Stablecoin issuer / redeemer in Turks and Caicos

Under the VABA, 2023, stablecoins are explicitly defined and classified as a specific type of Virtual Asset.

Section 3(1) of the VABA, 2023 defines a "stablecoin" as: "a virtual asset that is intended to maintain a stable value relative to a specified asset, or a pool of specified assets, and which is designed to be used as a medium of exchange."

While not explicitly classified as "e-money" or "payment tokens" in the traditional sense of financial services legislation, their definition as a medium of exchange and the stringent backing requirements place them functionally in a similar category, differentiating them from general "virtual assets" or "securities" (unless they also meet the definition of a security under separate securities legislation, which is less likely for standard stablecoins).

Full Backing: A stablecoin must at all times be fully backed by the specified asset or assets to which it is pegged (Section 28(1)).

Asset Type: The backing assets must be held in fiat currency or highly liquid assets and must be denominated in the same currency as the stablecoin's peg (Section 28(2)).

Segregation: The backing assets must be held in segregated accounts, distinct from the virtual asset service provider's (VASP's) own assets, and for the sole benefit of the stablecoin holders (Section 28(3)).

Independent Audits/Attestation: A VASP issuing stablecoins must obtain independent audits or attestations by an independent auditor at least monthly to verify the full backing of its stablecoins (Section 28(4)).

Daily Attestation: The VASP must also make daily attestations regarding the value and composition of its reserves, published in an easily accessible manner on its website (Section 28(5)).

Reporting: The FSC may prescribe further details regarding the content and frequency of reporting of reserve assets.

Licensing Requirement: Any entity wishing to issue stablecoins in or from TCI must be licensed as a Virtual Asset Service Provider (VASP) under the VABA, 2023.

Section 4(1) states that "No person shall carry on a virtual asset business in or from the Islands unless that person holds a valid licence issued by the Commission under this Act."

Section 3(1) defines "virtual asset business" to include "issuing virtual assets" and specifically "operating a stablecoin."

On-Demand Redemption: The VABA, 2023 mandates clear redemption rights for stablecoin holders.

Section 28(6) stipulates: "A stablecoin issuer shall at all times ensure that each stablecoin issued is redeemable on demand by the holder of the stablecoin for the equivalent value of the specified asset backing the stablecoin."

The VABA, 2023 does not explicitly mention or ban algorithmic stablecoins.

However, the stringent requirements for full backing by specified fiat currency or highly liquid assets (Section 28(1) and (2)) and the need for independent attestations of these reserves (Section 28(4) and (5)) effectively make it impossible for purely algorithmic stablecoins (which rely on software algorithms and market incentives rather than direct asset backing) to operate under this framework. The requirements are designed for asset-backed stablecoins.

Exchange between virtual assets and fiat currencies.

General Virtual Asset Business License: A minimum paid-up capital of TCI$500,000.

Restricted Virtual Asset Business License: A minimum paid-up capital of TCI$250,000. (This license may be granted for a more limited scope of activities or under specific conditions).

Customer Due Diligence (CDD): Implementing comprehensive policies and procedures for identifying and verifying customers' identities, including beneficial owners.

Enhanced Due Diligence (EDD): For higher-risk customers, politically exposed persons (PEPs), and complex transactions.

Record Keeping: Maintaining records of customer identification data and transaction details for at least five years.

Transaction Monitoring: Implementing systems to monitor transactions for suspicious activity.

Suspicious Transaction Reports (STRs): Reporting suspicious activities to the Financial Intelligence Agency (FIA) without tipping off the customer.

Risk Assessments: Conducting regular, comprehensive risk assessments of their business, customers, products, and geographies.

Compliance Officer: Appointing a qualified Money Laundering Reporting Officer (MLRO) and Deputy MLRO, responsible for AML/CFT compliance and reporting.

Training: Providing ongoing AML/CFT training to all relevant staff.

Registered Office: A VASP must maintain a registered office in the Turks and Caicos Islands.

Resident Agent: A VASP must appoint a resident agent in the Turks and Caicos Islands.

Directors and Senior Management: The FSC requires directors and senior management to be "fit and proper" individuals, demonstrating competence, integrity, and sound financial standing. At least one director must typically be a resident of TCI, or there must be significant local operational oversight.

When CDD is Required:

When establishing a business relationship.

When conducting occasional transactions above a specified threshold (e.g., USD 1,000 for wire transfers, or as otherwise prescribed by regulation).

When there is a suspicion of money laundering or terrorist financing.

When the VASP has doubts about the veracity or adequacy of previously obtained identification data.

None. The Turks and Caicos Islands do not levy any capital gains tax on individuals or corporations.

None. TCI does not levy personal income tax or corporate income tax.

Goods and Services Tax (GST): TCI implemented a Goods and Services Tax (GST) in 2022. The standard rate is 16%.

GST Act, 2022 (Part II, Section 11(3)(e) and Schedule 3, Part I, Item 1): The supply of financial services is an exempt supply for GST purposes.