The Cayman Islands has welcomed a new framework for regulating virtual asset business, which is set to help maintain the jurisdiction’s position as an attractive domicile for legitimate virtual asset businesses.
Introduced by the Cayman Islands Government on 20 May, the new Virtual Assets (Service Providers) Law (VASP Law) will come into force upon the issue of a commencement order.
The new regime derives from recommendations made by the Financial Action Task Force to provide for the regulation of virtual asset businesses and for the registration and licensing of persons who are providing ‘virtual asset services’.
According to definitions outlined in the VASP Law, it will likely capture all cryptocurrencies, security tokens, utility tokens or other digital assets that are tradeable or transferable, with the exception of digital fiat currencies.
The new framework will apply to any person, service provider or intermediary providing virtual asset services, such as issuing virtual assets, virtual asset trading platforms and custody services.
Under the new law, those who undertake virtual asset services from the Cayman Islands must register and/or receive an appropriate license from the Cayman Islands Monetary Authority (CIMA).
Additionally, they will be subject to ongoing requirements, such as providing regular audited accounts and undertaking anti-money laundering audits.
The VASP Law also introduces the concept of a sandbox licence that provides CIMA with the flexibility to regulate relevant businesses that utilise innovative technologies and activities by imposing additional requirements to, or allowing certain exemptions from, the standard requirements within the VASP Law.
Meanwhile, the government has also amended a number of existing laws to extend to virtual assets including amendments to the Mutual Funds Law and the Securities Investment Business Law, which are expected to come into force at the same time as the VASP Law.
Commenting on the new framework, Ogier partner in the Cayman Islands Bradley Kruger said:
“The VASP Law, in conjunction with the other legislative amendments, provides a coherent framework that will add a welcome degree of certainty for businesses intending to issue virtual assets and businesses carrying on or intending to carry on virtual asset services.”
“Importantly, the Cayman Government's intention has been to provide for appropriate regulation without stifling innovation. As such, it should help to maintain Cayman's position as an attractive domicile for legitimate virtual asset businesses,” Kuger added.
