Summary
- The Gelephu Financial Services Office (GFSO) describes itself as the independent regulator of all financial services in GMC, across traditional finance and blockchain and digital assets. There is no separate crypto regulator.
- The Financial Services Act 2025 (deemed in operation from 26 December 2024, s. 1(1)) defines "Virtual Asset" and "Fiat-Referenced Token" in s. 258 and writes virtual assets into the text of the core Schedule 1 activities (dealing, arranging, advising, custody, trading venues, asset management).
- Section 5A gives GFSO a dedicated rule-making power for virtual asset business, including the criteria for an "Accepted Virtual Asset". Section 5A(4) prohibits regulated activity involving algorithmic stablecoins or privacy tokens.
- Section 5B lets GFSO direct that a particular token must not be issued, sold, bought, transferred or held in custody.
- Market abuse (s. 92), misleading statements and impressions (ss. 102–103) and the misconduct prohibition (s. 19A) all expressly extend to virtual assets.
- Detailed conduct standards sit in GFSO's rulebooks and the "Virtual Asset Guidance" published by GFSO, not in the Act itself.
Why this matters
Many jurisdictions regulate crypto by stretching a securities statute written before distributed ledgers existed. GMC's primary financial services statute names virtual assets and fiat-referenced tokens on its face and gives the regulator specific powers over them. This article explains what the Act says and is the foundation for our guides on exchanges, stablecoins, custody, tokenisation and environmental instruments.
One regulator: GFSO
The Gelephu Financial Services Office (GFSO) is the "Regulator" under the Act. Its head carries the title "Managing Director, GFSO" and is appointed by the Druk Gyalpo (s. 2). GFSO describes itself as the independent regulator of all financial services in GMC, across traditional finance and blockchain and digital assets, with a further mandate to develop the financial services and blockchain ecosystem.
GFSO also explains that regulated activities can be carried out in respect of either traditional assets (for example securities) or virtual assets (for example spot cryptocurrencies), and that firms engaged in virtual asset activities must also comply with additional "Virtual Asset Guidance". A crypto business therefore applies for the same Financial Services Licence as a securities broker, describes the assets differently, and takes on an additional layer of guidance.
GFSO's guiding principles (s. 1A(4)) include "fostering the development of GMC as an internationally respected financial centre" and responding to "evolving industry needs".
The statutory definitions
The Act defines its terms in s. 258. Three definitions in the Act matter most.
Virtual Asset
A "Virtual Asset" is "a digital representation of value that can be digitally traded and functions as (1) a medium of exchange; and/or (2) a unit of account; and/or (3) a store of value, but does not have legal tender status in any jurisdiction". The definition continues: a Virtual Asset is neither issued nor guaranteed by any jurisdiction and fulfils those functions "only by agreement within the community of users", and it is "distinguished from Fiat Currency and E-money" (s. 258).
Two consequences follow from this drafting. A token that is legal tender somewhere is not a Virtual Asset. And "E-money", "a digital representation of Fiat Currency used to electronically transfer value denominated in Fiat Currency", is a separate category.
Fiat-Referenced Token
A "Fiat-Referenced Token" is "a digital asset, the transfer and storage of which is achieved through the use of distributed ledger or similar technology, the purpose of which is to be used as a medium of exchange with a stable store of value", by referencing "a fixed amount of a single fiat currency" and enabling the holder "to redeem the token in exchange for the amount of the fiat currency ... from its issuer upon demand" (s. 258). This is the Act's term for a fiat-backed stablecoin. Issuing one is its own regulated activity (Schedule 1, para. 53B).
Accepted Virtual Asset
An "Accepted Virtual Asset" is "a Virtual Asset that, in the opinion of the Regulator, meets the requirements for a Licensed Firm conducting a Regulated Activity in relation to Virtual Assets" (s. 258). The parallel term "Accepted Fiat-Referenced Token" is defined in the same way. The Act therefore draws a line between virtual assets in general and those GFSO has accepted for use by licensed firms. The criteria are left to Rules under s. 5A(1)(b).
How virtual assets fit into Schedule 1
Schedule 1 maps the regulated perimeter. Part 2 lists the regulated activities. Part 3 lists the "Specified Investments", deposits, shares, debt instruments, fund units, options, futures, contracts for differences, structured products and environmental instruments (paras 85–99B).
Virtual assets are not added to Part 3. Instead, the Act writes them into the text of the activities themselves. Every activity in the table below applies to a virtual asset without any need to argue that a token is a "share" or a "debenture".
| Para. | Activity | Virtual assets in the text |
|---|---|---|
| 4 | Dealing in Investments as Principal | "Buying or Selling Financial Instruments, Virtual Assets, or Spot Commodities ... as principal" |
| 12 | Dealing in Investments as Agent | Same wording, "as agent" |
| 16 | Arranging Deals in Investments | Arrangements for another person "Buying or Selling a Specified Investment, Virtual Asset or Spot Commodity" |
| 28 | Advising on Investments or Credit | Advice on the merits of buying or selling "a Virtual Asset or a Spot Commodity" |
| 43 | Providing Custody | "safeguarding of Financial Instruments, Virtual Assets or, Spot Commodities belonging to another" |
| 46 | Arranging Custody | Arranging for another to provide custody under para. 43 |
| 54 | Operating an MTF or OTF | An MTF "on which Financial Instruments, Virtual Assets or Spot Commodities are traded" |
| 56 | Managing Assets | Discretionary management where assets include any "Virtual Asset" |
| 53B | Issuing a Fiat-Referenced Token | Defined by reference to the token itself |
Two structural rules complete the framework. Paragraph 2(2) provides that custody (paras 43 and 46), money services (para. 52) and several other activities are regulated "irrespective of the kind of property to which it relates". Paragraph 3 provides that an activity is only caught if carried on "by way of business", engaging in it in a manner that constitutes a business, holding oneself out as willing to do so, or regularly soliciting others to transact.
The General Prohibition in s. 16(1) then does the work: no person may carry on a Regulated Activity by way of business in GMC unless it is a Licensed Firm or an Exempt Firm listed in Schedule 3. A "Licensed Firm" is a firm holding a Financial Services Licence granted by GFSO under Part 4. Section 259 treats an activity as carried on "in GMC" where the registered or head office and day-to-day management are in GMC, or where it is carried on from an establishment maintained in GMC. The exclusions for non-GMC persons (paras 71 and 79), groups (para. 77) and order routing (para. 55) are covered in our guide to whether a firm needs a GFSO licence.
Section 5A: the virtual asset rule-making power
Section 5A is the engine of the framework. Under s. 5A(1) GFSO may by Rules prescribe the requirements applicable to a Licensed Firm conducting a Regulated Activity in relation to Virtual Assets, Spot Commodities or Fiat-Referenced Tokens (s. 5A(1)(a)); the factors for deciding whether a token is an Accepted Virtual Asset or Accepted Fiat-Referenced Token (s. 5A(1)(b)); and "such additional requirements as the Regulator considers appropriate" (s. 5A(1)(c)).
Under s. 5A(2) GFSO may also, by written notice, exclude a rule from applying to a particular firm, impose additional obligations, require a firm to take specified action, or require a Licensed Firm operating an MTF that admits Accepted Virtual Assets or Accepted Spot Commodities "to obtain an Exchange / Clearing House Requirements Order to become a Licensed Exchange under section 121". This is the Regulator's "Own-Initiative Requirement Power" (s. 5A(3)), exercisable "where the Regulator is satisfied that it is in the interests of GMC to do so".
Finally, s. 5A(4) contains a flat prohibition: "No person may carry on a Regulated Activity in the GMC involving the issue, sale, purchase, transfer or custody of a Virtual Asset or Fiat-Referenced Token which is an algorithmic stablecoin token, a privacy token, or any digital asset employing similar technology." This is a statutory ban, not guidance. A business model that depends on privacy coins or algorithmic stablecoins cannot be licensed in GMC.
Section 5B: directions against particular tokens
Section 5B(1) allows GFSO, on its own initiative, to direct a person or class of persons that no issue, sale, purchase, transfer or custody of a particular Virtual Asset or Fiat-Referenced Token may take place for a period it thinks appropriate. The trigger is either that the activity "would contravene or has contravened" the Act or that the direction "is in the interests of the GMC".
A direction may take effect immediately if it says so (s. 5B(2)). GFSO must give written notice with details, reasons and the effective date, and must inform the recipient that it may make representations (ss. 5B(3)–(4)); it must then give notice of its decision (ss. 5B(5)–(6)). If a direction is rescinded, a token that was an Accepted Virtual Asset before it may be treated as accepted again (s. 5B(8)). A licensed firm's list of supported tokens is therefore never final, and listing procedures should be built around ss. 5A and 5B from the outset.
Guidance and rulebooks
Section 15 allows GFSO to give Guidance on the operation of the Act and its Rules. Guidance is "indicative and non-binding" (s. 15(2)) and nothing counts as Guidance unless published on GFSO's website (s. 15(3)). The "Virtual Asset Guidance" published by GFSO sits within this framework and should be read directly from GFSO.
The binding subsidiary rules are the rulebooks published by GFSO: AML and Sanctions, Conduct of Business (COBS), Fund (FUNDS), General (GEN), Glossary (GLO), Market Infrastructure (MIR), Market Rules (MKT), Captive Insurance (CIB) and the Prudential rulebooks (PIN and PRU). GEN 1.1.1 applies GEN to every person to whom the Act or MIR applies. GEN Chapter 2 sets out twelve Principles for Licensed Firms, including Principle 3 (management, systems and controls) and Principle 9 (client assets and money). A crypto firm is held to the same Principles as a bank.
GFSO describes the framework as being in "Phase One", drawing on an established international financial centre's rulebooks through the Application of Laws Act 2024, with GFSO progressively issuing its own laws in Phase Two.
Conduct provisions that expressly cover virtual assets
- Misconduct. Section 19A prohibits conduct "in or from the GMC" in relation to a Virtual Asset or Fiat-Referenced Token (among other things) that is misleading or deceptive, fraudulent or dishonest.
- Market abuse. Section 92(1)(a)(iv) covers behaviour in relation to "an Accepted Virtual Asset admitted to trading on a Multilateral Trading Facility"; insider dealing, manipulative orders and false information (ss. 92(2)–(6)) all refer to Accepted Virtual Assets.
- Misleading statements and impressions. Sections 102 and 103 extend to Accepted Virtual Assets.
- Transaction reporting. Section 149(2) requires an MTF to report orders and transactions in Accepted Virtual Assets.
- Financial promotions. Section 18(1) prohibits communicating, in the course of business, an invitation or inducement to "Engage in Investment Activity" unless the communicator is a Licensed Firm, the content is approved by one, or Schedule 2 exempts it. Section 18(3) reaches communications from outside GMC that are "capable of having an effect in GMC".
What the Act leaves to GFSO
The following are set by GFSO's Rules, Guidance or the licence itself: which tokens are Accepted Virtual Assets (s. 5A(1)(b)); capital and prudential requirements (Threshold Conditions under s. 28; GEN 5.2.7 requires adequate financial resources); client money and safe custody rules (s. 4 empowers Client Money Rules; GEN 6.6.6–6.6.7 refer to COBS Chapters 14 and 15); and application fees and timelines. Basnet Law can confirm the current position with GFSO before an application is made.
Practical checklist / Next steps
- Map each proposed service to a Schedule 1 paragraph and confirm the "by way of business" test in para. 3 is met.
- Confirm that no token in the model is an algorithmic stablecoin or privacy token (s. 5A(4)).
- Identify which tokens must be Accepted Virtual Assets and build a listing procedure that anticipates s. 5B directions.
- Obtain the Virtual Asset Guidance and the relevant rulebooks (GEN, COBS, AML, MIR for venues, PRU for capital) from GFSO.
- Follow the GFSO process: initial meeting, business model presentation, application and fee, review, In-Principle Approval, pre-conditions (incorporation through GCRO, bank account, capital, office, staff), then licence (see our guide to the GFSO application process).
- Appoint the mandatory Approved Persons, Senior Executive Officer, Compliance Officer and Money Laundering Reporting Officer (GEN 5.5.1), resident in GMC or Bhutan (GEN 5.5.2).
- Review all marketing against s. 18 and Schedule 2 before launch.
Frequently asked questions
Is there a separate crypto licence in GMC?
No. A firm handling virtual assets applies for a Financial Services Licence under Part 4 of the Financial Services Act 2025, covering the same Schedule 1 activities as a traditional firm. GFSO states that virtual asset firms must additionally comply with Virtual Asset Guidance.
Is a cryptocurrency a "security" in GMC?
This does not follow by default. "Security" is defined in s. 258 by reference to paras 87–93 and 99A of Schedule 1. A Virtual Asset is a separately defined term. A token can still be a security if its rights make it one, which is the subject of our guide to tokenisation.
Can a GMC firm deal in any token?
No. Regulated activity is expected to be confined to Accepted Virtual Assets, tokens that in GFSO's opinion meet the requirements set under s. 5A. Algorithmic stablecoins and privacy tokens are prohibited outright by s. 5A(4).
Is the Virtual Asset Guidance legally binding?
Section 15(2) provides that Guidance is indicative and non-binding. Rules made under s. 5A are binding, and GFSO assesses applications against its published expectations in practice.
Key takeaways
- GMC regulates virtual assets through its primary financial services statute, not a bolt-on regime, and GFSO is the single regulator.
- The Act defines Virtual Asset, Fiat-Referenced Token and Accepted Virtual Asset in s. 258 and writes virtual assets into the core Schedule 1 activities.
- Section 5A gives GFSO dedicated rule-making and direction powers; s. 5A(4) bans algorithmic stablecoins and privacy tokens.
- Section 5B allows GFSO to stop dealings in a specific token, with a representations procedure.
- Market abuse, misleading statements, misconduct, reporting and promotion rules all expressly reach virtual assets.
This article is general information about the law of the Gelephu Mindfulness City Special Administrative Region as at the date above. It is not legal advice and does not create a lawyer–client relationship.
You may contact Basnet Law at basnet@basnetgmc.com or office@basnetgmc.com for any legal queries related to GMC.
References
- Financial Services Act 2025, ss. 1(1), 1A(4), 2, 4, 5A, 5B, 15, 16, 18, 19A, 28, 92, 102, 103, 149(2), 258 (definitions of Virtual Asset, Fiat-Referenced Token, Accepted Virtual Asset, Accepted Fiat-Referenced Token, E-money, Spot Commodity, Security), 259; Schedule 1, paras 2, 3, 4, 12, 16, 28, 43, 46, 52, 53B, 54, 55, 56, 70, 71, 77, 79, 85–99B; Schedule 2; Schedule 3
- GEN Rulebook 2026 (Version 1.0), Rules 1.1.1, 2.2.3, 2.2.9, 5.2.7, 5.2.8, 5.5.1, 5.5.2, 6.6.6, 6.6.7
- Application of Laws Act 2024, s. 5 and Schedule B
