Is a VASP a CASP?
The crypto ecosystem is an ever-evolving arena, and through its rapid maturation came the need for regulations, recommendations and policies. As with all areas, appropriate jargon is required to explain these changes.
The Financial Action Task Force’s (FATF’s) Recommendation 16, commonly known as the Travel Rule, and the Markets in Crypto Assets (MiCA) framework, which falls under the European Commission’s digital finance package, are examples of such changes.
The FATF’s latest update describes businesses that provide virtual asset services for or on behalf of another person as a virtual asset service provider (VASP). In contrast, MiCA refers to these businesses as crypto asset service providers (CASPs).
Below we will discuss these similarities and differences and provide insights, so you know how your business fits in these categories.
What Is a Virtual Asset Service Provider (VASP)?
As defined by the FATF, VASP activities include:
the exchange between virtual assets and fiat currencies,
the exchange between one or more forms of virtual assets,
the transfer of virtual assets,
the safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets,
the participation in and provision of financial services related to an issuer's offer and/or sale of a virtual asset.
The FATF’s acronym of choice, VASP, carries a similar meaning to
crypto exchange service provider (CESP), the term used in Japan,
money services business (MSB), the term used in the US and,
crypto asset trading platform (CTP), the term used in Canada.
The FATF’s definition covers the basic activities of most VASPs. However, the definition does not extend to cover crypto advisory services, nor is it as explicit in its terms as the MiCA definition below.
What Is a Crypto Asset Service Provider (CASP)?
As per MiCA, CASP activities include:
the custody and administration of crypto assets on behalf of third parties,
the operation of a trading platform for crypto assets,
the exchange of crypto assets for fiat currency that is legal tender,
the exchange of crypto assets for other crypto assets,
the execution of orders for crypto assets on behalf of third parties,
the placing of crypto assets,
the reception and transmission of orders for crypto assets on behalf of third parties,
providing advice on crypto assets.
In summary, if a business provides any of the following services to citizens in Europe, it is deemed a CASP:
offering custody and administration of crypto assets on behalf of a third party,
offering a crypto exchange service or running an exchange,
offering crypto advisory services, or information defined as advice on investing in crypto assets. This does not include portfolio management services.
Additionally, when setting the definition for CASPs, the MiCA framework aimed to be as future-proof as possible and make provision for new markets that don’t exist yet, safeguarding the industry against any exceptions or loopholes.
Source: Market in Crypto Assets Regulation, Article 3.
Virtual Asset Service Provider or Crypto Asset Service Provider?
The term virtual asset service provider (VASP), defined by the FATF, is more commonly used outside the European Union (EU), while the EU has adopted the term crypto asset service provider (CASP) under MiCA.
In informal discussions, the two terms are often used interchangeably. However, in formal or regulatory contexts, it is important to note that MiCA’s definition of CASP is broader than the FATF’s definition of VASP, as it covers additional activities not included by the FATF.
For businesses based in the EU, performing any activity classified as a crypto service under MiCA (as outlined above) means being considered a CASP.
For businesses outside the EU, the FATF’s VASP definition, or a jurisdiction’s own definition of VASP activities, will generally apply. If services are not being offered within the EU, referring to the business as a VASP is appropriate, even if its activities would fall under MiCA’s scope.
The FATF or MiCA’s Definition?
The MiCA framework will apply to any person or entity providing crypto asset services, for example, crypto exchanges, and to all crypto assets, such as stablecoins that are not already subject to the EU regulation. However, MiCA is a European framework that only applies to the 27 EU member states. It is not applicable outside of Europe.
The FATF’s Recommendation 16 is purely a recommendation or guiding principle. It is neither a law nor a regulation. The FATF’s recommendations aim to serve as a framework that countries should implement to combat money laundering and terrorist financing. Governments or unions can choose to use the FATF’s definition and apply it or, like the EU, create their own definitions.
In most cases, when countries implement their own definition, it is often stricter than that of the FATF’s, as jurisdictions aim to cover FATF recommendations in its local laws.
