THE BRITISH VIRGIN ISLANDS APPROACH TO CRYPTOASSET BUSINESSES Authored by: Sara Hall, Partner, Walkers
Introduction The British Virgin Islands ("BVI") is a popular jurisdiction for cryptoasset businesses. Some of the most wellknown names operate from a BVI business company. This article looks at developments in the field of regulation and litigation relevant to such businesses, and to those considering the BVI to establish their business. The regulation of crypto asset businesses background The Financial Action Task Force (the "FATF") is the global Anti-Money Laundering and AntiTerrorist/Proliferation Financing watchdog. Established in 1989, it issues standards and guidance designed to prevent organised crime, corruption and terrorism. Over 200 countries and jurisdictions have committed to implement its standards. It has issued guidance in relation to virtual assets and virtual asset service providers ("VASPs") which was most recently updated in October 2021. One of the key recommendations is that jurisdictions require VASPs to register with the jurisdiction's regulator, and implement anti-financial crime processes and controls. Due to the pseudonymised nature of activity in relation to cryptoassets, the FATF views the crypto industry as posing a high risk of being used for financial crime. The BVI's approach Within this context, the BVI has implemented legislation that requires VASPs to register with its financial services regulator, the BVI Financial Services Commission (the "Commission"). This legislation is the Virtual Asset Service Providers Act (the "Act"). VASPs are also required to comply with the BVI's AntiMoney Laundering Regulations and the Anti-Money Laundering and Terrorist Financing Code of Practice unless a transaction involves virtual assets valued at below $1,000. It is an offence to operate as a VASP in or from within the BVI as a business until the necessary registration has been obtained. The exception is for VASPs who were operational when the Act came into force on 1 February 2023 and who took advantage of the transitional relief in the Act. The registration process is thorough. Many aspects are comparable to those of a traditional financial services licence.
The Commission has issued guidance for applicants on making an application (available on its website). In line with the BVI's approach to more traditional financial instruments, the Commission does not regulate the instruments or products themselves. Instead, the providers are regulated if carrying out a "virtual asset service" as a business in or from within the BVI. It is also worth noting that not every crypto asset is a "virtual asset". In line with the FATF's guidance, NFTs for example will usually be virtual assets if used for investment or payment purposes. A simple token that is used within a game but which has no value and cannot be traded outside of the game will typically not be a virtual asset. Each novel crypto asset must however be assessed on a case by case basis. Nor is every activity a "virtual asset service". The services that may bring a VASP into the scope of the Act mirror those in the FATF guidance. These include the conduct of one or more of the following activities or operations for or on behalf of another person as a business in or from within the BVI: exchange between virtual assets and fiat currencies; exchange between one or more forms of virtual assets; transfer of virtual assets; safekeeping or administration of virtual assets or instruments enabling control over virtual assets; participation in, and provision of, financial services related to an issuer's offer or sale of a virtual asset; or any such activity or operation as may be specified in the Act or prescribed by regulations. Operating a "virtual assets exchange" or providing "virtual assets custody services" (as defined) require registration with the Commission.
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