In a comprehensive legal memorandum, the law firm assessed four candidate jurisdictions—British Virgin Islands (BVI), St. Kitts & Nevis, Bermuda, and El Salvador—for their potential suitability as host locations for a Virtual Asset Service Provider (VASP) involved in custodial node hosting. This analysis focused on each jurisdiction's regulatory frameworks and the broader business climate to help guide the client’s strategic decision-making in choosing between VASP jurisdictions .
The memorandum examined key legal and operational aspects, including:
1. Regulatory Requirements: Each jurisdiction’s licensing processes, AML/KYC obligations, technical specifications, and cybersecurity standards were analyzed. For instance, Bermuda offers a multi-tier licensing system that accommodates scaling, while El Salvador’s framework benefits from its pioneering stance on Bitcoin legalization.
2. Cost and Operational Considerations: Estimated costs for licensing, compliance, and ongoing maintenance were provided, with Bermuda and BVI emerging as high-cost yet robust regulatory environments. Conversely, El Salvador offers lower costs but carries higher regulatory uncertainty as an emerging crypto-friendly jurisdiction.
3. Risk and Compliance: Detailed risk assessments outlined potential liabilities associated with node hosting, including cybersecurity risks, data privacy, and regulatory non-compliance. Recommendations emphasized strong risk management, comprehensive SLAs, and possibly insurance coverage for heightened legal protection.
Ultimately, the memo equipped the client with strategic insights into selecting a jurisdiction that balances favorable business conditions with regulatory compliance for their shared node hosting model.
In our Web3 and Digital Assets practice, we are increasingly seeing interest from founders, investment managers and strategic partners looking for international practitioners focusing on regulatory frameworks in suitable host jurisdictions.
If you are one of them and would like to explore how we work, use the contact form to schedule a free meeting.
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