Legal Update: New British Virgin Islands Laws for Virtual Asset Service Providers

The British Virgin Islands (BVI) is a well-established offshore financial centre, with over 500,000 registered BVI Business companies. In recent years, it has also become an increasingly popular choice of jurisdiction for companies providing services associated with crypto and other virtual assets.

The BVI introduced new laws applicable to virtual asset service providers (VASPs) in order to increase regulation and impose a formal supervisory framework.

The Virtual Asset Service Providers Act 2022 (VASP Act), which came into force on 1 February 2023, imposes new regulatory obligations on VASPs, including registration with the BVI Financial Services Commission (FSC) as well as a series of ongoing obligations, and imposes criminal liability on those who fail to comply.

Definition of virtual assets

Virtual assets are defined broadly as “a digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes”.

Definition of VASPs

The obligations imposed by the Act apply to VASPS, i.e., businesses which conduct any of the following activities:

a)      Operating Virtual Assets Exchanges

b)     Providing Virtual Asset Custody Services

c)      Conducting business to provide other virtual assets services

The full definitions of VASPs and a list of activities which do not trigger VASP status are contained in the Act.

Application to register as a VASP

There is an application fee to be paid to the FSC of either $5,000 or $10,000 depending on the nature of the applicant’s business. To be granted registered VASP status, the business needs to:

(i)               Demonstrate a strong corporate governance framework;

(ii)              Provide details of a robust technological infrastructure; and

(iii)            Submit detailed compliance, risk management and operational frameworks.

Ongoing requirements

In addition to registration, VASPs are also required to adhere to a series of ongoing requirements including maintaining records of transactions, financial statements and AML steps taken; an annual submission of an auditor’s report to the FSC; and obtaining FSC approval for steps such as a change of company name or disposal of a significant interest. There are penalties for non-compliance.

The introduction by the BVI of a well-regulated environment for VASPs positions BVI at the forefront of the international regulatory landscape in the ever-developing virtual asset class.