CAYMAN ISLANDS Law and Practice Contributed by: Peter Colegate, Marsha Williamson and Dean Bennett, Appleby
4. Cross-Border Services 4.1 Marketing Domestic Marketing Restrictions
provider, it is that firm which requires VASP registra- tion or licensing, regardless of the fact that it relies on a third party’s technology to deliver the service. The technology provider operating purely in a B2B capac- ity, with no direct client relationship, would not gener- ally require a separate VASP registration by virtue of that B2B activity alone – though the specific facts and contractual structure require analysis in each case.
Marketing virtual asset products or services within the Cayman Islands – to domestic retail consumers or to businesses carrying on domestic business – is subject to the VASP Act to the extent the marketed activity constitutes a regulated virtual asset service. The VASP Act’s registration and licensing requirements apply to persons carrying on virtual asset services from or within the Cayman Islands, and marketing as a precur- sor to providing services will generally be treated as part of the regulated activity. The Cayman Islands does not have a separate finan- cial promotions regime equivalent to the UK’s section 21 FSMA framework or the EU’s MiFID II marketing communication rules. There is no blanket prohibition on unsolicited marketing or cold calling in the virtual asset context at the domestic level, though CIMA’s Market Conduct Rule introduces standards relevant to fair dealing and transparent communication with clients that apply to all CIMA-regulated VASPs. Cross-Border Marketing Considerations Of considerably greater practical relevance for most Cayman virtual asset businesses is the marketing of Cayman products and services into overseas jurisdic- tions. The Cayman Islands does not regulate the over- seas marketing activities of its VASPs, but the laws of the target jurisdiction will govern the permissibility of those activities. 4.2 White Labelling White-label arrangements – where one firm (the licensor) provides technology infrastructure, platform access, or a branded product to another firm (the licensee or distributor) that then offers those services to end clients under its own or a co-branded name – raise regulatory characterisation questions that are worth addressing carefully rather than assuming away. The VASP Act’s regulatory obligations attach to the person actually providing virtual asset services to clients. Where the distributing firm is the contracting party with the end client, exercises discretion over the client relationship, and holds itself out as the service
5. Decentralised Finance 5.1 Ability to Use DeFi Does the VASP Act Reach DeFi?
Whether the VASP Act applies to decentralised finance protocols is not always clear-cut – it depends critically on the facts of each protocol’s design and governance. The VASP Act does not contain a spe- cific DeFi carve-out or safe harbour. The definition of a VASP is person-facing and activity-based: it asks whether a person is carrying on a regulated activity from or within the Cayman Islands. Where a protocol is truly decentralised – no identifiable person or entity exercises control, no person is providing services to clients, and operations are entirely governed by immu- table code – the argument that no regulated person is providing a virtual asset service has genuine force. In practice, most protocols that describe themselves as decentralised involve identifiable teams, founda- tions or governance participants that retain mean- ingful control or extract economic value, and those arrangements will attract closer regulatory scrutiny. 5.2 DeFi Structures The Foundation Company as the Cayman DeFi Vehicle of Choice The Cayman foundation company has become the dominant structural choice for DeFi protocol govern- ance entities and DAO vehicles. Unlike a conventional exempted company, a foundation company can be established without shareholders and can operate purely for the purposes set out in its memorandum and articles – making it well suited to holding protocol IP, managing a treasury or acting as the legal counter- party in a decentralised ecosystem where there is no conventional equity ownership. It has legal personal- ity, can contract, hold assets, and sue and be sued,
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