33 ASIAN LEGAL BUSINESS – JANUARY-FEBRUARY 2024 WWW.LEGALBUSINESSONLINE.COM That being said, the country’s regulators work closely with industry participants to make the compliance process as smooth as possible. “The Innovation Team at the JFSC works with industry stakeholders and is very approachable and prepared to work collaboratively with applicants and their advisers. Fees for registration for supervision are also competitive and materially lower than some of the other offshore jurisdictions,” Curry says. “It is also likely that further regulation and legislative changes will be implemented in the future as the VA sector becomes more sophisticated. Entities will have to be prepared to adapt and move quickly to ensure ongoing compliance,” he adds. BRITISH VIRGIN ISLANDS The BVI Virtual Assets Service Providers Act, 2022 (BVI VASPA), which came into force in February 2023, empowers the BVI Financial Services Commission (BVI FSC) to regulate the carrying on by BVI companies of virtual assets services while still fostering an environment in which businesses can innovate and be successful. The BVI VASPA defines a virtual asset as “a digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes.” The act provides a registration and licensing regime for any person offering a “virtual asset service” in the course of a business. David Mathews, a managing associate at Ogier’s BVI office, says the BVI VASPA represents a well-balanced approach to virtual asset regulation by the FSC. “For the most part, it sticks close to FATF recommendations in the space, focussing in a practical manner on AML and other misuse concerns, but without implementing harsh, blanket regulation across all aspects of virtual asset activity.” Unlike other offshore jurisdictions, the issuance by a BVI entity of a virtual asset is not included in the definition of virtual assets service, and so, to the extent that a BVI company is involved in a crypto project solely as the issuer of tokens, the BVI VASPA would not require the entity to be regulated in respect of that activity, says Mathews. “For this reason, we are seeing many blockchain projects based in Asia choosing BVI as the place of incorporation for the token issuer,” he adds. Mathews says that the BVI VASPA increases reporting and compliance requirements on VASPs on the island, including annual submission to the BVI FSC of audited financial statements and a report detailing the level of compliance by the entity with its obligations under the BVI VASPA. The entity is also required to have a compliance officer, approved by the BVI FSC, who is responsible for ensuring compliance by the entity with the requirements of the BVI VASPA. VASPs will also be subject to the provisions of the BVI Anti-Money Laundering Regulations (the BVI AMLR) and the BVI Anti-Money Laundering and Terrorist Financing Code Practice (the BVI AML Code). “The BVI AML Code has implemented ‘the travel rule’ and, as such, any licensed VASP will need to undertake KYC on its clients and any persons to whom they transfer virtual assets. Under the BVI AMLR, this is mandatory for any transaction valued at $1,000 or more, or if the transaction has any characteristics that would make it high risk (for example, the involvement of a politically exposed person),” says Mathews. Compliance with the AML regime and the travel rule poses the greatest compliance challenge to a VASP in BVI, explains Mathews. “Not only can this be challenging to perform on a practical level, there is also often significant resistance in the market to providing necessary verification documents,” he says. To ensure a smooth transition into compliance with the new regulations with minimal disruption to growth and innovation, the BVI VASPA incorporated a six-month grandfathering period during which time persons who were already operating a virtual assets business using a BVI entity were able to continue operating before they had to apply for a licence. And after the licence application was made, these entities were able to continue operating until the BVI FSC finally approved or refused to grant a licence to them. The availability of experienced financial and legal advisors on the islands also eases the risk of business disruption from the increased compliance burdens. Mathews says that as a matter of best practice, it is always advisable to engage the services of a specialist AML advisor, and legal counsel to assist any licensee under the BVI VASPA to comply with its obligations under the BVI AMLR and BVI AML Code. “This will ensure that the client is able to comply with its obligations, and has the confidence that it is doing so, while freeing up the time and energy of its management team to focus on delivering and developing their product,” Mathews advises. “The single most common pitfall for clients in the virtual assets space that we have seen has been failing to involve BVI specialist advisors until after the business is up and running; by this OFFSHORE “The BVI AML Code has implemented ‘the travel rule’ and any licensed VASP will need to undertake KYC on its clients and any persons to whom they transfer virtual assets. Under the BVI AMLR, this is mandatory for any transaction valued at $1,000 or more, or if the transaction has any characteristics that would make it high risk.” — David Mathews, Ogier