A Virtual Asset Service Provider (VASP) is any business that facilitates the exchange, transfer, safekeeping, or issuance of digital assets—a definition established by the Financial Action Task Force (FATF). As regulators worldwide catch up to the fast-paced crypto industry, VASPs now face a growing patchwork of local licensing regimes and global rules like the Travel Rule and the Office of Foreign Assets Control (OFAC) sanctions.
Managing compliance across multiple jurisdictions is challenging. This article explores the regulatory complexity VASPs must navigate, from region-specific licensing regimes to cross-border mandates, and why a scalable, jurisdiction-aware compliance strategy is critical for long-term success.
While different regulators around the world license VASPs, they may have different local terminology.
United States – Under the Biden administration, regulators took an aggressive stance on crypto, prosecuting VASPs for allegedly selling unregistered securities. In contrast, the new Trump administration has signaled a shift toward regulatory clarity and support for the industry. From his first press conference, David Sacks—the newly appointed AI and crypto czar—emphasized the administration’s commitment to clear guidelines for VASPs and progress on stablecoin legislation. This shift began with an executive order aimed at ensuring VASPs have access to banking services and other key protections, with further executive actions expected as the administration continues to define its crypto policy agenda. However, while the tone has changed, the real challenge lies in keeping up with the rapid pace of regulatory updates as the new administration continues shaping its policy agenda.
European Union - The Markets in Crypto-Assets Regulation (MiCA) is the European Union’s comprehensive framework designed to regulate crypto-assets not currently covered by existing financial laws. Introduced as part of the EU’s Digital Finance Package, MiCA aims to provide legal clarity, investor protection, and market integrity by establishing consistent rules for the issuance, trading, and custody of crypto-assets across all EU member states. It defines a broad range of regulated activities a nd requires Crypto-Asset Service Providers (CASPs) to obtain authorization and comply with governance, transparency, and consumer protection standards. MiCA also aligns with FATF guidelines to address financial crime risks in the crypto space. Yet despite its fast-approaching implementation, 91% of crypto firms remain unprepared for MiCA compliance, highlighting the urgency for industry players to build robust regulatory strategies now.
Dubai - The Virtual Asset Regulatory Authority (VARA) is the dedicated regulator for digital assets in Dubai, established to oversee the rapidly evolving virtual asset ecosystem while promoting responsible innovation. VARA is an advanced framework: It already includes provisions for Fiat-Referenced Virtual Assets (FRVAs)—commonly known as stablecoins—emphasizing clear categorization, disclosure standards, and reserve backing requirements. VARA has also released marketing regulations for virtual assets, setting out rules on promotional conduct, scope of applicability, general prohibitions, and specific guidelines for anonymity-enhanced cryptocurrencies and key opinion leaders.
Singapore - Singapore is widely regarded as one of the most progressive crypto hubs in the world, with a regulatory regime that balances innovation with robust compliance standards. Governed by the Monetary Authority of Singapore (MAS), the city-state regulates crypto under the Payment Services Act (PSA), which categorizes crypto as either e-money or digital payment tokens (DPTs). The PSA mandates rigorous AML/CFT and KYC compliance, including enhanced due diligence for high-risk customers, ongoing transaction monitoring, and strict recordkeeping obligations. While Singapore's activity-based licensing framework is designed to keep pace with technological innovation, the regulatory burden remains significant. Crypto firms must navigate frequent updates, granular compliance requirements, and a high bar for transparency—making it one of the most sophisticated but also most demanding jurisdictions for VASPs globally.
United Kingdom - The United Kingdom has taken a uniquely adaptive approach to crypto regulation, retrofitting existing financial laws to cover digital assets rather than building a new framework from scratch. The Financial Conduct Authority (FCA) leads enforcement, requiring crypto firms to register for AML compliance, conduct customer due diligence, monitor transactions, and report suspicious activities. More recently, the UK extended its Financial Promotions Order (FPO) to cover crypto, imposing strict requirements such as standardized risk warnings, client categorization, and a 24-hour cooling-off period for first-time investors. While the UK is positioning itself as a transparent and structured market for crypto, the rapidly evolving and increasingly granular nature of its regulatory requirements makes compliance a real challenge—particularly for firms navigating risk disclosures and marketing obligations under heightened FCA scrutiny.
In short, as jurisdictions mature in their oversight of virtual assets, the increasing regulatory sophistication enhances credibility and consumer trust—but also raises the bar for compliance, making it more challenging for VASPs to keep pace across multiple markets.
While each VASP will have to follow the compliance requirements set by their local regulator, there are also regulations that apply across regions.
The Office of Foreign Assets Control (OFAC), under the US Department of the Treasury, enforces sanctions that restrict trade and financial activity with certain countries (such as Iran, North Korea, and Russia), as well as individuals and entities listed on its Specially Designated Nationals (SDN) list. Thematic sanctions address national security threats including terrorism, cybercrime, and the proliferation of weapons of mass destruction.
Since 2018, OFAC has added digital currency addresses associated with sanctioned actors—beginning with Bitcoin wallets tied to Iranian ransomware operators—to the SDN list. This move underscores the risk of sanctions evasion through cryptocurrencies. VASPs must proactively screen for blacklisted addresses and entities to avoid facilitating prohibited transactions and prevent exposure to severe enforcement penalties.
While most people assume OFAC sanctions only apply to US-based businesses, they actually have a much broader application: All US persons—including US citizens and permanent residents wherever they are located, individuals and entities operating within the United States, and all U.S.-incorporated entities and their foreign branches—are required to comply with OFAC sanctions.
The Travel Rule, originally introduced in 1996 by the FATF to curb money laundering and terrorist financing in traditional finance, now plays a critical role in the crypto sector. The rule mandates that financial institutions—now including VASPs—collect and share originator and beneficiary information for transactions above a certain threshold: $3,000 in the U.S. and $1,000 in many other countries. Recognizing the rising risks posed by anonymous crypto transactions, the FATF extended the Travel Rule to VASPs in June 2019 and has since monitored its global adoption through periodic progress reviews.
Today, the Travel Rule applies to VASPs across 98 jurisdictions, including major financial centers such as the United States, Singapore, Hong Kong, France, and Japan, as well as non-member jurisdictions like the Bahamas, Seychelles, and Estonia. For VASPs operating internationally, compliance is essential—not just to avoid regulatory fines or suspension, but to maintain access to global financial networks. Non-compliance can also have national consequences: jurisdictions failing to implement the rule risk being placed on the FATF graylist or blacklisted entirely, exposing them to severe reputational and economic damage. In short, adhering to the Travel Rule is not only a matter of regulatory alignment—it’s a prerequisite for sustainable participation in the global financial system.
The Travel Rule is just one component of the FATF’s broader regulatory framework for VASPs, which also includes robust KYC, AML, and CFT requirements.
Under FATF guidelines, VASPs must perform KYC procedures before transacting with any customer, verifying identity using official documents and applying enhanced due diligence when necessary. Beyond onboarding, VASPs are expected to continuously monitor user activity for unusual behavior or changes in risk profile. Meanwhile, AML/CFT obligations require proactive detection of suspicious patterns such as frequent interaction with coin mixers or rapid chain-hopping. When red flags emerge, VASPs must report them via Suspicious Transaction Reports (STRs) to the relevant authorities. These obligations, shaped by FATF but enforced locally, form the backbone of responsible crypto compliance.
This mix of local regulatory frameworks and globally enforced standards means that VASPs must navigate a patchwork of overlapping obligations, each with its own scope and enforcement expectations—making end-to-end compliance a demanding and resource-intensive task.
Understanding the evolving global regulatory environment is only half the battle—VASPs must also contend with the operational realities and business costs of maintaining compliance across jurisdictions.
While compliance with global and local regulations is required for any VASP, it introduces several operational and strategic challenges that can strain a business.
Securing a VASP license is no small feat. In jurisdictions like Hong Kong, for example, registration under the Securities and Futures Commission requires meeting strict minimum requirements, preparing detailed applications, and enduring months of regulatory review. Yet for most VASPs, one license isn’t enough. Success typically depends on reaching a global user base, which means expanding into multiple jurisdictions—each with its own regulatory framework. This multiplies the workload for compliance teams, who must juggle a patchwork of country-specific rules, often with conflicting requirements. The result is a tangled operational burden that stretches teams thin and increases the risk of oversight.
Faced with mounting regulatory obligations, many VASPs respond by hiring more compliance staff. While this shows a commendable commitment to playing by the rules, overreliance on headcount isn't a sustainable solution. Growing a compliance team at the expense of other departments—such as product, engineering, or customer support—can slow innovation, impact user experience, and ultimately erode competitive advantage. Compliance should be a business enabler, not a resource drain. Without the right tools and processes in place, the opportunity cost of compliance can be steep.
Crypto remains closely associated with fraud, hacks, and criminal misuse. For VASPs, even a minor compliance failure can carry outsized reputational consequences. Regulators often make enforcement actions public, and the damage can be swift and severe. Take the case of Binance in 2022, when allegations emerged that the terrorist group Hamas had used its platform to move funds—coinciding with a highly publicized attack on Israel. While few compliance lapses are that high-profile, even a small procedural error can result in being publicly linked to criminal activity. In a sector where trust is fragile and stakeholders are deeply risk-averse, VASPs cannot afford reputational missteps.
Navigating the complex and ever-evolving regulatory landscape is one of the biggest challenges for VASPs today. From satisfying local licensing requirements to complying with global mandates like the Travel Rule and OFAC sanctions, maintaining oversight across jurisdictions demands more than just headcount—it requires intelligent infrastructure.
Compass is purpose-built to meet this challenge, offering VASPs a comprehensive transaction monitoring solution that adapts to multi-jurisdictional requirements and flags high-risk behavior in real time. Whether you're operating in one country or across continents, Compass simplifies compliance without sacrificing agility.
To better understand what qualifies as a VASP and how definitions may vary across jurisdictions, check out our foundational explainer: What Is a VASP? 2025 Definition and Guide.
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