Overview of Regulated Activities under the Virtual Asset Service Providers Act of Seychelles

Regulated Activities

The VASP Act outlines specific activities that are subject to regulation.

These activities include:

1. Virtual Asset Wallet Services; Providers offering custodial services for virtual assets, including the creation, management, transfer, and safekeeping of digital wallets on behalf of clients.
2. Virtual Asset Exchange Services; Platforms facilitating the trading, conversion, and transfer of virtual assets, including but not limited to: Exchange of virtual assets for fiat currencies; exchange between different virtual assets; and Trading services for Initial Coin Offerings (ICOs) and Non-Fungible Tokens (NFTs) and transfer and safekeeping services of virtual assets, ICO’s and NFTs.
3. Virtual Asset Custodial Services; Services that involve holding and safeguarding virtual assets on behalf of clients, including the management of private keys and security protocols.
4. Initial Coin Offering (ICO) Services; Activities related to the promotion, sale, and distribution of tokens through ICOs and NFTs..
5. Brokerage Services; Services that facilitate the buying and selling or safekeeping of virtual assets on behalf of clients, including offering advice and executing trades.
6. Advisory Services; Providing investment and funds management including management of virtual asset portfolio and providing investment advice.

Prohibited Activities

The VASP Act prohibits operation of mining facilities; or mixer or tumbler services, in or from Seychelles.

Compliance Obligations

As a regulated entity, virtual asset service providers will be required to adhere to specific compliance obligations, including:

• Substance requirements: Complying with substance requirements as provided in the VASP Act.
• Audited Accounts: Preparing annual audited financial statements.
• Anti-Money Laundering (AML) Measures: Implementing robust AML policies to prevent illicit activities and ensure proper reporting of suspicious transactions.
• Know Your Customer (KYC) Procedures: Conducting thorough due diligence on clients to verify their identities and assess potential risks.
• Consumer Protection Standards: Ensuring transparency in operations and safeguarding client assets through secure practices.
• Cybersecurity Protocols: Implementing measures to protect against cyber threats and ensure the integrity of client information and assets.

It is equally important to understand which activities fall outside this regulatory scope, ensuring clients can confidently operate within legal boundaries.

Activities Outside the Scope of Regulation

It is crucial to understand that activities not explicitly mentioned in the VASPA are not regulated.

Below, we highlight activities that do not require licensing or regulatory approval under the current legislative framework:

A. Personal Use and Peer-to-Peer Transactions

1. Personal Holdings and Usage – Description: Individuals holding, using, or transferring virtual assets for personal purposes are not subject to regulation, provided these activities are not conducted as a business.
2. Peer-to-Peer Transactions; – Description: Direct transactions between individuals without intermediary services, such as personal loans or gifts using virtual assets, remain unregulated.

B. Non-custodial Services

1. Software Development – Description: Providing software that enables users to manage their virtual assets independently, such as non-custodial wallets, is outside the VASP Act’s regulatory ambit.
2. Technology Solutions; – Description: Developing and selling technology solutions for virtual asset management, which do not involve the custody or management of the virtual assets themselves, are not regulated.

C. Advisory and Educational Services

1. Consulting Services; – Description: Offering consulting or advisory services related to virtual assets, ICOs, or NFTs without handling the assets directly is not regulated.
2. Educational Programs; – Description: Conducting training programs, workshops, or producing educational content around virtual asset technologies and investment strategies falls outside the regulatory scope.

D. Staking

1. Staking Services; – Description: Participation in staking protocols where individuals lock up their crypto holdings to support network operations and earn rewards is not regulated unless done by a custodial service provider.

E. Decentralised Finance (DeFi) Platforms

1. Protocol Development; – Description: Developing protocols for decentralised finance applications, which operate autonomously via smart contracts, is not regulated as long as the developer does not exercise control over user funds.
2. Nodes and Validators; – Description: Operating nodes or validators that support decentralised networks without providing custodian services remains unregulated.

This distinction is important for several reasons:

• Promoting Innovation and Growth; By allowing activities outside the regulated scope to operate freely, the VASPA fosters an environment conducive to innovation and growth within the virtual asset ecosystem. This flexibility encourages new business models, technologies, and services that can enhance market dynamics and consumer choice.
• Encouraging Market Participation; The absence of regulation for certain activities can attract a wider range of participants, including startups and smaller firms, which may not have the resources to comply with extensive regulatory frameworks. This inclusivity can lead to a more vibrant and diverse marketplace, ultimately benefiting consumers.
• Focus on High-Risk Activities; The regulation is designed to focus on activities that pose the highest risks to consumers and the financial system. By concentrating regulatory efforts on specific activities, authorities can allocate resources more effectively, ensuring that oversight is targeted where it is most needed.
• Clarity for Businesses; Clear delineation between regulated and unregulated activities provides businesses with the certainty they need to operate without the burden of unnecessary compliance costs. This clarity allows businesses to focus on their core operations and strategic objectives without the fear of inadvertently crossing regulatory boundaries.
• Consumer Empowerment; Consumers benefit from the freedom to engage in unregulated activities, provided they are informed and aware of the associated risks. This empowerment allows individuals to make their own choices and take responsibility for their investments, fostering a culture of informed decision-making.

Conclusion

In summary, while the Virtual Asset Service Providers Act establishes a framework for regulating specific activities within the virtual asset space, it is equally important to recognize that activities falling outside this scope are not regulated. This approach not only promotes innovation and market participation but also provides clarity for businesses and empowers consumers.

Our Offer to Assist You: To help you navigate the licensing process smoothly, we are pleased to offer our services in assisting with your VASP license application. Our team of experts will guide you through the application process, ensuring that all necessary documentation is prepared accurately and submitted on time.

Should you have any questions or wish to discuss how these regulations may impact your operations or investments, please feel free to reach out. We are here to assist you in navigating this evolving landscape.