CAYMAN ISLANDS Law and Practice Contributed by: Peter Colegate, Marsha Williamson and Dean Bennett, Appleby
The AXIA Network Foundation case (Grand Court, 3 April 2025) is the clearest illustration of this adaptabil- ity. The court ordered the continuation of the volun- tary liquidations of AXIA Network Foundation and ANF MergeCo Ltd under official supervision on grounds of efficacy, expedition and economy, and authorised the liquidators to apply for Chapter 15 recognition in the United States (filed in Dallas, Texas). Several novel issues nonetheless remain unresolved at the statutory level and will require case-by-case analysis until the courts address them directly. The treatment of client crypto-asset balances in a VASP insolvency is the most practically significant: the VASP Act requires licensed custodians to segregate client assets from proprietary assets, and a properly struc- tured custodial arrangement should give rise to a trust in the client’s favour that would take those assets out- side the general estate available to unsecured credi- tors. Whether that analysis will prevail in practice – particularly where the segregation has been imperfect or the documentation is ambiguous – remains to be tested. The valuation of volatile digital assets for the purposes of creditor claims and distributions is a fur- ther area that will require careful attention in any Cay- man digital asset liquidation. 1.2.6 Industry and Trade Bodies The primary bodies for the crypto-asset industry in the Cayman Islands are those described in 1.1.5 Industry and Trade Bodies : the Blockchain Association of the Cayman Islands and the fintech committee of Cay- man Finance. 2. Regulation 2.1 Regulators and International Alignment CIMA as Primary Supervisor CIMA is the principal regulatory body for virtual asset service providers in the Cayman Islands, exercising its virtual asset supervisory functions principally through its dedicated VASP & Fintech Innovation Unit. CIMA’s mandate encompasses both authorisation and ongo- ing supervision, and it has progressively expanded its supervisory engagement with the virtual asset sector as the regulatory framework has matured.
CIMA’s supervisory framework is risk-based and broadly proportionate. The phase 2 licensing regime, which came into effect on 1 April 2025, reflects a considered position that custody and trading plat- form services present materially greater risk than other virtual asset activities, and accordingly warrant a higher standard of regulatory scrutiny. In February 2026, CIMA issued a Market Conduct Rule and State- ment of Guidance applicable to all VASPs – a devel- opment that significantly extends the body of pub- lished supervisory standards – together with updated Rules on Obligations for the Provision of Virtual Asset Services specifically for custodians and trading plat- forms. Taken together, these represent a framework that is becoming increasingly comparable in detail and sophistication to those of onshore regulators. AML/CFT and the FIU The Financial Intelligence Unit (FIU) is the Cayman Islands’ designated financial intelligence body and receives suspicious activity reports from VASPs and other regulated entities under the Proceeds of Crime Act. AML/CFT compliance is a foundational obligation for all Cayman VASPs, and CIMA’s supervisory pro- gramme includes regular assessment of registrants’ and licensees’ AML/CFT frameworks. International Standards The Cayman Islands implements FATF standards through its domestic AML/CFT framework and has been a consistent participant in the FATF review pro- cess since its removal from the enhanced monitor- ing list in October 2023. FATF’s sixth targeted update on virtual asset and VASP compliance (June 2025) reported continued global progress, with 73% of jurisdictions having enacted Travel Rule legislation, though implementation gaps between legislation and practice remain widespread. The Cayman Islands sits in the more advanced cohort of jurisdictions on this measure. 2.2 Crypto-Asset Regulatory Frameworks The Classification Question The central classification question in the Cayman Islands is whether a given instrument is a “security” for the purposes of the Securities Investment Busi- ness Act (as revised) (SIBA), a “virtual asset” for the purposes of the VASP Act, or neither. The answer
178 CHAMBERS.COM
Powered by FlippingBook