CAYMAN ISLANDS Law and Practice Contributed by: Peter Colegate, Marsha Williamson and Dean Bennett, Appleby
of a blockchain protocol without creating a trust or partnership) have made it a natural fit for decentral- ised project structures. The foundation company is discussed further in the DeFi section of this guide (see 5. Decentralised Finance ). Limited partnerships and limited liability companies (both available under Cayman law) are used in spe- cific contexts, including for fund structures investing in digital assets. Regulatory Applications Following entity incorporation, the regulatory applica- tion process with CIMA is the critical path item for most virtual asset businesses. For a registration application, firms should expect to prepare a business plan setting out the proposed virtual asset services, an AML/CFT programme (including policies and procedures, risk assessment, and appointed AML officers), a corporate structure chart, due diligence on all beneficial owners and senior managers, and a description of the tech- nology infrastructure. For a licensing application, the documentation requirements are substantially greater and will include capital and financial projections, a technology and cybersecurity risk assessment, client asset safekeeping arrangements, regulatory capital calculations and stress testing procedures, amongst For registration, a well-prepared application can expect CIMA review to take in the order of three to six months, though CIMA’s review period is affected by application quality and the volume of applications it is processing at any given time. Licensing applications typically take longer. Early CIMA engagement – before the formal application is filed – is strongly advisable. 3.3 Change of Control A change of control of a CIMA-registered or licensed VASP requires prior CIMA approval. Under the VASP Act, “change of control” encompasses a transaction or series of transactions by which a person acquires or ceases to hold a significant interest – defined as 10% or more of the shares or voting power, or the ability to exercise significant influence over the management of the VASP. CIMA must be notified in advance of any such change, and it has the power to object to a pro- other documents. Practical Timeline
posed acquisition or change where it is not satisfied that the incoming controller, owner, or management team meets the fit and proper standard. In practice, the CIMA approval process for a change of control should be treated as a material condition in any transaction involving a Cayman VASP, and the timetable for CIMA review and approval should be built into the transaction structure. Completion before CIMA has approved the change of control – or without notifying CIMA at all – constitutes a breach of the VASP Act, with the regulatory and criminal conse- quences described elsewhere in this guide. 3.4 Passporting There is no passporting or mutual recognition frame- work between the Cayman Islands and any other jurisdiction. The Cayman Islands is an offshore Brit- ish Overseas Territory, not a member of any regional regulatory bloc, and the concept of passport rights – central to the EU single market financial services framework – has no domestic equivalent. A Cayman VASP registration or licence confers no regulatory authorisation in any other country. Marketing into the EEA, the United Kingdom, the Unit- ed States, or other major regulated markets will typi- cally trigger local licensing or registration obligations, and the reach of those obligations should be mapped before any client-facing activity commences. The alternative – operating on a reverse solicitation basis, accepting only genuinely unsolicited approaches from clients outside Cayman – is available in certain juris- dictions but requires careful factual management and cannot be used as a systematic distribution strategy. At the bilateral level, Cayman has entered into memo- randa of understanding with a number of overseas regulators, including IOSCO signatories and various national financial regulators, governing co-operation and information exchange. These facilitate superviso- ry co-operation but do not create any form of market access right. CIMA has also deepened its engage- ment with international standard-setters, including FATF and IOSCO, which informs but does not substi- tute for local authorisation in overseas markets.
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