The Virtual Assets Act 10 of 2023 was brought into force on 25 July 2023. With the promulgation and coming into force of the VAA, many had the hope that the Act would shed some light on questions such as, may one legally own, possess or trade Bitcoin, what the rules for trading Bitcoin are, how crypto currency is regulated in Namibia and what the term ‘virtual assets’ actually means.
The VAA, to some extent, provides answers to the above, but it does not yet regulate all that we want to know. This article shares a short summary of the VAA and what you do need to know. (Note: There is a table at the end of this article setting out some additional definitions provided for in the VAA.)
The VAA
The preamble of the VAA states that it was enacted to provide for the licensing and regulation of virtual asset service providers as well as to designate a Regulatory Authority to regulate and supervise virtual asset service providers and related activities in order to ensure consumer protection, prevention of market abuse and prevention or mitigation of the risk of money laundering, financing of terrorism and proliferation activities posed by virtual assets markets.
Section 2 further holds that the VAA applies to persons that, by way of business, provide virtual asset services (as set out in Part 1 of Schedule 2) for or on behalf of another person. Accordingly, the VAA was enacted not so much for the customer or client, but rather to regulate the virtual asset service providers and the market in which trading of virtual assets occur.
Consequently, most provisions of the VAA are designated to the licensing of virtual asset service providers, which provisions include amongst other things, the conduct of business, professional conduct, responsibilities of licence holders and the financial obligations of licence holders.
The virtual asset services mentioned above include the following: initial token offering; exchanging one virtual asset for another virtual asset; exchanging virtual assets for fiat currencies or fiat currencies for virtual assets; transfer of virtual assets; operating a virtual asset exchange; safekeeping of virtual assets or instruments enabling control over virtual assets; administration of virtual assets or instruments enabling control over virtual assets; as well as participation in and provision of financial services related to a token issuer’s offer and sale of virtual assets or the token issuers offer or sale of virtual assets.
The VAA, furthermore, defines ‘virtual assets’ as a digital representation of value that can be digitally transferred, stored or traded; that uses a distribution ledger technology or similar technology; and that can be used for payment or investment purposes.
This explains the term; however, it does not quite answer the question of which virtual assets or virtual currencies (e.g. Bitcoin, Ethereum, Litecoin etc.) exactly fall under this term. It must be noted that section 3 of the VAA makes provision for the Minister, after consultation with the Regulatory Authority, to declare by notice in the Government Gazette digital representations of value to be virtual assets for the purpose of the VAA. However, no such notice has been published yet and, accordingly, it is not yet known which virtual assets the VAA refers or applies to.
The VAA does, however, regulate the process in terms of which virtual assets are transferred from one virtual asset address or account to another virtual asset address or account. It, therefore, regulates the process whereby a virtual asset is transferred from the originator/ client, who places an order for the transfer of virtual assets with an originating virtual asset service provider, to the beneficiary virtual asset service provider, who receives the virtual asset on behalf of the beneficiary/ other client who will now own the virtual asset on completion of the transfer.
The Bank of Namibia as Regulatory Authority has, accordingly, issued various sets of rules in order to facilitate the transfer of virtual assets. These rules relate to, amongst other things, the transfer of virtual assets, cross border wire transfers, advertising of virtual assets, risk management and cyber security related matters.
In addition, and in order to promote the purposes of the VAA as set out in the preamble, stringent requirements are placed on virtual asset service providers. As a point of departure, section 4, requires that virtual asset service providers, officers, beneficial owners (of applicants of licences), associates and other persons to whom the VAA applies must be ‘fit and proper’ and the Regulatory Authority is not allowed to grant an application for a licence unless it is satisfied that such applicant and its related parties are fit and proper persons.
The Bank of Namibia has, additionally, issued Guidelines in terms of section 4(2) of the VAA called the ‘Fit and Proper Person Guidelines’. Guideline 4 explains that the purpose of the fit and proper test is to:
- establish a standard benchmark for licensing and for ongoing regulation and supervision of licence holders and applicants for authorisation under the VAA;
- act as a deterrent to protect the interests of consumers of financial services;
- encourage high standards of market conduct;
- encourage a high level of confidence amongst those using, and those considering using Namibia as a base for their operations;
- deter making an abuse of the Namibian market;
- promote a business environment that meets acceptable international standards; and
- ensure that persons, who are not fit and proper to perform functions in relation to a regulated activity, are precluded from doing so, in the public interest.
Guideline 7, therefore, requires that qualities such as honestly, integrity, diligence, fairness, reputation and good character must be demonstrated by the persons to whom the VAA applies on an ongoing basis.
Conclusion
In the current day and age, we find ourselves immersed in a world that has not only become mostly digital, but a world in which digitisation occurs at an unmatched pace. This has undoubtedly caused the need for our Legislature to act and react to the increasing demands of the digitised world.
The VAA is only one example of our Legislature’s response to the ever-changing circumstances we find ourselves in. Accordingly, the VAA might not yet answer all our questions, but it is a promising start to regulate the virtual asset world and to ensure that the virtual asset market in Namibia is not abused or used for improper purposes, but is rather used as one where virtual assets can be traded honestly and fairly.
Definitions provided for in section 1 of the VAA:
‘beneficiary’Means, in relation to the transfer of virtual assets, the person that will own the virtual asset on completion of a transfer.‘beneficiary virtual asset service provider’Means the virtual asset service provider that will receive the virtual asset on behalf of a client from the originating virtual asset service provider.‘client’ or ‘customer’Means a person with whom the virtual asset service provider establishes or intends to establish business relations or for whom the virtual asset service provider undertakes or intends to undertake a transaction.‘distributed ledger technology’Means a digital ledger in which data is recorded, consensually shared and synchronized across a network of multiple nodes or sites accessible by multiple persons; and includes a distributed ledger technology platform or software program that operates on a blockchain or similar technology.‘distributed ledger technology platform’Means an online mechanism for the sale, trade or exchange of virtual assets offered by a licence holder to its customers.‘fiat currency’Means a banknote or coin that is in circulation as a medium of exchange in Namibia, including a digital currency issued by the Bank of Namibia.‘initial token offering’Means to offer to the public for sale a virtual token in exchange for fiat currency or another virtual asset.‘licence holder’Means a virtual asset service provider to whom a licence is issued in terms of section 9.‘Minister’Means the Minister responsible for finance, which in this case is the Minister of Finance and Public Enterprises.‘originator’In relation to a transfer of a virtual asset, means the person that places an order with a licence holder for the transfer of virtual assets or where the transfer is carried out by a licence holder on behalf of a client or other third party, the client or third party who owned the virtual asset immediately before the transfer.‘originating virtual asset service provider’Means the virtual asset service provider that, on behalf of a client, transfers a virtual asset to the beneficiary virtual asset service provider.‘Regulatory Authority’Means an entity designated by the Minister as a Regulatory Authority in terms of section 5. The Minister, in Government Gazette 8148 (GN 218/2023) designated the Bank of Namibia as the Regulatory Authority.‘supervisory authority’Means the Financial Intelligence Centre.‘transfer of virtual asset’Means the transfer of a virtual asset from one virtual asset address or account to another virtual asset address or account.‘virtual asset’Means a digital representation of value that can be digitally transferred, stored or traded; that uses a distribution ledger technology or similar technology; and that can be used for payment or investment purposes, but does not include digital representations of fiat currencies, and securities or other financial assets regulated under the securities or financial assets law of Namibia.‘virtual asset exchange’Means a trading platform in the distributed ledger technology for the sale, trade, transfer or exchange of a virtual asset for fiat currency or virtual asset.‘virtual asset service provider’Means a person that by way of business provides virtual asset services for or on behalf of another person.‘virtual token’Means any cryptographically secured digital representation of one or more rights provided on a digital distribution ledger platform or similar platform and issued or to be issued by a token issuer.
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Read the original publication at Bowmans
