Costa Rica’s Legislative Assembly has taken a significant step forward by advancing a landmark bill aimed at regulating virtual asset service providers (VASPs). This legislative initiative is designed to fortify the nation’s defenses against critical financial crimes, including money laundering, terrorist financing, and the proliferation of weapons of mass destruction. The bill, identified under file number 22.837, successfully passed its first debate on Tuesday, marking a pivotal moment in the country’s approach to digital asset oversight.

Comprehensive Regulatory Framework Proposed

The proposed legislation, initially introduced by the administration of former President Carlos Alvarado Quesada, seeks to implement substantial amendments to Law No. 7786. A key component is the addition of a new article, 15 quater, which outlines a comprehensive regulatory framework specifically tailored for Costa Rica’s rapidly growing cryptocurrency sector. This framework aims to bring clarity and structure to an area that has, until now, largely operated without specific governmental oversight, aligning the nation with evolving global standards.

Mandatory Registration and Risk-Based Supervision

Under the provisions of the new bill, all VASPs operating within Costa Rica will be mandated to register with the Superintendencia General de Entidades Financieras (SUGEF), the country’s primary financial regulator. SUGEF will then oversee these entities using a risk-based approach, with a strong emphasis on ensuring compliance with established anti-money laundering (AML) standards. Officials have clarified that while registration is compulsory for oversight, it does not imply government authorization to operate, but rather signifies adherence to essential AML protocols.

Key Obligations for Virtual Asset Service Providers

The proposed legislation imposes several critical obligations on VASPs. These include the mandatory identification of clients and their final beneficiaries, meticulous preservation of detailed transaction records, and the enforcement of enhanced controls over politically exposed persons and high-risk jurisdictions as designated by international bodies. Furthermore, VASPs will be required to perform and regularly update their risk assessments, maintain robust internal controls, and establish efficient information-sharing mechanisms with relevant authorities. All suspicious transactions must be reported confidentially and promptly to the Financial Intelligence Unit of the Costa Rican Drug Institute (ICD).

Broad Scope and Clear Definitions

The legislation provides clear and broad definitions to ensure comprehensive coverage of the virtual asset space. A virtual asset is defined as any digital representation of value that possesses the capability to be traded or transferred online, irrespective of its status as legal tender within Costa Rica. The definition of a VASP is equally expansive, encompassing any individual or company involved in the exchange, transfer, safeguarding, issuance, or offering of virtual assets, thereby capturing a wide range of activities within the crypto ecosystem.

Adherence to International Standards and Enforcement

In a move to align with global best practices, particularly the recommendations from the Financial Action Task Force (FATF), the bill introduces special controls for international crypto asset transfers. It also explicitly prohibits business dealings with unregistered providers, reinforcing the regulated nature of the market. SUGEF will be responsible for maintaining a public registry of all registered VASPs and is granted the authority to penalize those found operating outside the established regulatory framework, ensuring accountability and compliance across the sector.

Substantial Penalties and Future Outlook

Non-compliance with the new regulations will result in substantial sanctions, with fines ranging from two to one hundred base salaries, proportional to the scale of unreported activity. The bill also harmonizes crypto-related obligations and penalties with those already in place for other regulated financial entities, including the freezing of suspicious funds and mandatory reporting requirements. With the bill’s successful passage in its first debate, Costa Rica signals its firm commitment to integrating its financial sector with international best practices and proactively addressing the unique risks posed by digital assets, as it awaits further legislative review before becoming law.