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Seychelles launches licensing for crypto services: new requirements

As of September 1, 2024, the Seychelles has implemented the Virtual Asset Service Providers Act, 2024 (VASP Act), regulating the activities of companies providing virtual asset services. This legislation represents a significant shift in Seychelles' approach to regulating the crypto industry, requiring companies in this space to obtain licenses for lawful operation. The Act establishes rules, criteria, and requirements for all license holders, as well as sanctions for violations.

What Are Virtual Assets?

The VASP Act classifies virtual assets as a digital representation of value that can be traded, transferred, or used for payment or investment purposes. Notably, virtual assets do not include digital forms of fiat currency (official currencies), securities, or other financial assets.

Who Needs a License?

 The licensing requirement applies to companies providing third-party crypto asset services, specifically:

  • Custodial Providers (Virtual Wallets): Entities that store, manage, and transfer crypto assets on behalf of clients.
  • Crypto Exchanges and Exchangers: Companies facilitating exchanges of virtual assets for fiat currency or other crypto assets.
  • Brokerage Firms: Firms assisting clients with cryptocurrency transactions through exchanges and wallets.
  • Investment Companies: Companies managing investments in crypto assets and offering advisory services in this field.

Companies that do not belong to these categories are not required to obtain a VASP license. However, they must be prepared to justify their status to the regulator to exempt themselves from licensing.

Application Deadlines for the VASP License

Existing companies already operating in the virtual asset sector in Seychelles must submit their license applications by December 31, 2024. They may continue their activities while their applications are under review or until a written denial is issued by the Seychelles Financial Services Authority (FSA).

Requirements for VASP License Applicants

To qualify for a license, companies must:

  • Be a legal entity registered in Seychelles (either local or international).
  • Have a physical presence in Seychelles, including an office and qualified personnel.
  • Appoint at least one Seychelles resident as a director.
  • Maintain sufficient paid-in capital for the respective type of activity (ranging from $25,000 to $100,000, depending on the services offered).
  • Keep reserve funds equivalent to 100% of the funds belonging to clients.
  • Have insurance coverage for their business operations.

Licensing of ICOs and NFTs

The Act requires the registration of ICO and NFT promoters. Companies engaged in initial token offerings or investments in NFTs must register with the FSA and obtain a license to operate. This requirement does not apply to lawyers and accountants working on behalf of such companies.

Additional Obligations for Licensed Crypto Companies

Licensed companies must adhere to strict rules, including:

  • Professional bookkeeping, financial reporting, and business documentation.
  • Providing liability insurance to clients and safeguarding client assets.
  • Maintaining a minimum amount of net assets and ensuring high-level information security.
  • Conducting audits and submitting audited financial statements to the FSA annually.
  • Paying annual licensing fees in January and submitting compliance reports, Seychelles presence compliance forms, and additional documentation upon FSA’s request.

FSA Supervision and Enforcement Actions

The FSA has the authority to impose sanctions on license holders who violate the VASP Act. Depending on the severity of the violation, the FSA may:

  • Issue warnings or directives to companies.
  • Suspend or revoke licenses.
  • Secure the protection of client assets.
  • Impose administrative fines.
  • Initiate investigations and take other measures to protect clients and the market.

Prohibited Activities

The VASP Act prohibits certain activities, including crypto mining and the use of mixing services to anonymize crypto assets, as well as any virtual asset services provided by individuals. Violation of these regulations may lead to fines and criminal charges.

The Seychelles licensing framework imposes significant requirements on companies, including those related to bank accounts, capital, insurance, and physical presence. These measures aim to protect clients and enhance the transparency of the crypto market.

Companies operating in the Seychelles in the crypto services space should prepare the required documentation and apply for a license by the end of 2024. Failure to comply will render their crypto activities illegal.

Seychelles | 06.11.24
Author: Campio group

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