Financial Crime World

Crypto-Based Derivative Products Under Scrutiny: VASP Act and BVI Securities Act May Apply

The rise of cryptocurrency-based derivative products has led to a flurry of regulatory activity in the British Virgin Islands (BVI). As these products continue to gain popularity, companies involved in their creation, trading, or management must carefully consider their legal obligations under various BVI laws.

VASP Act and Exemptions

The Virtual Asset Service Providers Act (VASP Act) regulates virtual asset services, which include activities such as the buying, selling, trading, and managing of virtual assets. Under this act, companies that provide virtual asset services must register with the Financial Services Commission (FSC). However, there are exemptions for persons who solely engage in providing virtual asset services, excluding them from licensing requirements under the BVI Securities and Investment Business Act (SIBA) or the Financing and Money Services Act (FMSA).

Key Points:

  • Companies providing virtual asset services must register with the FSC
  • Exemptions exist for persons who solely engage in providing virtual asset services

BVI Securities Act: A Key Player

The SIBA regulates investment services within the BVI, including activities such as dealing in investments, arranging deals in investments, and investment management. The definition of “investments” is broad and may encompass virtual assets that share characteristics with traditional investments.

Key Points:

  • SIBA regulates investment services within the BVI
  • Definition of “investments” includes virtual assets

Money Transmission Laws and Anti-Money Laundering Requirements

The FMSA governs money services businesses, including automated teller machine services, money transmission services, and currency exchange services. While the term “money” typically refers to fiat currencies, there is an exemption for persons registered under the VASP Act solely providing virtual asset services.

Key Points:

  • FMSA governs money services businesses
  • Exemption exists for VASPs providing virtual asset services

Anti-Money Laundering Requirements

The Anti-Money Laundering (Amendment) Regulations, 2022, and the Anti-Money Laundering and Terrorist Financing (Amendment) Code of Practice, 2022, bring Virtual Asset Service Providers (VASPs) under the scope of the BVI’s anti-money laundering/counter-terrorist financing regime for transactions involving virtual assets valued at $1,000 or more.

Key Points:

  • Anti-money laundering/counter-terrorist financing requirements apply to VASPs for transactions involving virtual assets valued at $1,000 or more

Key Takeaways

Companies involved in cryptocurrency-based derivative products must carefully consider their legal obligations under various BVI laws. Key takeaways include:

  • Companies providing virtual asset services must register with the FSC
  • Exemptions exist for persons who solely engage in providing virtual asset services
  • The BVI Securities Act regulates investment services within the BVI, including activities related to virtual assets
  • Anti-money laundering/counter-terrorist financing requirements apply to VASPs for transactions involving virtual assets valued at $1,000 or more

Companies involved in cryptocurrency-based derivative products should seek legal advice from experienced professionals to ensure compliance with applicable BVI laws and regulations. Failure to comply can result in severe penalties, including fines and even criminal prosecution.