The Legislative Landscape for Cryptocurrencies in Seychelles Prior to 2024

As Seychelles, an archipelago in the western Indian Ocean, gradually emerged as a noteworthy player in the crypto asset space, its legal framework for regulating these digital assets, including Initial Coin Offerings (ICOs), was still in development stages. The regulatory environment for crypto assets was relatively lenient, with ICOs not specifically regulated under the Securities Act, thus creating an attractive environment for crypto businesses seeking a permissive regulatory setting​​.

Response to the Growing Crypto Asset Activities

The increasing activities in the crypto asset sector prompted Seychelles to contemplate developing a national policy on virtual assets. The influx of companies involved in crypto-related activities indicated a growing interest in this sector. However, the government remained cautious, particularly regarding the use of crypto assets as legal tender, with the Central Bank of Seychelles not recognizing them as such​​.

Increasing Concerns and Governmental Actions

A notable rise in complaints related to crypto assets was recorded by the Financial Services Authority (FSA), indicating growing public and business interest in crypto asset activities, alongside the associated risks. In response, the government conducted a national risk assessment on virtual assets to evaluate their current state and potential risks. This assessment was crucial in highlighting the need for a more structured regulatory framework to protect investors and users​​.

Aligning with International Standards

Recognizing the need to align with international standards, particularly those set by the Financial Action Task Force (FATF), Seychelles aimed to regulate key areas, including Virtual Asset Service Providers (VASPs). The development of a national policy on virtual assets, initiated by the FSA, was expected to introduce legal provisions for registering businesses involved in virtual asset activities and establish a licensing framework​​​​.

Challenges and Potential Solutions

One major challenge was the large number of VASPs operating in Seychelles without a structured regulatory framework, hindering effective monitoring. The government considered two main approaches: banning VASPs or implementing a comprehensive licensing regime, with the latter aligning with international best practices​​.

Exploring Central Bank Digital Currency (CBDC)

Seychelles also considered adopting a Central Bank Digital Currency (CBDC) to modernize its payment system and enhance financial inclusion, in line with efforts to modernize the country’s financial infrastructure​​.

Attracting Global Crypto Exchanges

The open stance towards crypto and the growing adoption of digital assets in Seychelles attracted global crypto exchanges, with Bitget being a prominent player looking to establish a presence in the country. This interest from global entities further underscored the potential of the crypto sector in Seychelles​​.

Conclusion

Seychelles’ journey in the crypto asset space, characterized by gradual progress and a growing recognition of the need for robust regulation, indicated a commitment to participate actively in the evolving world of digital currencies and blockchain technology. The upcoming national policy on virtual assets and the potential adoption of a CBDC were significant steps towards a more comprehensive regulatory framework, promising benefits to the country’s economy and financial sector​​.