DeFi protocol frontend in Solomon Islands

Investment of Money (or assets): Has an investor committed assets (fiat, other crypto) into the token issuance?

In a Common Enterprise: Is there a pooling of investor funds, or a shared interest in the success or failure of the project?

With an Expectation of Profit: Did the issuer promote the token as an investment, promising future returns, appreciation, or other financial benefits?

Deriving Solely from the Efforts of Others: Do the profits or returns primarily depend on the managerial or entrepreneurial efforts of the token issuer or a third party, rather than the efforts of the individual token holder?

Investment Tokens/Security Tokens: Tokens explicitly designed to represent ownership, a share in profits, voting rights, or other traditional equity/debt-like features in an underlying asset, project, or company. This includes initial coin offerings (ICOs) structured as investment contracts.

"Pre-Functional" or "Hybrid" Utility Tokens: Tokens marketed and sold primarily as an investment opportunity before the underlying platform or service is fully developed and functional. Even if intended for future utility, the initial sale with an expectation of profit makes them securities.

Pure Utility Tokens: Tokens that primarily provide immediate access to a product or service, with no reasonable expectation of profit from the efforts of others, and are not marketed as an investment.

Pure Payment Tokens/Cryptocurrencies: Tokens intended solely as a medium of exchange or store of value, and not offered or sold as part of an investment scheme. However, it's important to note that the CBSI does not recognize cryptocurrencies as legal tender and has warned against their use.

Prospectus Requirements: Issuers may need to prepare and register a prospectus or offer document with the Registrar of Companies, providing full disclosure of material information about the token, the project, the risks, and the issuer.

Licensing: While not explicitly for "token issuers," entities offering or dealing in securities might need to be licensed or authorized if such a framework exists for traditional securities brokers or investment advisors under a future Securities Act or related regulations.

If a token is deemed a security, its secondary trading would theoretically fall under any general rules applicable to the trading of unlisted securities (e.g., shares in private companies).

The CBSI has warned the public against the risks of trading cryptocurrencies due to their volatility, speculative nature, and lack of regulation.

There are no regulated cryptocurrency exchanges operating under Solomon Islands' jurisdiction. Trading would typically occur on offshore platforms, which are outside the direct regulatory purview of the Solomon Islands authorities.

Lack of Specific Legislation: Without a dedicated framework, enforcement actions are harder to initiate.

Focus on Warnings: The CBSI's primary approach has been preventive, issuing general public warnings about the risks of cryptocurrencies, scams, and their non-recognition as legal tender.

Companies Act 2009: For breaches related to illegal offerings of unregistered securities or failures in disclosure.

Anti-Money Laundering and Counter-Terrorist Financing Act 2021 (the AML/CFT Act): This comprehensive legislation aligns the Solomon Islands with international FATF standards, covering customer due diligence, reporting obligations, and broader AML/CFT requirements for financial institutions, which increasingly include VASPs.

Solomon Islands Financial Intelligence Unit (SIFIU)

Identification and Verification of Identity:

Natural Persons: Obtain full name, date of birth, residential address, nationality, and unique identification number (e.g., passport, national ID). Verify this information using reliable, independent source documents, data, or information.

Legal Persons/Entities (e.g., Companies): Obtain name, legal form, proof of existence, powers that regulate and bind the legal person, and the names of relevant persons holding senior management positions.

Beneficial Ownership: Identify and verify the identity of the natural person(s) who ultimately own or control the customer (typically 25% or more ownership/control threshold for legal entities).

Purpose and Intended Nature of the Business Relationship: Understand the reason for the customer establishing the relationship and the expected nature of their virtual asset activities.

Ongoing Monitoring: Continuously monitor the business relationship and transactions to ensure they are consistent with the VASP's knowledge of the customer, their business, and risk profile. This includes monitoring for unusual or suspicious activities.

Enhanced Due Diligence (EDD): Apply EDD measures in higher-risk situations, including:

Reporting Obligation: Reports must be submitted to the SIFIU promptly. SIFIU guidance usually specifies a timeframe (e.g., within 24-48 hours of forming suspicion).

No Tipping-Off: VASPs and their employees are strictly prohibited from informing the customer or any third party that an STR has been or will be submitted.

Types of Records:

Financial Intelligence Unit Act 2021: This Act establishes the SIFIU and defines its powers and functions.