Vanuatu is Willing to Move Its Financial Dealers Onshore

• The Vanuatu Financial Services Commission has beefed up the requirements for FDL holders.
• “Vanuatu wants to bring about a sea change in the way it does business," St-Hilaire, chairman of VFMA, says.

Times, when offshore companies were operating remotely under Vanuatu’s Financial Dealer License (FDL), are a-changing. By the end of 2022, all Vanuatu security broker will be obliged to move onshore and make tangible investment into the country.

The Vanuatu Financial Services Commission (VFSC) has significantly beefed up the requirements for the holder of Financial Dealer License, including even the necessity of at least one direct employee matching ‘fit and proper’ definition to be physically present. Those dealing in digital assets, trading which was legalized just this July, must have three employees onshore, including the CTO. Also, minimum capital of US $500,000 is required, as well as custodianship license from another jurisdiction and an established track record.

“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 recent months the Vanuatu FSC has issued a set of so-called ‘guidance notes’, establishing four license categories: 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.

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

The fact that new compliance requirements will scare and deter more than a few brokers from applying for a license in Vanuatu, is the exact effect the VFSC is seeking.

“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 another stepping-stone on the path of the young republic’s ascendance as a top-tier financial industry. Since the 2010, Vanuatu has significantly upgraded its regulatory and monitoring systems, as well as its legal framework, arising them on par with global standards. 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 center to an onshore transparent Fintech center.”

We understand, that such amendments in legislation may scare many of our customers from starting a business in Vanuatu. However, these changes have not became a complete surprise for us and we have a high variety of alternative offers to our clients. In case of interest feel free to contact our team of professionals and we will be delighted to assist you.