Cayman Islands enhances regulatory framework for virtual assets

The Cayman Islands has enhanced its regulatory framework for virtual assets.

The introduction of the Virtual Asset (Service Providers) (Amendment) Act, 2024 (the VASP (Amendment) Act), amends the Virtual Asset (Service Providers) Act (Revised) (the VASP Act).

Published on 19 December 2024, the VASP (Amendment) Act is expected to come into force during the first half of 2025 alongside the implementation of the "Phase 2" licensing regime for virtual asset trading platforms and virtual asset custodians.

These updates are designed to align Cayman Islands regulations with global standards, bolster consumer protection and ensure healthy oversight of the virtual asset sector in the Cayman Islands.

Key changes introduced by the VASP (Amendment) Act

Governance

Virtual asset service providers (VASPs) must appoint at least three directors, including one independent director without a vested interest in the VASP, to strengthen oversight and governance structures.

Operational standards

VASPs must ensure the accuracy of all disclosures, advertising materials and communications relating to their virtual asset services with clients and members of the public.

Custody and safeguarding requirements

VASPs which provide custodial services must segregate and take steps to safeguard client assets. The Cayman Islands Monetary Authority (CIMA) can also require custodians to provide enhanced disclosures to clients regarding insurance arrangements, regulatory obligations, grievance procedures, third party sharing of client information and internal custodial governance arrangements. 

Financial reporting

CIMA will have the discretion to require a registered VASP to provide audited financial statements where CIMA determines they are required due to the business's nature, size and complexity, or if CIMA has reasonable grounds for believing that the registered person has provided false or misleading accounts.

Regulatory oversight

CIMA will have enhanced powers to:

• impose conditions on licence and registration applicants based on the nature, risk, and scale of the applicant's business

• direct entities to cease and desist from activities that contravene the VASP Act

• impose penalties on virtual asset service providers who knowingly make, issue or permit misleading representations to the public regarding their activities

• revoke licences, waivers or cancel registrations

In addition, where a VASP wishes to make a change to the approved business plan that modifies the provision of the virtual asset service for which a licence or registration has been granted, the VASP must seek the written approval of CIMA.

Definitions

The VASP Act will be updated to include new definitions and revised versions of existing definitions, including for the definition of "originator" and "convertible virtual asset".

How Ogier can help

Our global team offers cross-border advice on evolving regulation for VASPs and can assist VASPs, including trading platforms and exchanges, in obtaining registration or licensing to conduct virtual asset services and token issuances in relevant jurisdictions.

If you have any questions regarding becoming a licensed or registered VASP in the Cayman Islands, please contact a member of our Technology and Web3 team for more information.

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Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

Regulatory information can be found under Legal Notice