With effect from 1 December 2022, all BVI entities that fall within the definition of a virtual asset service provider (a “VASP”), as set out in the recently amended BVI Anti-Money Laundering Regulations (the “AML Regulations”) and Anti-Money Laundering and Terrorist Financing Codes of Practice (the “Code”), will be required to comply in full with BVI anti-money laundering, counter-terrorist financing and anti-proliferation finance legislation (together the “BVI AML Laws”).
In addition, the proposed Virtual Asset Service Providers Act, 2022 (the “VASP Act”), has now been circulated for consultation and was introduced to implement the Financial Action Task Force recommendations in relation to the oversight of VASPs; demonstrating the BVI’s continued commitment to maintaining international standards. The VASP Act, once finalised and brought into force, will create a new legal framework and licensing regime for BVI entities that fall within the definition of a VASP. The BVI Financial Services Commission will be the principal authority with regulatory oversight of the VASP Act.
Implications of the Changes to the BVI AML Laws
From 1 December 2022, “relevant business” for the purposes of the AML Regulations will also include the business of carrying on or providing a virtual asset service when a transaction involves virtual assets valued at or above USD$1,000. Accordingly, BVI entities that fall within the definition of a VASP will need to comply in full with the BVI AML Laws from 1 December 2022.
In summary, the obligations under the BVI AML Laws include:
- Establishing and maintaining procedures which establish and verify the identity of clients.
- Adopting a risk based approach to monitor financial activities and maintaining adequate systems to identify risk in relation to persons, countries and activities which should include checks against all applicable sanctions lists.
- Maintaining record-keeping procedures.
- Establishing internal reporting procedures.
- Adopting appropriate internal controls and ongoing monitoring procedures.
- Making staff aware of, and providing training on, the various policies, procedures, and internal controls.
- Appointing a money laundering reporting officer.
- Complying with the new “travel rule” in relation to transfers of virtual assets. Broadly the travel rule requires originating and beneficiary VASPs to obtain, verify, and maintain complete information on the originator and beneficiary of each transfer of virtual assets, before the transaction is executed, or accepted.
What is a VASP?
Under the AML Regulations and the VASP Act:
- A “virtual asset” means a digital representation of value that can be digitally traded or transferred, and can be used for payment or investment purposes, but does not include:
- digital representations of fiat currencies and other assets or matters specified by enactment or guidelines; or
- a digital record of a credit against a financial institution of fiat currency, securities, or other financial assets that can be transferred digitally.
- A “virtual asset service” means the business of engaging, on behalf of another person, in any VASP activity or operation (as outlined in the definition of “VASP”), and includes:
- hosting wallets or maintaining custody or control over another person’s virtual asset, wallet, or private key;
- providing financial services relating to the issuance, offer or sale of a virtual asset;
- providing kiosks (such as automatic teller machines, bitcoin teller machines, or vending machines) for the purpose of facilitating virtual assets activities through electronic terminals to enable the owner or operator of the kiosk to actively facilitate the exchange of virtual assets for fiat currency or other virtual assets; or
- engaging in any other activity that, by enactment or guidelines, constitutes the carrying on of the business of providing virtual asset service or issuing virtual assets or being involved in virtual asset activity.
- A “VASP” means a virtual asset service provider who provides, as a business, one or more of the following activities or operations for or 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, where the transfer relates to conducting a transaction on behalf of another person that moves a virtual asset from one virtual asset address or account to another;
- safekeeping or administration of virtual assets or instruments enabling control over virtual assets; or
- participation in, and provision of, financial services related to an issuer’s offer or sale of a virtual asset.
The VASP Act provides that a person who engages in or performs any of the following activities shall not qualify or be treated as a VASP:
- providing ancillary infrastructure to allow another person to offer a service, such as cloud data storage provider or integrity service provider responsible for verifying the accuracy of signatures;
- providing service as a software developer or provider of unhosted wallets whose function is only to develop or sell software or hardware;
- solely creating or selling a software application or virtual asset platform;
- providing ancillary services or products to a virtual asset network, including the provision of services like hardware wallet manufacturer or provider of unhosted wallets, to the extent that such services do not extend to engaging in or actively facilitating as a business any of those services for or on behalf of another person;
- solely engaging in the operation of a virtual asset network without engaging or facilitating any of the activities or operations of a VASP on behalf of customers;
- providing closed-loop items that are non-transferable, nonexchangeable, and which cannot be used for payment or investment purposes; or
- accepting virtual assets as payment for goods and services (such as the acceptance of virtual assets by a merchant when effecting the purchase of goods.
If you are operating a BVI entity in the virtual asset space, we recommend that you seek advice from your usual Campbells contact to determine whether you are operating as a VASP before 1 December 2022.
If you think you are likely to be a VASP, you should start preparing now to be compliant with the BVI AML Regime and anticipate any licensing requirements under the VASP Act.