CAYMAN ISLANDS Law and Practice Contributed by: Daniel Lee, Sophia Scott, Kimberly Robinson and James Turner, Maples Group
The AMLRs provide that a financial services provider carrying out relevant financial business in or from the Cayman Islands cannot form a business relationship or carry out a one-off transaction unless they maintain certain AML/CFT/CPF/sanctions policies and proce - dures, having regard to money laundering, terrorist or proliferation financing and sanctions risks. Virtual Assets in the Cayman Islands The Virtual Asset (Service Providers) Act (as amended, the “VASP Act”) provides the framework for the con - duct of virtual asset services in the Cayman Islands and for the registration and licensing of entities that provide virtual asset services. The virtual asset service providers regime, which includes subsidiary and related regulatory and finan - cial services legislation (together, the “VASP Regime”) has been implemented in phases. The core phase one provisions of the VASP Act requiring registration came into effect on 31 October 2020, focused on anti-money laundering and countering the financing of terrorism (AML/CFT) measures. Related enforcement provisions and offences came into effect on 31 January 2021. The VASP (Amendment) Act was published on 19 December 2024 and the legislation enacting Phase 2 of the VASP regime commenced on 1 April 2025. On this date, the licensing provisions of the VASP Act as well as the Virtual Asset (Service Providers)(Amend - ment) Act, 2024 and the Virtual Asset (Service Provid - ers) (Amendment) Regulations, 2025 also came into force, along with CIMA’s Rule – Virtual Asset Custodi - ans and Trading Platforms and Statement of Guidance – Virtual Asset Custodians and Trading Platforms, and the licensing component of CIMA’s Regulatory Policy – Registration or Licensing of Virtual Asset Service Providers. In February 2026, CIMA also published the Rule and Statement of Guidance – Market Conduct for Virtual Asset Service Providers, establishing compre - hensive requirements on integrity, conflicts of interest, client asset safeguards, marketing and promotions, client onboarding, complaints handling, public disclo - sures, cross-border transactions and market abuse. The VASP (Amendment) Act provides the regulatory basis for phase two of the Cayman Islands’ VASP Regime, which relates to the introduction of a licens -
ing regime for virtual asset trading platforms and virtual asset custodians. A third phase is also envi - sioned to address remaining elements of the regula - tory framework. Specifically, a currently registered person who, at the commencement of the VASP (Amendment) Act, is engaged in the provision of virtual asset custody services or the operation of a virtual asset trading platform shall apply for a licence within 90 days of the commencement of the VASP (Amendment) Act. Additionally, the VASP (Amendment) Act introduces new operational requirements for all VASPs, including: • Directors: There must be at least three directors, including one independent director. • Business Plan Changes: Prior written approval from CIMA is required for any changes to the approved business plan or to provide additional virtual asset services not included in the original application. • Litigation Notification: CIMA must be notified within 30 days of any litigation proceedings brought against them in any jurisdiction. • Fiat Currency: Fiat currency held on behalf of clients must be in a bank regulated by CIMA or another regulator in a non-high-risk jurisdiction, ensuring segregation from the provider’s own funds. • Misleading Representations: It is now an offence for VASPs to make or permit misleading represen - tations about their virtual asset activities. In March 2026, the Cayman Islands enacted legisla - tion introducing a regulatory framework for tokenised funds, whereby equity or investment interests in mutu - al funds and private funds may be represented by digi - tal tokens on a blockchain. The Mutual Funds (Amend - ment) Act, 2026, Private Funds (Amendment) Act, 2026, and Virtual Asset (Service Providers) (Amend - ment) Act, 2026, clarify that the issuance of digital tokens by regulated tokenised mutual funds and pri - vate funds does not constitute virtual asset issuance under the VASP Act, impose annual record-keeping confirmation obligations on fund operators in respect of digital tokens, require the operator’s approval for any transfer of tokenised interests, or mandate spe -
169 CHAMBERS.COM
Powered by FlippingBook