention should be given to the list of activities that exempt a BVI company from the scope of the VASP Act. This includes providing ancillary infrastructure to enable another entity to offer services, such as acting as a cloud data storage provider or an integrity service provider responsible for verifying signature accuracy.

Although not specifically designed for cryptocurrency regulation, a BVI entity involved in the cryptocurrency, blockchain technology, and Web3 space may fall under the existing regulatory framework of the BVI. This could encompass:

• The BVI Business Companies Act, 2004 (as amended)
• The BVI Securities and Investment Business Act (SIBA) (discussed further below)
• The Financing and Money Services Act, 2009 (FMSA) (discussed further below)
• The Anti-Money Laundering Regulations, 2008 (as 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.

To prevent redundant regulation, the VASP Act explicitly states that a person registered under the VASP Act solely engaged in providing a virtual asset service does not need licensing under SIBA or FMSA.

Sales Regulation

VASP Act

Under the VASP Act, although not explicitly excluded, it is generally acknowledged that the act of issuing or selling virtual assets in or from the BVI is not inherently regulated by the VASP Act. However, if a BVI entity, as a business on behalf of another party, engages in the provision of financial services related to virtual asset issuance or the transfer of virtual assets, it is likely to be considered a virtual asset service. In such cases, the entity must register with the Commission under the VASP Act.

SIBA

SIBA oversees, among other things, the provision of investment services within the BVI. It mandates that anyone engaging in, or representing themselves as engaging in, any form of investment business within or from the BVI must do so through an entity regulated and licensed by the Commission, subject to the safe harbors outlined in SIBA. The definition of investment business is comprehensive and encompasses activities such as dealing in investments, arranging deals in investments, investment management, investment advice, custody of investments, administration of investments, and operating an investment exchange.

The term “investments” is also broadly defined and may encompass 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 under the purview of the SIBA regime depends on whether it shares characteristics similar to those specified within the definition of investments.

Furthermore, any pooling vehicle investing in the virtual asset space or receiving virtual assets through subscription and subsequently investing in more traditional asset classes should seek BVI legal advice to determine whether such activities necessitate registration as a fund.

Money Transmission Laws and Anti-Money Laundering Requirements

The relevant money transmission law in the BVI is the FMSA, governing money services businesses. FMSA’s definition of money services business includes automated teller machine services, money transmission services, cheque exchange services, currency exchange services, and the issuance, sale, or redemption of money orders or travellers’ cheques.

While there is a consensus that “money” and “currency” typically refer to fiat currencies rather than cryptocurrencies, the specific exclusion in the VASP Act mentioned earlier, stating that any person registered under the VASP Act solely providing a virtual asset service is exempt from FMSA, is particularly relevant. This exemption provides clarity to many virtual asset service providers, especially those involved in transferring virtual assets from one account to another. However, caution is necessary if a company is deemed to be undertaking activities outside the scope of the VASP Act, as the mentioned exemption may not apply in such circumstances.

Also applicable to VASPs are the Anti-Money Laundering (Amendment) Regulations, 2022, and the Anti-Money Laundering and Terrorist Financing (Amendment) Code of Practice, 2022. These regulations, effective from December 1, 2022, bring VASPs under the scope of the BVI AML/CTF regime for transactions involving virtual assets valued at $1,000 or more.

While a detailed exploration of the specific requirements of the BVI’s AML/CTF regime is beyond the scope of this chapter, individuals or entities subject to the regime generally must undertake the following actions:

• Designate an individual as an AML compliance officer tasked with overseeing adherence to AML laws, coordinating with supervisory authorities, and, under the VASP Act, securing approval from CIMA.
• Appoint a designated individual as the money laundering reporting officer to serve as a reporting conduit within the business.
• Establish procedures ensuring proper identification of counterparties, conducting risk-based monitoring (considering counterparties’ nature, geographic region of operation, and any risks associated with new technologies like virtual assets), maintaining accurate records, and providing adequate training for employees.

Furthermore, the Commission has issued the Virtual Assets Service Providers guide to the prevention of money laundering, terrorist financing, and proliferation financing. Additionally, new regulatory requirements have been enacted to ensure intermediaries collect sufficient information concerning transfers of virtual assets.

Also, lawyers from Regulated United Europe provide legal support for crypto projects and help with adaptation to MICA regulations.