Seychelles Virtual Asset Regulation: The Reality Check of 2025

This isn’t another regulatory update listing new rules. This is about understanding what the Financial Services Authority‘s approach in late 2025 tells us about where offshore crypto licensing is heading, and what it means for your business strategy in 2026.

THE SHIFT THAT CAUGHT MANY OFF GUARD

The Virtual Asset Service Providers Act 2024 came into force with transitional provisions that gave existing operators a pathway to full licensing. Many firms treated this as breathing room. The FSA treated it differently, as a period during which operators remained fully subject to AML/CFT obligations while building out whatever they were missing to meet the new standard.

By November 2025, the FSA made its position unmistakably clear through Circular 14. The message was blunt: transitional status is not a hall pass, placeholder submissions won’t cut it, and the quality of applications to date has been disappointing. The circular specifically called out cut-and-paste policies, AI-generated compliance manuals, and governance structures that exist only on paper.

This wasn’t regulatory frustration for its own sake. The FSA is under pressure to demonstrate that Seychelles meets FATF standards. Generic submissions that could apply to any exchange anywhere undermine that objective. They signal that firms view Seychelles as a licence of convenience rather than a genuine operational base.

THE “SHOW AND TELL” SESSIONS: A NEW LEVEL OF SCRUTINY

What really marks 2025 as a turning point is the FSA’s introduction of comprehensive “Show and Tell” sessions for transitional VASP applicants. These aren’t interviews. They’re three-hour operational deep dives where the regulator expects to see your systems working in real-time.

The scope tells you everything about where the bar now sits:

• Full client onboarding walkthroughs from KYC through to offboarding, with live demonstration of your risk scoring, transaction monitoring, and suspicious activity reporting. Not policies describing these things—actual systems doing them.
• Back-end operations covering compliance workflows, record-keeping, audit trails, and how your platform satisfies reporting obligations. The FSA wants to see the machinery that sits behind the customer-facing platform.
• Real-time monitoring tools including transaction screening and sanctions list screening actually functioning, not screenshots of dashboards.
• Access protocols, audit logs, and change management controls that prove someone is actually governing the technology, not just licensing it from a vendor.
• Third-party risk management, particularly for cloud infrastructure and KYC providers, with evidence of genuine oversight rather than reliance.
• Data privacy compliance in practice, not just in policy documents.
• Cybersecurity frameworks including authentication, encryption, storage protocols, incident response procedures, and disaster recovery plans that have been tested.

The personnel requirements are equally revealing. The FSA expects director or senior management representatives, compliance officers, information security officers, and CEO or COO participation. These sessions aren’t something you delegate to your lawyer or consultant. They’re recorded for internal FSA training and review purposes.

SUBSTANCE: THE REQUIREMENT THAT CHANGES EVERYTHING

The FSA’s focus on “substance” in 2025 deserves particular attention because it fundamentally alters what a Seychelles license means.

Inadequate substance includes insufficient local governance, unclear decision-making authority, and absence of resident senior management. This goes beyond having a registered office and a resident director who signs things. The FSA wants to see where strategic decisions are actually made, who has authority to bind the company, and whether meaningful governance happens in Seychelles or whether the local structure is just a brass plate.

This aligns with broader trends across offshore jurisdictions responding to OECD and FATF pressure, but Seychelles is now applying these concepts specifically to crypto exchanges. For many operators, this requires rethinking their corporate structure entirely.

WHAT THE ENFORCEMENT POSTURE REVEALS

The FSA’s warning in Circular 14 about consequences matters. Applications face rejection for incomplete or inaccurate submissions, relegation to the bottom of the processing queue (which in a fast-moving industry can be commercially fatal), and formal requests for information that trigger clock-stopping and additional scrutiny.

The explicit statement that the FSA “will not provide handholding” is significant. This is a regulator signaling that it expects sophisticated financial services operators to meet professional standards without guidance on every point. The implication is that if you need handholding to understand what operational readiness means, you probably shouldn’t be operating a virtual asset exchange.

WHAT THIS MEANS FOR STRATEGY IN 2026

The question firms should be asking isn’t whether Seychelles remains viable for crypto licensing, it does, for operators willing to meet the standard. The question is whether your business model and operational reality align with what Seychelles now requires.

Three considerations matter most:

Governance substance

If your decision-making and control functions sit entirely in another jurisdiction, your Seychelles structure is vulnerable. This doesn’t mean relocating your entire operation, but it does mean ensuring genuine governance activity and authority reside locally. Senior management presence, real board oversight, and local decision-making on material matters are no longer optional.

Operational integration

Outsourcing critical functions to group entities or vendors is acceptable only if you can demonstrate genuine oversight, data accessibility, and the ability to satisfy regulatory information requests without having to ask permission from a parent company in another jurisdiction. The FSA wants to see that the Seychelles entity could actually function as a regulated financial services provider, not just a conduit.

Compliance quality

Generic policies fail because they don’t reflect how your specific platform works. Your procedures need to map to your actual systems, your risk assessments need to reflect your actual client base and transaction types, and your governance documents need to describe how decisions are actually made. The FSA is now sophisticated enough to spot the difference between genuine operational documentation and consultant-generated templates.

THE BROADER OFFSHORE CONTEXT

What’s happening in Seychelles isn’t isolated. We’re seeing convergence across offshore jurisdictions as regulators respond to international pressure on crypto regulation. The FSA’s approach in 2025 closely tracks developments in Mauritius, BVI, and Cayman, where substance requirements and operational scrutiny have increased significantly.

This matters because firms that have multiple licences across offshore jurisdictions can’t simply maintain different standards in each location. The FATF’s standards apply everywhere, and information sharing among regulators is increasing. A deficiency identified in one jurisdiction increasingly becomes a problem in others.

For firms with multi-jurisdictional licensing strategies, this creates both risk and opportunity. The risk is that regulatory issues in one location spill over. The opportunity is that building genuine operational capability in one jurisdiction makes expansion to others more straightforward because you’re meeting the common standard rather than gaming jurisdiction-specific loopholes.

PRACTICAL IMPLICATIONS FOR 2026

If you’re seeking a Seychelles VASP licence or operating under transitional provisions, several immediate actions matter:

Review your application materials with brutal honesty.

If your compliance manual could apply to any exchange with minimal changes, it’s inadequate. If your risk assessment doesn’t address the specific virtual assets you trade and jurisdictions you serve, it won’t satisfy scrutiny. If your governance documents describe aspirational structures rather than current reality, you need revised submissions.

Evaluate your nominated key persons.

The FSA is questioning the calibre, knowledge, and independence of proposed compliance officers and directors. If someone holds similar positions for multiple unrelated entities, or lacks genuine expertise in virtual asset regulation and AML/CFT requirements, expect challenges. Key person nominations need to demonstrate genuine capacity and availability.

Prepare for operational demonstration.

If you can’t walk the FSA through your systems live, you’re not ready for licensing. This means your compliance, transaction monitoring, and security functions need to be operational, not planned. Build now, license later—not the reverse.

Address substance deficiencies.

If your Seychelles company lacks local decision-making authority, resident senior management, or genuine governance activity, these issues need resolution before licensing can progress. This may require corporate restructuring, relocation of key personnel, or rethinking your operational model.

Consider whether Seychelles remains the right fit.

This isn’t a suggestion to abandon the jurisdiction, but rather recognition that regulatory requirements have increased to the point where some business models no longer align well with what Seychelles offers. If you’re genuinely seeking a light-touch regime, you won’t find it in Seychelles in 2026. If you’re prepared to meet proper financial services standards with real substance, Seychelles remains attractive—but you need to be realistic about what that entails.

CONCLUSION: MATURITY, NOT JUST REGULATION

The changes in Seychelles in 2025 represent something more significant than regulatory tightening. They represent the maturation of offshore crypto regulation from a compliance exercise into genuine financial services supervision.

This maturation was inevitable. The FATF has made clear that crypto exchanges are financial services providers subject to the same standards as traditional financial institutions. Offshore jurisdictions face ongoing pressure to demonstrate they’re not offering regulatory arbitrage that undermines global standards. The only question was timing.

For firms that approached Seychelles as a convenient licensing jurisdiction with minimal requirements, 2025 was a difficult year. For firms that built genuine operational capability and treated regulatory compliance as core to their business rather than an obstacle, the stricter regime actually creates competitive advantage because it raises barriers to entry for less serious operators.

The strategic question for 2026 is which type of firm you want to be. The FSA has made clear which type gets licensed.

The crypto industry is maturing whether participants like it or not. Offshore jurisdictions are maturing alongside it. Firms that recognize this early and build accordingly will find themselves well-positioned. Those that continue seeking arbitrage opportunities will find the gap between what they want and what regulators require growing steadily wider.

We’re available to discuss how these developments affect your specific situation and licensing strategy.

This update reflects our understanding of regulatory developments in Seychelles based on public FSA guidance and our experience advising virtual asset service providers. It should not be construed as legal advice specific to any particular situation. Firms should seek advice tailored to their circumstances.