CAYMAN ISLANDS Law and Practice Contributed by: Jason Ta, Ben Magahy, Paul Walters and Gemma Walters, Travers Thorp Alberga
10.2 Local Regulators’ Approach to Blockchain The Cayman Islands was an early adopter of the FATF requirements for a virtual asset service pro - vider regime. 10.3 Classification of Blockchain Assets Not all blockchain assets in the Cayman Islands will be regulated financial instruments. The key classifications of blockchain assets cover: • securities – if a blockchain asset meets the definition of a security under SIBA, a rel - evant person engaging in “securities invest- ment business” will need to be registered or licensed by CIMA (or qualify for a specific exclusion) – however, most forms of block - chain assets are unlikely to be a security under Cayman Islands law; • virtual assets – the VASP Act defines “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 digital representa - tion of fiat currencies. Most forms of fungible blockchain assets will fall within this definition of “virtual asset” ; and • virtual service tokens – the VASP Act defines “virtual service tokens” as a digital represen - tation of value which is not transferable or exchangeable with a third party at any time and includes digital tokens whose sole func - tion is to provide access to an application or service or to provide a service or function directly to its owner. Virtual service tokens are not regulated under the VASP Act. The complexity and challenges in classification include (by way of example):
accuracy. These are primarily driven by industry custom.
10. Blockchain 10.1 Use of Blockchain in the Financial Services Industry In the financial services industry, there are a number of approaches being taken to implement blockchain – including: • proof-of-concepts and pilots – many tradi - tional players are starting with small-scale projects to explore the potential of blockchain in specific areas, such as trade finance, pay - ments or regulatory compliance; • consortium-based initiatives – collaborations between multiple institutions which offers a less risky way to explore and develop block - chain solutions and share overall R&D costs; • investments and acquisitions – some play - ers are investing in or acquiring blockchain start-ups to gain expertise and access to technology rather than building the technol - ogy internally; • experimentation in blockchain outside of their regulated activities as a profile-raising initiative – for example, exploring the issue of tokens or other blockchain initiatives which are not connected to their traditional financial services provision.; and • adopting blockchain technology and use of artificial intelligence to reduce operating costs and reduce overheads; and • the opportunity to get investment and fund - ing from a new class of investors interested in transacting with tokens or digital assets as opposed to shares and other traditional finance assets and in some cases, benefiting from cheaper funding by doing so.
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