CAYMAN ISLANDS Law and Practice Contributed by: Sailaja Alla, Matt Mulry, Maree Martin and James Mossetto, Appleby
• the Misuse of Drugs Act and the Proceeds of Crime Act in relation to cannabis/cannabis-related investments; and • the Private Funding of Legal Services Act in rela - tion to litigation funding. Digital Assets A fund could potentially trigger the VASP Act, requir - ing registration or licensing under such Act, if it pro - vides virtual asset services that fall outside traditional fund activities. “Virtual asset services” include the issuance of virtual assets, custody of virtual assets or the transfer/exchange of virtual assets, for or on behalf of others. The VASP Act defines virtual assets as “a digital repre - sentation of value that can be digitally traded or trans - ferred and can be used for payment or investment purposes but does not include a digital representa - tion of fiat currencies”. This wide definition captures all cryptocurrencies, security tokens, utility tokens or other digital assets that are tradeable or transferable, with the exception of digital fiat currencies. Cannabis Under the Misuse of Drugs Act, it is an offence to have dealings in controlled drugs (including cannabis). The Cayman Islands has made advances in permitting the use of medical cannabis where prescribed by a medi - cal doctor, but it remains an offence to cultivate, sell, distribute or possess cannabis for recreational and other purposes. Under the Proceeds of Crime Act, a Cayman Islands entity risks committing an offence if it deals with or acquires the proceeds of criminal conduct (which would include dealings with cannabis that amount to an offence under the Misuse of Drugs Act). However, this may not be an offence under Cayman Islands law where dealings with the cannabis occurred outside the Cayman Islands and such dealings are not an offence under the laws of the country where the deal - ings occurred. Litigation Funding The Private Funding of Legal Services Act, 2020 introduced a statutory framework for conditional fee agreements, contingency fee agreements and litiga -
tion funding agreements. Such statutory framework would need to be considered for any Cayman Islands law-governed fee/funding agreements to be entered into by a litigation funding fund. 2.7 Use of Subsidiaries for Investment Purposes It is common to use subsidiaries as holding vehicles to segregate assets and also as blockers for tax pur - poses. 2.8 Local/Presence Requirements for Funds There is no requirement for a Cayman Islands fund to have a Cayman Islands investment manager. Other Local Requirements All Cayman Islands investment funds are required to maintain a registered office in the Cayman Islands. Corporate funds are not required to have local direc - tors; however, a fund structured using an exempted limited partnership is required to have at least one “qualifying” general partner that is a person or entity resident, incorporated or registered in the Cayman Islands. Therefore, an exempted limited partnership must have a general partner that is either: • a Cayman Islands incorporated company; • a company or partnership formed outside the Cay - man Islands and registered in the Cayman Islands as a foreign entity; • another Cayman Islands exempted limited partner - ship (which must itself have a “qualifying” general partner); or • an individual resident in the Cayman Islands. Cayman Islands funds are not required to maintain any business premises in the Cayman Islands (other than the registered office noted above), to hire local employees or to satisfy any other substance require - ments. Each individual director of a mutual fund regulated under the MFA must register with CIMA under the Directors Registration and Licensing Act and must update their registration annually. Professional direc - tors (a person appointed to 20 or more covered entities) and corporate directors (a body corporate appointed
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