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Demystifying VASPs in Crypto Compliance – Thought Leaders



By Anjelica Camilleri de Marco, Senior Legal Associate & Enrico Schintu, Senior Corporate Services Legal Officer of Maitland Group.

If it’s true that 2.3million of us now hold cryptoassets (up from 1.9million last year), interest in the virtual asset industry is only set to rise. And with the emergence of new currencies – such as Facebook’s Libra coin – and the implementation of national cryptos on the horizon, governments around the world are crafting new ways to regulate the blockchain industry. Here, we unpick the crucial role of VASPs and how they are regulated by jurisdictions across the globe.

What is a VASP?

A Virtual Asset Service Provider (VASP) is defined by the Financial Action Task Force (FATF) as any natural or legal person which, as a business, conducts one or more of the following activities or operations for or on behalf of its clients:

  • Exchange between virtual assets and fiat currencies;
  • Exchange between one or more forms of virtual assets;
  • Transfer of virtual assets;
  • Safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets; and
  • Participation in and provision of financial services related to an issuer’s offer and/or sale of a virtual asset.

This definition encompasses a range of crypto businesses, including exchanges, ATM operators, wallet custodians, and hedge funds.

How are they regulated from an anti-money laundering and counter-terrorist financing perspective?

In 2019, the FATF proposed new VASP guidelines in response to the increasing use of virtual assets, with the aim to strengthen its standards and clarify the application of anti-money laundering (AML) and counter-terrorist financing requirements on virtual assets and VASPs.

This required countries to assess and mitigate their risks associated with virtual asset financial activities and providers, license or register providers, and subject them to supervision or monitoring by competent national authorities. Notably VASPs are subject to the same relevant FATF measures that apply to financial institutions.

Additionally, in March 2021, the FATF published a revised draft of its guidance document, looking at a risk-based approach to virtual assets and VASPs. Changes are being proposed in a number of areas, including clarifying how the definitions of virtual assets and VASPs are to be applied.

More guidance is also being provided on how the FATF standards apply to stablecoins, the risks and potential mitigants for peer-to-peer transactions, and the implementation of the ‘travel rule’ for the public and private sectors.

Furthermore, updated guidance is being provided on the licensing and registration of VASPs, and on the principles of information-sharing and co-operation amongst VASP supervisors.

What jurisdictions are leading the way in crypto compliance?

Often referred to as ‘Blockchain Island’, to date Malta has taken a very progressive approach to cryptocurrency regulation, with established exchanges and businesses relocating to the region as a result.

This can be attributed to a series of laws enacted by the Maltese Government in 2018, aimed at providing regulatory certainty over the use and development of cryptocurrencies within the jurisdiction. The laws provide a framework of regulatory instruments based on three fundamental principles – market integrity, consumer protection, and industry due diligence – and are as follows:

Specifically, they provide a licensing system for providers of virtual financial asset services and regulate connected activities, including the initial offerings of these assets and the certification of platforms that these assets are offered on. Additionally, a designated regulatory body oversees the framework to ensure its effective implementation.

How does this compare to other jurisdictions around the world?

With Malta emerging as leading jurisdiction in the cryptocurrency space, the EU is currently reviewing whether existing financial legislation applies to cryptoassets and ICOs and if further regulatory action is needed.

There are currently divergent approaches in the EU Member States, and the European Securities and Markets Authority (ESMA) has indicated that it supports the introduction of EU-wide rules to ensure investor protection.

Worldwide, some countries are more progressive in their approach to cryptocurrencies, such as Switzerland, while others are more conservative, such as Luxembourg. There are also a select few that have strictly banned the sale of digital tokens and/or use of cryptoassets, such as China.

Why is regulation important now?

Regulating VASPs avoids the danger that the growing cryptocurrency phenomenon is pushed underground. Getting regulation right ultimately helps to bring legitimacy and certainty to the sector in the eyes of institutional investors.

Anjelica Camilleri de Marco, Senior Legal Associate specialising in corporate and commercial law matters at Global fund Advisory, Maitland Group.

Enrico Schintu, Senior Corporate Services Legal Officer joined Maitland Group in 2020. He has expertise in Corporate, Shipping, Aviation and Transport Law across multiple countries (Italy, UK, Sweden and Malta) with 10+ years of experience.

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