CAYMAN ISLANDS Law and Practice Contributed by: Peter Colegate, Marsha Williamson and Dean Bennett, Appleby
determines which regulatory regime applies – SIBA (if a security), the VASP Act (if a virtual asset), both (if the instrument has characteristics of both), or neither (if it falls within a specific exclusion). The VASP Act definition of “virtual asset” is broadly framed: a digital representation of value that can be digitally traded or transferred and used for payment or investment purposes. The definition expressly excludes official digital representations of fiat curren- cies (CBDCs) and instruments regulated as securities under SIBA. The SIBA definition of “security” includes virtual assets that can be sold, traded, or exchanged where they represent or can be converted into, or rep- resent derivatives of, traditional securities. The result is a layered analysis that is substance-driven rather than form-driven. The Regulated Activity Perimeter The VASP Act regulates: • the sale of newly created virtual assets to the pub- lic (ie, “issuance”); • fiat-to-crypto and crypto-to-crypto exchange; • virtual asset transfers; • custody services; • participation in and provision of financial services related to an issuance; and • the operation of a virtual asset trading platform. Since 1 April 2025, custody and trading platform ser- vices require a “virtual asset service licence” rather than mere registration. The enhanced obligations applicable to licensees are set out in the CIMA Rule and Statement of Guidance for Virtual Asset Custodi- ans and Virtual Asset Trading Platforms (the “Custody/ Platform Rule”) (as updated in February 2026) cov- ering disclosures, risk assessment, regulatory capi- tal, stress testing, internal controls, and client asset segregation. All other VASP activities require registra- tion. Licensees are subject to more intensive ongoing supervision, more demanding prudential requirements and a higher level of CIMA scrutiny. Out of Scope The following activities are not regulated as virtual asset services under the VASP Act:
• mining; • virtual asset airdrops; • private token placements not made to the public; • virtual service tokens; and • the issuance of tokenised fund interests under the Mutual Funds Act or Private Funds Act. There is no specific Cayman prohibition on retail par- ticipation in virtual asset activities, and the VASP Act does not draw a sharp retail/professional dividing line. Regulatory Developments: Next 12 Months Beyond CARF, CIMA is expected to issue further supervisory standards building on the Market Con- duct Rule and the Custody/Platform Rule published in February 2026. Additional rulemaking on cyberse- curity risk management, technology governance and senior management accountability is anticipated as CIMA deepens its supervision of the growing phase 2 licensee population. It is also anticipated that the sandbox regime (provided for under the VASP Act) may be introduced. 2.3 Regulated Firms and Legal Wrappers The Tokenised Funds Framework – A Landmark Development The entry into force of the Tokenised Funds Framework on 24 March 2026 is the most significant product- level development in Cayman funds regulation since the Private Funds Act came into force in 2020. The framework brings tokenised investment funds within a clear, purpose-built regulatory structure for the first time. Its core architecture is an extension of the exist- ing funds regulatory framework rather than a stan- dalone regime: tokenised mutual funds remain regu- lated as mutual funds, and tokenised private funds remain regulated as private funds. The additions are a suite of technology-specific requirements, including CIMA supervisory authority over the underlying digi- tal token infrastructure and asset valuation methodol- ogy, record-keeping obligations for all token-related transactions (issuances, creations, sales, transfers, and ownership records), and an annual confirmation to CIMA that those records are maintained in compli- ance with the framework. Taken together with the June 2025 VASP Act amend- ment that exempted fund interest tokenisations from
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