Virtual Asset Service Providers (VASPs) in the British Virgin Islands (BVI)
Introduction
The British Virgin Islands (BVI) has implemented a mandatory registration framework for Virtual Asset Service Providers (VASPs) through the Virtual Assets Service Providers Act, 2022 (VASP Act), effective February 1, 2023. Registration with the BVI Financial Services Commission (FSC) is mandatory for conducting virtual asset services, including for BVI business companies operating outside the Virgin Islands. Registered VASPs face extensive ongoing compliance obligations, particularly concerning Anti-Money Laundering (AML), Combating the Financing of Terrorism (CFT), and client asset protection. Licensing fees vary based on service complexity and risk, with higher costs for custody and exchange services.
Definitions as per the Act
- • Virtual Asset: A digital representation of value that can be digitally traded or transferred and used for payment or investment purposes, excluding digital representations of fiat currencies. Examples include stablecoins, convertible virtual currency, non-fungible tokens (NFTs), and cryptocurrencies.
- • Virtual Asset Service Provider (VASP): A person who provides, as a business, a virtual assets service and is registered under the VASP Act to conduct one or more specified activities for or on behalf of another person.
Activities Requiring VASP Registration/License
Section 5(1) of the VASP Act prohibits carrying on virtual asset services in or from within the BVI without FSC registration. Regulated activities, when conducted "as a business" and "for or on behalf of another person," include:
- • Exchange Services: Exchange between virtual assets and fiat currencies, or between different forms of virtual assets.
- • Transfer Services: Moving a virtual asset from one address/account to another on behalf of another person.
- • Custody and Administration: Safekeeping or administration of virtual assets or instruments enabling control over them (Virtual Assets Custody Service).
- • Financial Services Related to Issuance: Participation in, and provision of, financial services related to an issuer's offer or sale of a virtual asset.
- • Wallet Hosting and Control: Hosting wallets or maintaining custody/control over another person's virtual asset, wallet, or private key.
- • Kiosk Operations: Providing ATMs, Bitcoin teller machines, or vending machines to actively facilitate virtual asset exchange.
- • Other Prescribed Activities: Any other activity specified in the Act or prescribed by regulations.
Entities providing Virtual Assets Custody Services or operating a Virtual Assets Exchange face additional, more stringent requirements under Part IV of the Act, covering security, client asset segregation, risk management, and access methods.
Activities Exempt From VASP Registration
Section 2(2) of the VASP Act specifies activities not considered VASP services and thus exempt from registration:
- • Ancillary Infrastructure: Providing cloud data storage or signature verification services that enable others to offer a service.
- • Software Development/Unhosted Wallets: Developing or selling software or hardware, or providing unhosted wallets, where the function is solely development or sale.
- • Platform Creation/Sale: Solely creating or selling a software application or virtual asset platform.
- • Ancillary Services to Networks: Providing services like hardware wallet manufacturing, as long as they don't involve actively facilitating VASP services for others.
- • Network Operation Only: Solely operating a virtual asset network without engaging in or facilitating VASP activities on behalf of customers.
- • Closed-Loop Items: Providing non-transferable, non-exchangeable items not used for payment or investment.
- • Merchant Acceptance: Accepting virtual assets as payment for goods and services by a merchant.
VASP Registration And Application Process
Eligibility Criteria
- • Applicants, proposed directors, senior officers, and significant/controlling interest holders must meet "fit and proper" criteria (Schedule 1A of the Regulatory Code, Revised Edition 2020).
- • Must demonstrate genuine intent to conduct the business, and its organizational structure, management, and financial resources must be adequate.
- • Must show capacity to manage and mitigate risks, including detecting and preventing anonymity-enhancing technologies.
- • Registration must not be contrary to public interest.
Application Requirements
Applications must be submitted via the FSC's published form and include comprehensive information, though some requirements may be waived based on business type:
- • Personnel Details: Names and addresses of proposed directors, senior officers, shareholders (with levels), and controlling interest holders.
- • Local Presence: Physical address in the BVI.
- • Professional Appointments: Name and address of proposed auditor (with consent) and authorized representative.
- • Business Plan: Detailed plan covering knowledge, expertise, nature, size, scope, complexity, technology, service delivery, virtual assets involved, marketing, business sources, human resources, outsourcing, initial capital, and three-year financial projections (including set-up costs).
- • Risk Assessment: Written assessment detailing risk identification, measurement, assessment, monitoring, control, and reporting.
- • Compliance Manual: Written manual demonstrating compliance with the VASP Act and regulations, specifically for AML, CFT, and PF safeguards.
- • Systems Documentation: Information on internal safeguards and cybersecurity measures.
- • Client Management: Description of systems for handling client assets, custodian relationships, and complaints.
Application Submission and Review
- • Timeline: The FSC provides initial feedback within six weeks and aims to conclude the full processing within six months of receiving a completed application.
- • Approval: Upon approval, the FSC registers the applicant and issues a certificate, often with conditions (e.g., obtaining professional indemnity insurance).
Ongoing Compliance Obligations
1. Anti-Money Laundering (AML), Countering the Financing of Terrorism (CFT), and Proliferation Financing (PF) Compliance
Key aspects include:
- • Customer Due Diligence (CDD): Implementing measures to trace and collect customer IP addresses, dates, geographical data, device indicators, virtual asset wallet addresses, and transaction hashes, consistent with the Data Protection Act, 2021.
- • Auditor Reporting: Auditors must immediately report information suggesting AML/CFT/PF breaches or serious VASP Act/Regulatory Code breaches to the Commission.
2. Record-Keeping Requirements
VASPs must keep records sufficient to: explain transactions, determine financial position, prepare financial statements and returns, enable audits, document client complaints, and demonstrate AML/CFT/PF safeguards. Records must be easily retrievable (original, certified copies, electronic data) and retained for at least five years from business relationship termination, even if registration is cancelled.
3. Reporting Obligations
- • Periodic Reports: Information on compliance, client exposure (including geographical summary), financial position, risks encountered, KPIs, achievements, and client complaints (status and resolution plans).
- • Material Change Notification: Immediate notification of any material change to application information (before or after registration) or any change materially affecting the basis of approval.
- • Auditor's Report: Submission of the auditor's report on financial statements within six months of the financial year-end (extensions possible).
- • Other Notifications: Immediate notification if registered/licensed in another jurisdiction, opening new offices, facing enforcement action (BVI or elsewhere), or acquiring significant/controlling interest in another VASP.
4. Corporate Governance
Robust corporate governance is paramount:
- • Directors: At least two individual directors are required. The Commission may require a physically resident director based on VASP nature/risk. Prior written FSC approval is needed for director/senior officer appointments, based on "fit and proper" criteria.
- • Authorized Representative: Appointment and continuous maintenance of an FSC-approved authorized representative, unless there's significant BVI management presence. This representative acts as the main intermediary with the Commission.
- • Auditor: Appointment and maintenance of an FSC-approved auditor for financial statements, unless exempted. Notification of appointment within 14 days. If an auditor ceases to act, a replacement must be appointed within two months.
- • Name Change: Prior FSC approval for corporate or business name changes.
- • Ownership Changes: Prior written FSC approval for disposition or acquisition of a significant or controlling interest in a VASP.
5. Client Asset Protection
Any unlawful interference or compromise of client assets requires immediate notification to both the affected client and the Commission, detailing restoration steps. Custody service providers have additional requirements for safeguarding against theft/loss, detailed safekeeping arrangements, best IT practices, and ensuring ancillary proceeds benefit the owner. Encumbering client virtual asset deposits without beneficial owners' express agreement is prohibited.
6. Approval Timelines
While the VASP Act does not specify fixed timelines, the FSC aims to process applications and provide initial feedback within six weeks, with full processing typically completed within six months of filing. Other sources estimate 3-6 months overall, or approximately five months from submission if all documents are in order.
7. Regulatory Sandbox Participation
The BVI offers a Regulatory Sandbox for innovative FinTech, including virtual assets. VASPs can test new products in a controlled 18-month environment, with potential exemptions from certain VASP Act provisions (excluding AML/CFT requirements).
Costs And Fees Structure
Fees are prescribed by Financial Services (Fees) (Amendment) Regulations, 2023 (page number 29, item xi)
| FEE TYPE | DESCRIPTION | AMOUNT (US$) |
|---|---|---|
| Application for Registration as a VASP | General VASP registration | 5,000 |
| VASP providing virtual assets custody service (pursuant to section 27) | 10,000 | |
| VASP operating a virtual assets exchange (pursuant to section 30) | 10,000 | |
| Approval of Registration of a VASP | General VASP - Initial registration fee | 7,500 |
| General VASP - Annual renewal of registration fee | 7,500 | |
| VASP providing virtual assets custody service (pursuant to section 28) - Initial registration fee | 15,000 | |
| VASP providing virtual assets custody service (pursuant to section 28) - Annual renewal of registration fee | 15,000 | |
| VASP operating a virtual assets exchange (pursuant to section 31) - Initial registration fee | 25,000 | |
| VASP operating a virtual assets exchange (pursuant to section 31) - Annual renewal of registration fee | 25,000 | |
| Application and Approval for Change of Name | Application for change of name (Section 9(1)) | 300 |
| Approval of change of name (Section 9(2)) | 1,200 | |
| Application and Approval of a Director or Senior Officer | Application for approval (Section 11(3)) | 200 |
| Approval (Section 11(4)) | 300 | |
| Application and Approval as an Authorised Representative | Application for approval (Section 12(2)) | 1,500 |
| Initial approval fee (Section 12(3)) | 2,000 | |
| Annual renewal fee (Section 12(3)) | 2,000 | |
| Application and Approval of an Auditor | Application for approval (Section 14(3)) | 1,000 |
| Approval of appointment (Section 14(4)) | 1,500 | |
| Commission Appointing an Auditor for a VASP | VASP liable to pay for the appointment (Section 15(3)) | 2,500 |
| Application for Extension of Time for Submission of Financial Statements and Reports | Fee (Section 18(2)) | 1,000 |
| Approval of a Person to Acquire Significant/Controlling Interest in a VASP | Fee (Section 21(2)) | 1,000 |
| Approval for a VASP to Cause, Permit, or Acquiesce in Certain Actions | Sale, transfer, charge, or other disposition of a significant or controlling interest (Section 21(3)) | 1,000 |
| Issue or allot shares or other reorganisation of share capital resulting in a person acquiring or changing a significant/controlling interest (Section 21(3)) | 1,000 | |
| Application for Approval of Certain Actions Related to Significant/Controlling Interest | A person to acquire a significant or controlling interest in a VASP (Section 21(5)) | 500 |
| A VASP to cause, permit, or acquiesce in the sale, transfer, charge, or other disposition of a significant or controlling interest (Section 21(5)) | 500 | |
| A VASP to issue or allot shares or other reorganisation of its share capital resulting in a person acquiring or changing a significant/controlling interest (Section 21(5)) | 500 | |
| Application or Notification to Participate in the Regulatory Sandbox for Innovative FinTech in Virtual Assets | Fee (Section 34(1), (3)) | 1,000 |
| Approval of Application/Notification and Issuance of Certificate of Approval | Fee (Section 35(1)) | 1,500 |
Taxation Overview
The BVI operates a territorial tax system and is generally tax-neutral for international businesses:
- • Corporate Tax: BVI Business Companies are typically exempt from all BVI income, capital gains, and corporate taxes on income earned outside the jurisdiction.
- • Economic Substance Requirement: VASPs must comply with the BVI's economic substance requirements, demonstrating adequate BVI-based substance (staff, expenditure, physical presence) for their core income-generating activities.
Official Links
- 1. Virtual Assets Service Providers Act, 2022:
https://www.bvifsc.vg/sites/default/files/virtual_assets_service_providers_act_2022.pdf - 2. Guidance on Regulation of Virtual Assets in the Virgin Islands (BVI):
https://www.bvifsc.vg/sites/default/files/guidance_on_regulation_of_virtual_assets_in_the_virgin_islands_bvi_final.pdf - 3. Financial Services (Fees) (Amendment) Regulations, 2023:
https://www.bvifsc.vg/sites/default/files/financial_services_fees_amendment_regulations_2023.pdf (for fee structure refer page number 29, item xi)
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