New in Virtual Assets Regulation in the Cayman Islands

One of the most famous offshores on the planet - the Cayman Islands - is introducing a new control regime for those wishing to obtain a license to operate virtual assets in the Cayman Islands. Earlier this year, an updated regulatory platform for the digital asset business, the VASP, was unveiled.

Nowadays,  there is a significant increase in the number of companies that are associated with blockchain and cryptocurrencies on the islands. If you would like to register a company to issue virtual assets in the Cayman Islands or you are interested in investing in securities in this jurisdiction,  we recommend reading this material carefully. 

The new legal norm provides for the regulation of crypto assets in the Cayman Islands, as well as licensing those providing this kind of services. It is based on tougher measures to combat money laundering.

Earlier last year, the authorities of this overseas territory of Great Britain issued a statement on the introduction of a public register of companies with the disclosure of beneficiaries. Now take up crypto assets.

Who is affected?

The new regulation will affect not only those who provide virtual asset services as a business, but also those who advertise themselves as such, even if they are technically unable to conduct these activities.

Individuals wishing to be licensed as providers of virtual assets in the Cayman Islands must first register with the CIMA. After registration, they must submit a request to the regulator for permission to issue virtual assets. Registration must be renewed by January 15 of each year.

The registration procedure will consider various factors, such as whether the cryptocurrency company has enough technical staff. It will also consider appropriate network security measures, sufficient resources and a reliable accounting system. A virtual asset service provider must have a registered office in the Cayman Islands before they can obtain a business license.

Who needs a license?

The new regulation does not cover companies that transfer or exchange  crypto assets but only providers and other intermediaries. Individuals who do not work with platforms will not need a license provided that the assets they exchange are not stored. Meanwhile, registration will still be required for them. Those who store assets require a Cayman Virtual Asset Storage Provider license. 

The Caymans authorities proposed five new rules that can be used to monitor local cryptocurrency exchanges in the new bill which describes the process of registration of enterprises engaged in digital currency in the jurisdiction. Several other countries have also introduced new cryptocurrency rules in line with FATF guidelines.

AML rules

The Caymans are one of the world's largest tax havens. Island-based companies have often been involved in corporate scandals and money laundering investigations. To combat this, registering a financial business here requires compliance with the international AML Rules including maintaining records of high-risk clients and monitoring accounts for suspicious financial activity and report to the appropriate authority.

Crypto funds

With the growing popularity of cryptocurrencies, many crypto investment funds have decided to register a company in the Caymans. The activities of such funds  are regulated by the Mutual Funds Law. To operate as an investment fund, a company must be authorized.

Current requirements

Anyone registered or licensed in accordance with the new regulation will be subject to permanent requirements:

• conducting AML audits on a regular basis;
• annual submission of audited invoices to the regulator;
• prior permission to appoint senior AML officials or staff;
• permission to issue and transfer company shares.

Final word

The new law may not be liked by many but it provides a base that will increase the overall level of trust to businesses dealing with digital assets.