CAYMAN ISLANDS Law and Practice Contributed by: Jason Ta, Gemma Walters, Paul Walters and Ben Magahy, Travers Thorp Alberga
quently result in AML/CFT obligations on the lender. Lending can also be considered a financing and leas - ing business under the economic substance regime of the Cayman Islands unless an exemption applies. Banking business in the Cayman Islands (which in summary is defined to mean the business of receiv - ing (other than from a bank or trust company) and holding on current, savings, deposit or other similar account money which is repayable by cheque or order and may be invested by way of advances to custom - ers or otherwise) is regulated in the Cayman Islands and may require a licence under the Banks and Trust Companies Act under the supervision of CIMA. 10.8 Cryptocurrency Derivatives Offering derivatives denominated or settled in cryp - tocurrencies that meet the test of a “security” under SIBA may be regulated if other requirements of SIBA are met and no exemption applies. Virtual assets representing or convertible into deriva - tives could also be subject to SIBA. 10.9 Decentralised Finance (DeFi) The VASP Act establishes a framework for regulat - ing businesses providing virtual asset services in the Cayman Islands, including decentralised exchanges. The business of providing one or more of the following services or operations for or on behalf of a customer requires registration (as opposed to licensing) under the VASP Act: • exchange between virtual assets and fiat curren - cies; • exchange between one or more other forms of convertible virtual assets; • transfer of virtual assets; and • participation in, and provision of, financial services related to a virtual asset issuance or the sale of a virtual asset. Public issuances of virtual assets also require registra - tion under the VASP Act.
Provision of the following virtual asset services requires licensing (as opposed to registration) under the VASP Act: • virtual asset custody service; and • operation of a virtual asset trading platform. See the definition of “virtual asset trading platform” in 10.5 Regulation of Blockchain Asset Trading Plat- forms . In each case, a careful assessment of the activities undertaken by the exchange will be required in order to determine the appropriate classification for the pur - pose of the VASP Act. 10.10 Regulation of Funds Subject to limited exemptions, funds will either be regulated as a mutual fund under the Mutual Funds Act (for open-ended funds) or as a private fund under the Private Funds Act (for closed ended funds). A tokenised fund may also be regulated by the VASP Act. Legal advice should be taken as to the precise legal nature of the tokenisation to determine whether authorisation under the VASP Act is also required. CIMA may also impose additional conditions on a tokenised fund. Further amendments to the legisla - tion and regulatory regime in this area are expected While virtual currencies are not defined in the VASP Act – the VASP Act does define a “virtual asset” as a digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes but does not include a digi - tal representation of fiat currencies. Having regard to the above, a digital representation of a fiat currency (essentially, legal tender) is excluded from the defini - tion of a “virtual asset”, however, creating a crypto - currency may be “relevant financial business” and an issuer of such an asset is likely to be subject to the AML/CFT regime in the Cayman Islands. 10.12 NFTs The VASP Act regulates the provision of services with respect to any “virtual asset” (see the definition within the next 12 months. 10.11 Virtual Currencies
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