CAYMAN ISLANDS Law and Practice Contributed by: Peter Colegate, Marsha Williamson and Dean Bennett, Appleby
2.4 Token Issuance The Revised Issuance Definition
the “issuance of virtual assets” definition (retroac- tively), the Tokenised Funds Framework closes the regulatory loop for tokenised Cayman fund products. Conventional Fund Structures Holding Digital Assets For private funds investing in digital assets without tokenising their own interests, the Private Funds Act provides the applicable regulatory framework. Such funds must be registered with CIMA and comply with the PFA’s requirements on registered office, audit, valuation methodology, asset safekeeping, and AML/ CFT. Where the investment manager provides virtual asset investment management or advisory services, SIBA registration or licensing will typically be required in addition – an interaction that requires careful analy- sis at the outset of any fund structuring exercise. Broader Regulated Firm Exposures CIMA-regulated entities outside the virtual asset sector – banks, securities investment businesses, insurance companies – that obtain exposure to digital assets through their balance sheets or product offerings do not step outside their existing regulatory frameworks by doing so. They do, however, need to consider care- fully the risk management, prudential, and conduct- of-business implications of that exposure. CIMA’s supervisory expectations on risk management and governance apply to digital asset exposures in the same way as to other material risk concentrations. Using a Legal Wrapper: Impact on the Regulatory Analysis Using a Cayman-regulated fund structure as a legal wrapper changes the regulatory picture in one sig- nificant respect. The VASP Act’s issuance definition expressly excludes the tokenisation of equity interests in mutual funds and of investment interests in private funds. A fund vehicle that issues tokenised interests to investors does so within the Mutual Funds Act or Private Funds Act framework, and the fund itself does not require VASP registration solely by reason of hold- ing virtual assets as investments or issuing tokenised interests.
Token issuance has been the most technically con- tested area of VASP Act interpretation since the regime came into force, and the VASP Amendment Act represents a meaningful legislative intervention designed to resolve the principal ambiguities. As revised, “issuance of virtual assets” means the public sale of newly created virtual assets in exchange for fiat currency, other virtual assets, or other considera- tion. The word “public” is load-bearing: private place- ments to sophisticated or institutional investors do not constitute issuance. The exclusion of “virtual service tokens” – tokens providing access to or use within a software platform rather than conferring investment rights or payment functionality – from the virtual asset definition altogether removes a significant class of technology-utility tokens from the VASP perimeter. The retroactive carve-out for tokenised fund interests is the most practically significant amendment for Cay- man fund practitioners. The Act expressly provides that the tokenisation of equity interests in mutual funds and investment interests in private funds does not constitute issuance of virtual assets for VASP Act purposes. This was already CIMA’s informal admin- istrative position, but the statutory confirmation with retroactive effect removes any doubt and enables Cayman fund managers to proceed with tokenised structures on a sound legal footing. Regulatory Requirements for Public Issuances Where a token issuance meets the statutory definition – a public sale of newly created virtual assets – the issuer is required to register with CIMA as a VASP. CIMA has not yet published a formal White Paper or offering document content standard equivalent to those found in the European MiCA framework, though CIMA’s AML/CFT expectations and the disclosure standards implicit in CIMA’s fit and proper assess- ment of senior officers create a de facto baseline for what a prudent issuer should prepare. In practice, Cayman token issuances to institutional and sophis- ticated investors are typically structured as private placements outside the statutory definition, avoiding the registration obligation entirely.
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