Stablecoin issuer / redeemer in Papua New Guinea

Most Likely: E-money/Payment Tokens: Given the purpose of stablecoins to maintain a stable value for transactions, they would most likely be classified as a form of e-money or payment tokens under the National Payment System Act 2013 and the National Payment System Regulations 2021.

If a stablecoin is classified as e-money, the BPNG's framework for e-money issuers would likely apply. This typically requires:

1:1 Backing: The issuer must hold an equivalent amount of fiat currency (or highly liquid, low-risk assets) corresponding to the value of e-money in circulation.

Safeguarding and Segregation: These reserves must be held in segregated accounts with a licensed financial institution (e.g., a commercial bank licensed by BPNG) to protect customer funds in case of the issuer's insolvency.

The National Payment System Regulations 2021 are expected to detail these requirements for e-money issuers.

Any entity wishing to issue a stablecoin that falls under the definition of e-money or operates a payment system would need to be licensed and regulated by the Bank of Papua New Guinea.

Under the National Payment System Act 2013, entities providing payment services, including e-money issuance, are typically required to obtain a Payment Service Provider (PSP) license from BPNG. This involves stringent application processes, meeting capital requirements, demonstrating robust governance, risk management, and compliance with Anti-Money Laundering/Counter-Terrorist Financing (AML/CTF) regulations.

Consistent with international best practices for e-money and payment tokens, if stablecoins are classified as e-money in PNG, users would likely have redemption rights. This means the issuer would be obligated to redeem the stablecoin for its underlying fiat currency at par value upon request by the holder, subject to reasonable terms and conditions (e.g., fees, notice periods).

Given the general cautious stance of BPNG towards cryptocurrencies and the lack of specific stablecoin legislation, it is highly unlikely that there are any specific rules or a clear regulatory pathway for algorithmic stablecoins.

Due to their inherent volatility and lack of direct fiat or asset backing, algorithmic stablecoins would likely be viewed with extreme skepticism by BPNG, if not implicitly prohibited or strongly discouraged due to the high risks they pose to financial stability and consumer protection. They would not fit the existing e-money framework, which relies on 1:1 backing.

National Payment System Act 2013: This is the primary legislation governing payment systems, payment instruments, and e-money in PNG. It grants BPNG the power to license and supervise payment service providers.

National Payment System Regulations 2021: These regulations provide detailed rules for implementing the National Payment System Act, including specifics on e-money issuance, licensing, and operational requirements.

Anti-Money Laundering and Counter Terrorist Financing Act 2015: Any entity involved in financial services, including stablecoin issuance, would be subject to strict AML/CTF obligations.

Central Banking Act 2000: This Act establishes BPNG's mandate, powers, and functions as the central bank, including its role in monetary policy, financial system stability, and supervision.

Bank of Papua New Guinea (BPNG): BPNG has previously issued warnings to the public regarding the risks associated with cryptocurrencies, including volatility, lack of consumer protection, and potential use for illicit activities. These warnings do not constitute a regulatory framework but indicate a cautious approach.

Currently, neither a specific registration nor a licensing regime exists for VASPs.

Anticipated Future: Based on FATF recommendations, it is highly probable that PNG will eventually adopt a licensing regime for VASPs. The FATF standards recommend that VASPs be licensed or registered, and subject to effective systems for monitoring and ensuring compliance with AML/CTF requirements. Licensing typically implies a more rigorous pre-approval process and ongoing supervision than simple registration.

Capital Requirements: Financial institutions, including future VASPs, are typically required to maintain a certain level of minimum paid-up capital to demonstrate financial stability and ability to absorb losses. The exact amount would be determined by BPNG based on the scope and risk of services offered.

AML/KYC (Anti-Money Laundering / Know Your Customer): This is the most certain requirement. Future regulations will mandate VASPs to:

Identify and verify customers (KYC).

Conduct ongoing customer due diligence.

Monitor transactions for suspicious activity.

Report suspicious transactions to FASU.

Implement robust risk-based AML/CTF programs.

Adhere to the "travel rule" for VA transfers, requiring information sharing between VASPs.

Local Presence: For foreign entities, a local physical presence, a local board of directors, or a local registered company structure is often a requirement for financial licenses.

Management & Governance: Fit and proper tests for directors and senior management, robust governance structures, internal controls, and risk management frameworks (including cybersecurity).

Consumer Protection: Rules around disclosures, clear terms of service, dispute resolution mechanisms, and safeguarding of client assets.

Technology & Security: Requirements for secure systems, data protection, and measures against cyber threats.

Anti-Money Laundering and Counter Terrorist Financing Act 2015 (AML/CTF Act 2015): This Act provides the legal basis for identifying, freezing, and confiscating assets related to money laundering and terrorist financing. It obligates financial institutions and designated non-financial businesses and professions (DNFBPs) to implement AML/CTF measures. While it pre-dates specific crypto regulation, its broad definitions and principles are applied to virtual asset activities where deemed appropriate by regulators.

Designated Person/Entity Screening: VASPs must screen their customers (both at onboarding and on an ongoing basis) against the UN Consolidated Sanctions List, which includes individuals and entities designated under various UN sanctions regimes (e.g., terrorism, proliferation, specific country regimes).

Asset Freezing: If a VASP identifies that it holds assets (including virtual assets) belonging to a designated person or entity, it must immediately freeze those assets and report the match to FASU.

Prohibition on Dealing: VASPs are prohibited from making funds or economic resources available to, or for the benefit of, designated persons or entities.

Suspicious Transaction Reporting (STR): Any transaction involving designated persons, or transactions suspected of being related to money laundering or terrorist financing, must be reported to FASU.

Obligations: VASPs in PNG that engage in international transactions, particularly those involving US dollars or counterparties in the US/EU, should screen against:

Extraterritorial Reach: OFAC and EU sanctions can have extraterritorial effects, particularly if transactions involve:

The US financial system (e.g., US dollar clearing).

US persons (citizens, residents, entities, or their foreign branches).

Correspondent Banking Relationships: PNG financial institutions (and potentially VASPs dealing with them) rely on correspondent banking relationships with US and European banks, which impose their own OFAC/EU compliance requirements.