Mat says: Jersey’s VASP Regulation does not meet ALL international standards.

I was at a Jersey conference yesterday where some of the speakers, including lawyers and regulators, suggested that Jersey met all international standards in its regulation of VASPs. It was also suggested that increasing the regulation of VASPs would be detrimental to Jersey’s growth and make it uncompetitive with other jurisdictions.

The following provides my thoughts on the discourse

I WAS SHOCKED

 I was shocked at these statements because Jersey only regulates VASPs under Schedule 2 of the Proceeds of Crime (Jersey) Law 1999 (often abbreviated as POCL or the Proceeds of Crime Law), which does not include, like many jurisdictions, the regulation of VASPs:-

• Consumer protection,
• Market integrity,
• Operational resilience, and
• Financial stability.

[Collectively - PRUDENTIAL/CONDUCT REGULATION]

INTERNATIONAL STANDARDS

While FATF sets the baseline for AML/CFT/CPF regulation ( PEAK 1 OF REGULATION), the other parts of regulation (PEAK 2), PRUDENTIAL/CONDUCT REGULATION, are  required by many international and regional frameworks (standard setters)

These other PEAK 2  standards Jersey should be looking to are those emerging from bodies like:

• IOSCO (International Organisation of Securities Commissions) – Emphasises investor protection and disclosure for crypto-assets.
• BIS (Bank for International Settlements) – Addresses systemic risk and prudential oversight for crypto custody and settlement.
• OECD – Focuses on tax transparency and cross-border reporting for digital assets.
• The Financial Stability Board (FSB), which monitors global financial stability risks from crypto-assets and develops recommendations for consistent regulatory approaches;
• The International Monetary Fund (IMF), which guides macro-financial implications and cross-border risks; and
• The Committee on Payments and Market Infrastructures (CPMI), a BIS committee that sets standards for payment systems and market infrastructures involving virtual assets.[5][3][6]

OTHER JURISDICTIONS APPY TWIN PEAKS OR WILL DO SOON

UK

In the UK, as of November 20, 2025, particularly on crypto and stablecoin regulation under the existing twin peaks structure:

• The Bank of England (BoE) launched a consultation on November 10, 2025, for regulating systemic stablecoins, with proposals for oversight of issuance and systemic risks (closing February 10, 2026).
• The FCA published a consultation paper (CP25/15) on May 28, 2025, outlining a prudential regime for cryptoasset firms, including rules for issuing stablecoins and safeguarding assets.
• Another FCA consultation on September 29, 2025, details how existing and proposed rules apply to cryptoasset activities, building on the twin peaks approach.
• HM Treasury released draft regulations on October 30, 2024 (still relevant in 2025), for cryptoasset service providers' due diligence and reporting, alongside a summary of prior consultation responses.

These consultations aim to integrate VASPs more fully into the UK's regulatory perimeter, addressing gaps beyond AML/CFT while leveraging the twin peaks model for balanced oversight.  

 LOOKING  FURTHER AFIELD.

• Mauritius, Australia, the Netherlands, and South Africa are identified as jurisdictions that regulate Virtual Asset Service Providers (VASPs) using a twin peaks model. There are probably more, but for the purpose of writing this blog, I stopped with these four
• These jurisdictions have AML and oversight into prudential regulation (focused on financial stability, operational resilience, and related risks) and conduct-of-business regulation (emphasising consumer protection, market integrity, and fair practices).
• Note that while these countries apply twin peaks, their extension to VASPs incorporates crypto-specific adaptations, such as addressing volatility, custody risks, and smart contract vulnerabilities

The Importance of Regulating VASPs Under Two Regulatory Peaks

• Effective regulation of Virtual Asset Service Providers (VASPs) should be structured around two complementary "peaks" to address the multifaceted risks posed by virtual assets.
• This dual-peak approach ensures a balanced framework that not only combats illicit activities but also safeguards the broader ecosystem, promoting trust, innovation, and stability.

HERE'S WHY THIS IS CRITICAL:

Peak 1: AML/CFT (Anti-Money Laundering and Countering the Financing of Terrorism)

• This peak, primarily guided by the Financial Action Task Force (FATF), forms the foundational layer of VASP regulation. It requires VASPs to implement robust measures, including customer due diligence (CDD), transaction monitoring, and reporting of suspicious activities.
• The importance lies in preventing virtual assets from being exploited for money laundering, terrorist financing, or other financial crimes. By enforcing these standards, jurisdictions like Jersey, under Schedule 2 of the Proceeds of Crime Law, help maintain global financial integrity and reduce the anonymity that can enable illicit flows.[1][8]
• Without this peak, virtual assets could become a haven for criminal enterprises, undermining international efforts to combat financial crime.
• However, relying solely on Peak 1 is insufficient, as it does not address the operational and market-related vulnerabilities inherent in the crypto sector.
• This is where Peak 2 becomes essential to complement and strengthen the overall regulatory regime.

Peak 2: Consumer Protection, Market Integrity, Operational Resilience, and Financial Stability

This peak encompasses prudential and conduct-oriented regulations, drawing on standards set by bodies such as IOSCO, BIS, and FSB, as well as regional frameworks such as the EU's Markets in Crypto-Assets (MiCA) regulation.

It goes beyond AML/CFT to ensure VASPs operate responsibly and sustainably:

• Consumer Protection: Requires clear disclosures, fair treatment, and safeguards against fraud or misleading practices. For instance, VASPs must provide transparent information on risks, fees, and asset custody to empower users and prevent exploitation.[2][4] This is vital in a sector prone to hype and volatility, where uninformed investors can suffer significant losses.
• Market Integrity: Involves rules to prevent market manipulation, insider trading, and abusive practices. IOSCO standards emphasise fair and orderly markets, including surveillance mechanisms to detect irregularities, which help build confidence and attract legitimate participation.
• Operational Resilience: Mandates robust cybersecurity, business continuity plans, and risk management to ensure VASPs can withstand disruptions like hacks or technical failures. BIS and CPMI guidelines highlight the need for secure custody and settlement processes to protect assets in a digital environment.[3]
• Financial Stability: Addresses systemic risks, such as those from large-scale VASP failures or interconnected exposures. The FSB and IMF stress prudential requirements, such as capital reserves and stress testing, to prevent contagion in the wider financial system.[5][6]+

REGULATING UNDER BOTH PEAKS IS VITAL

• Regulating under both peaks is vital because virtual assets operate in a borderless, 24/7 environment where risks are interconnected.
• Peak 1 alone leaves gaps that can erode trust and hinder adoption; integrating Peak 2 creates a holistic framework that supports innovation while mitigating harms.
• Frameworks like MiCA demonstrate how this dual approach can harmonise rules across jurisdictions, reducing regulatory arbitrage and fostering a level playing field.[9]

Dangers of Not Regulating Peak 2

Failing to regulate Peak 2 exposes users, markets, and economies to significant risks, as evidenced by past crypto incidents such as the FTX collapse and various exchange hacks.

Key dangers include:

• Widespread Consumer Harm: Without protections, users face increased fraud, scams, and misleading marketing, leading to substantial financial losses. For example, inadequate disclosures can lead investors to misunderstand risks, amplifying bubbles and crashes.[10]
• Market Instability and Manipulation: Unregulated markets invite pump-and-dump schemes, wash trading, and other manipulations, causing artificial volatility that deters institutional investors and stifles growth.
• Operational Failures and Asset Losses: VASPs without resilience standards are vulnerable to cyberattacks or outages, potentially leading to irreversible loss of customer funds and eroding public confidence in the sector.
• Systemic Financial Risks: In extreme cases, the failure of a major VASP could trigger broader instability, especially if intertwined with traditional finance. This could lead to contagion, credit crunches, or even macroeconomic disruptions, as warned by the BIS and FSB.[3][5]

IN SUMMARY

• While Jersey's AML-focused regime meets FATF baselines, expanding to Peak 2 aligns with evolving global standards.
• It is essential to protect stakeholders and ensure the sustainable development of the virtual asset industry.

Web Sources

1. Virtual Asset Service Providers (VASPs) - https://www.jerseyfsc.org/news-and-events/virtual-asset-service-providers/
2. IOSCO Reviews Implementation of Recommendations for Crypto ... - https://www.iosco.org/news/pdf/IOSCONEWS774.pdf
3. BIS Papers - No 138 Financial stability risks from cryptoassets in ... - https://www.bis.org/publ/bppdf/bispap138.pdf
4. Bringing Tax Transparency to Crypto-Assets – An Update | OECD - https://www.oecd.org/en/publications/2024/07/bringing-tax-transparency-to-crypto-assets-an-update_fa222834.html
5. High-level Recommendations for the Regulation, Supervision and ... - https://www.fsb.org/2023/07/high-level-recommendations-for-the-regulation-supervision-and-oversight-of-crypto-asset-activities-and-markets-final-report/
6. Assessing Macro Financial Risks from Crypto Assets - https://www.imf.org/en/publications/wp/issues/2023/09/30/assessing-macrofinancial-risks-from-crypto-assets-539473
7. Committee on Payments and Market Infrastructures Digital currencies - https://www.bis.org/cpmi/publ/d137.pdf
8. Virtual Assets: Targeted Update on Implementation of the FATF ... - https://www.fatf-gafi.org/en/publications/Fatfrecommendations/targeted-update-virtual-assets-vasps-2024.html
9. Markets in Crypto-Assets - Wikipedia - https://en.wikipedia.org/wiki/Markets_in_Crypto-Assets
10. FTX Crypto Exchange Collapse: Causes, Consequences, and ... - https://www.investopedia.com/what-went-wrong-with-ftx-6828447