Pursuing the opportunities
03 Sep 2025
With Phase Two of the VASP framework, updates to the Mutual Funds Act, and growing applications of artificial intelligence, the Cayman Islands is positioning itself to turn geopolitical uncertainty into opportunity
Image: martina/stock.adobe.com
Regulatory changes in 2025 include Phase Two of the Virtual Asset Service Providers (VASP) framework and changes to the Mutual Funds Act. Other opportunities come from artificial intelligence and, perhaps, geopolitical uncertainty.
The Cayman Islands is an offshore financial centre that is geographically and economically close to the United States. It might, therefore, be considered vulnerable at a time that the US government has decisively moved away from the post-1945 system of multilateral institutions and free(ish) trade.
Trouble in the time of Trump?
However, key players involved with asset servicing remain sanguine. The Cayman Islands Monetary Authority (CIMA) and the Ministry of Financial Services & Commerce, both of which provide oversight of financial services in the jurisdiction, note that the centre’s trade is primarily financial services, rather than cars, food products. and other types of goods that appear to be the focus of the new tariff regime in the United States.
Niall Gallagher, managing director of Citco Trustees (Cayman), is more upbeat. “The Cayman Islands has a strong value proposition for multinational companies, investment managers and private clients. Indeed, the jurisdiction can benefit by providing innovative structuring solutions to various parties that are looking to mitigate economic uncertainty with careful planning.”
Phase Two of the VASP framework
Gallagher adds: “The Cayman Islands continues to be at the forefront of regulatory best practice through strong collaboration between the financial services industry and the government which is aligned with a strong and impartial regulator.”
For its part, CIMA highlights the Phase Two of the VASP framework, which came into effect on 1 April 2025.
Phase Two introduces additional requirements for VASPs that provide virtual asset custody services and/or operate virtual asset trading platforms from the Cayman Islands. These entities are now required to be licensed. VASP activities that continue to require registration include transfer of virtual assets; issuance of virtual assets; exchange between virtual assets and fiat currencies; exchange between different forms of convertible virtual assets; and financial services relating to the issuance of virtual assets.
CIMA encourages preliminary consultations with prospective VASP applicants, regularly issues guidance to clarify regulatory expectations, and conducts outreach initiatives to support understanding and compliance within the industry. CIMA coordinates with domestic and overseas authorities for effective and risk-based supervision of VASPs and also to identify and take necessary actions on the unauthorised players in this area.
Phase One of the VASP framework came into effect at the end of October 2020. It focused on anti-money laundering (AML), counter-financing of terrorism, and other critical risk areas such as cybersecurity. The jurisdiction’s high standards in these areas was demonstrated by its removal from the Financial Action Task Force (FATF) grey list in October 2023. CIMA continues to conduct on-site inspections of VASPs to ensure ongoing compliance with regulatory requirements.
Since the beginning of this year, all funds registered under the Mutual Funds Act and the Private Funds Act have been required to comply with revised beneficial ownership requirements. It is now necessary to appoint a designated contact person and/or to maintain a beneficial ownership register. The new regulations strike a balance between greater transparency and robust privacy safeguards.
Meanwhile, CIMA is in discussions with the Ministry of Financial Services in relation to amendments to the Mutual Funds Act and the Private Funds Act in relation to tokenised funds. The Ministry is also considering a proposal from industry participants for the Mutual Funds Act to be amended to take account of vehicles that invest in Indian securities.
AI could bring real advantages
CIMA sees the rise of AI as something that can transform the financial services industry and the regulatory landscape in the Cayman Islands. AI makes it easier to detect fraudulent activities and market manipulation in real time. For market participants, AI can streamline regulatory compliance and reporting. AI facilitates anticipation and mitigation of potential risks. This, in turn, makes for more proactive and effective oversight.
Citco’s Gallagher also sees the opportunities from AI: “Last year we launched Citco Document Intelligence — the first ‘AI Plus Human’ platform to offer fund managers and allocators a fully-managed document management service that combines AI and fund reporting experts.
“As portfolios increase in complexity, the need to process and manage fast, accurate and transparent data has never been greater in institutional investment management. So, from our perspective, AI will be a strong tool to help free up material human resources and deliver efficiency gains very quickly after implementation. Leveraging tools such as CDI means that firms can receive easy-to-digest data reporting, enabling them to focus on what they do best – generating growth.”
The human factor
It remains to be seen whether AI makes it easier for organisations in the Cayman Islands’ financial sector to attract and retain the talent that they need. Gallagher notes that human resources have always been a topic of conversation for island nations.
“The Cayman Islands has a strong focus on education. Government and corporate scholarships are available to ensure that the youth of the Cayman Islands have access to quality education. Together with progress that is being made through technological developments, human resources is not an impediment to the growth and development of the Cayman Islands.”
For its part, CIMA is in the early stages of recruiting necessary expertise for its Division for Digital Assets, which focuses on the regulation of VASPs. More generally, CIMA is undertaking an internal restructuring that looks to boost its capacity across various regulatory functions. As the regulatory environment continues to develop, CIMA’s key performance indicators (KPIs) and recruitment strategies will change accordingly.
The bottom line
As of mid-2025, it is too soon to say what will be the impact of ‘America First’ economic policies on offshore financial centres that are clearly in the orbit of the US. Nevertheless, the Cayman Islands may well pick up new business at a time of heightened geopolitical uncertainty.
Phase Two of VASP may attract promoters of virtual assets and providers of the associated infrastructure. The changes to the Mutual Funds Act and the Private Funds Act could also be helpful.
Meanwhile, AI and other new technologies should enable many service providers to boost efficiency and profits — even if volumes of business grow only slowly over the coming year or so.
The Cayman Islands is an offshore financial centre that is geographically and economically close to the United States. It might, therefore, be considered vulnerable at a time that the US government has decisively moved away from the post-1945 system of multilateral institutions and free(ish) trade.
Trouble in the time of Trump?
However, key players involved with asset servicing remain sanguine. The Cayman Islands Monetary Authority (CIMA) and the Ministry of Financial Services & Commerce, both of which provide oversight of financial services in the jurisdiction, note that the centre’s trade is primarily financial services, rather than cars, food products. and other types of goods that appear to be the focus of the new tariff regime in the United States.
Niall Gallagher, managing director of Citco Trustees (Cayman), is more upbeat. “The Cayman Islands has a strong value proposition for multinational companies, investment managers and private clients. Indeed, the jurisdiction can benefit by providing innovative structuring solutions to various parties that are looking to mitigate economic uncertainty with careful planning.”
Phase Two of the VASP framework
Gallagher adds: “The Cayman Islands continues to be at the forefront of regulatory best practice through strong collaboration between the financial services industry and the government which is aligned with a strong and impartial regulator.”
For its part, CIMA highlights the Phase Two of the VASP framework, which came into effect on 1 April 2025.
Phase Two introduces additional requirements for VASPs that provide virtual asset custody services and/or operate virtual asset trading platforms from the Cayman Islands. These entities are now required to be licensed. VASP activities that continue to require registration include transfer of virtual assets; issuance of virtual assets; exchange between virtual assets and fiat currencies; exchange between different forms of convertible virtual assets; and financial services relating to the issuance of virtual assets.
CIMA encourages preliminary consultations with prospective VASP applicants, regularly issues guidance to clarify regulatory expectations, and conducts outreach initiatives to support understanding and compliance within the industry. CIMA coordinates with domestic and overseas authorities for effective and risk-based supervision of VASPs and also to identify and take necessary actions on the unauthorised players in this area.
Phase One of the VASP framework came into effect at the end of October 2020. It focused on anti-money laundering (AML), counter-financing of terrorism, and other critical risk areas such as cybersecurity. The jurisdiction’s high standards in these areas was demonstrated by its removal from the Financial Action Task Force (FATF) grey list in October 2023. CIMA continues to conduct on-site inspections of VASPs to ensure ongoing compliance with regulatory requirements.
Since the beginning of this year, all funds registered under the Mutual Funds Act and the Private Funds Act have been required to comply with revised beneficial ownership requirements. It is now necessary to appoint a designated contact person and/or to maintain a beneficial ownership register. The new regulations strike a balance between greater transparency and robust privacy safeguards.
Meanwhile, CIMA is in discussions with the Ministry of Financial Services in relation to amendments to the Mutual Funds Act and the Private Funds Act in relation to tokenised funds. The Ministry is also considering a proposal from industry participants for the Mutual Funds Act to be amended to take account of vehicles that invest in Indian securities.
AI could bring real advantages
CIMA sees the rise of AI as something that can transform the financial services industry and the regulatory landscape in the Cayman Islands. AI makes it easier to detect fraudulent activities and market manipulation in real time. For market participants, AI can streamline regulatory compliance and reporting. AI facilitates anticipation and mitigation of potential risks. This, in turn, makes for more proactive and effective oversight.
Citco’s Gallagher also sees the opportunities from AI: “Last year we launched Citco Document Intelligence — the first ‘AI Plus Human’ platform to offer fund managers and allocators a fully-managed document management service that combines AI and fund reporting experts.
“As portfolios increase in complexity, the need to process and manage fast, accurate and transparent data has never been greater in institutional investment management. So, from our perspective, AI will be a strong tool to help free up material human resources and deliver efficiency gains very quickly after implementation. Leveraging tools such as CDI means that firms can receive easy-to-digest data reporting, enabling them to focus on what they do best – generating growth.”
The human factor
It remains to be seen whether AI makes it easier for organisations in the Cayman Islands’ financial sector to attract and retain the talent that they need. Gallagher notes that human resources have always been a topic of conversation for island nations.
“The Cayman Islands has a strong focus on education. Government and corporate scholarships are available to ensure that the youth of the Cayman Islands have access to quality education. Together with progress that is being made through technological developments, human resources is not an impediment to the growth and development of the Cayman Islands.”
For its part, CIMA is in the early stages of recruiting necessary expertise for its Division for Digital Assets, which focuses on the regulation of VASPs. More generally, CIMA is undertaking an internal restructuring that looks to boost its capacity across various regulatory functions. As the regulatory environment continues to develop, CIMA’s key performance indicators (KPIs) and recruitment strategies will change accordingly.
The bottom line
As of mid-2025, it is too soon to say what will be the impact of ‘America First’ economic policies on offshore financial centres that are clearly in the orbit of the US. Nevertheless, the Cayman Islands may well pick up new business at a time of heightened geopolitical uncertainty.
Phase Two of VASP may attract promoters of virtual assets and providers of the associated infrastructure. The changes to the Mutual Funds Act and the Private Funds Act could also be helpful.
Meanwhile, AI and other new technologies should enable many service providers to boost efficiency and profits — even if volumes of business grow only slowly over the coming year or so.
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