The days when offshore companies could operate remotely under Vanuatu’s Financial Dealer License (FDL) will soon be history. By the end of 2022, all securities brokers will have to move onshore and make tangible investments in the Southwest Pacific island nation.
The Vanuatu Financial Services Commission (VFSC) has significantly beefed up the requirements for FDL holders, including the physical presence of at least one direct employee who matches a 'fit and proper' definition. Those who deal in digital assets, in which trading was legalized this July, must have three people onshore, one of whom is the CTO, along with a minimum capital of US$500,000, a custodianship license from another jurisdiction and an established track record.
Seeking a Commitment
“In other words, a single P.O. Box and some accounting entries won’t cut it anymore to operate in Vanuatu. Our government wants to bring the offshore industry back onshore to spur investment in the country, create jobs, stimulate further development, and support education and training,” says Martin St-Hilaire, the Chairman of the Financial Markets Association of Vanuatu (FMA Vanuatu) representing FDL holders. “We look forward to seeing financial brokers open up offices in Vanuatu and hire and train staff locally.”
In a set of 'guidance notes' issued in recent months, the VFSC established four categories of licenses: FX deliverable and debt instruments (Cat. A); corporate shares, precious metals or commodities (Cat. B); futures contracts and derivative products (Cat. C); and digital assets (Cat. D.). The last is for the brokerage of digital assets, not their issuance, Initial Coin Offerings will not be authorized.
Put Your Money Where Your Mouth Is
Since the end of October, brokers can apply for licenses in the A, AB, ABC or ABCD categories – meaning that applicants for D must apply for all four. A one-time bond deposit of 5 million Vatu (approx. USD 45,000) is also required. Once granted, the licenses will never have to be renewed; they will be perpetual with the VFSC reserving the right to revoke them at any time for non-compliance with the law. Existing licensees will have until October 16, 2022, to comply.
There is one exception to the physical presence requirements: small brokers with limited activity will be authorized to designate a Licensed Resident Manager, i.e., hire a local consultant, instead of moving onshore. But, the regulator views this as a “temporary solution for the little guy,” according to St-Hilaire.
“The idea is to allow licensees who are not yet in operation to mitigate their start-up costs. Vanuatu is a small, developing nation and our regulator understands that it’s difficult for new players to fully comply with all requirements from the start, so it’s lowering one hurdle to help them get on board.”
The Move to Transparency
While the new compliance requirements may deter more than a few brokers from applying for a Vanuatu license, that is precisely the goal of the VFSC.
“Our regulator wants to attract only the most serious applicants. If they are genuine in their intentions and dedicated in their approach, and they intend to properly run their business in Vanuatu, the VFSC will be flexible and patient,” St-Hilaire explains.
This is the latest step in the young republic’s journey toward developing a top-tier financial industry. During the last decade, Vanuatu has upgraded its monitoring and regulatory systems as well as its legislation, putting them on par with global standards, with the help of the Asia-Pacific Group on money laundering and the Financial Action Task Force. The country is an active participant in all major global initiatives in the fight against tax evasion, money laundering and the financing of terrorism, and a willing adherent to the OECD’s Common Reporting Standard (CRS).
In other words, Vanuatu is now at the forefront of global trends toward openness, and its authorities are in a position to strike a fair balance between transparency and privacy rights. Traditionally, the International Financial Centre was catering to a mostly offshore clientele, but in its renewed governance approach, the government wants these clients to transition from 'offshore activities' to 'onshore export of services'.
St-Hilaire says: “Vanuatu wants to bring about a sea change in the way it does business, by transitioning from an offshore, protected financial centre to an onshore transparent Fintech centre.”
