The Virtual Asset (Service Providers) Act will be phased in
The Cayman Islands' Virtual Asset (Service Providers) Act, 2020, passed on 25 May 2020, requires anyone providing virtual asset services to register with or be licensed by the Cayman Islands Monetary Authority. The government has said the regime will start in two phases. From 31 October 2020 the focus is anti-money-laundering and counter-financing-of-terrorism compliance, supervision and enforcement; provisions on enforcement, penalties and offences apply from 31 January 2021; and the remaining provisions, including licensing, custody and trading platform requirements and the sandbox regime, are expected to commence in June 2021.
13 November 2020
A game changer: introducing virtual asset regulation in the Cayman Islands
On 25 May 2020 the Government of the Cayman Islands passed the Virtual Asset (Service Providers) Act, 2020 (the "VASP Act"), which gives a legal framework for conducting virtual asset business in and from the Cayman Islands by requiring persons providing virtual asset services to be (i) registered or (ii) licensed. The Cayman Islands already has the advantage of being a friendly jurisdiction for token issuers, cryptocurrency funds and developers of other forms of digital assets. Through the VASP Act the government intends to give the Islands a state-of-the-art and robust framework that aligns with global regulatory standards, protects consumers and meets the requirements of the Financial Action Task Force (FATF) recommendations on virtual assets. The new framework also makes the Islands an attractive place of registration for virtual asset service providers (VASPs), because it offers legal and regulatory certainty and supports innovation. For more on the VASP Act, see part 1 of our earlier legal update.
The VASP Act will be implemented in phases
The Government of the Cayman Islands has recently announced that the regulatory framework for VASPs will be launched in two phases. The first phase, the government said, began on 31 October 2020 and focuses on anti-money-laundering (AML) and counter-financing-of-terrorism (CFT) compliance, supervision and enforcement. Persons carrying on, or wishing to carry on, virtual asset services must register with the Cayman Islands Monetary Authority (CIMA) under the VASP Act. Persons carrying on, or wishing to carry on, virtual asset services who already hold a licence from CIMA under other regulatory laws must notify CIMA under the VASP Act.
The provisions of the VASP Act relating to enforcement, penalties and offences take effect from 31 January 2021. Persons who have not registered with or notified CIMA by its application deadline but carry on virtual asset services on or after 31 January 2021 will be subject to penalties and other enforcement measures. Registration and notification are made through the VASP application form on CIMA's REEFS online platform. CIMA will publish an application acceptance deadline that determines whether an application was received before 31 January 2021.
The second phase, expected to begin in June 2021, will bring the remaining provisions of the VASP Act into force, including licensing, the requirements for virtual asset custodians and trading platform operators, the sandbox licensing regime and other parts of the Act.
The Virtual Asset (Service Providers) (Amendment) Bill, 2020, which will introduce provisions to facilitate the phased launch better, was published on 29 October 2020 and will be tabled at the next sitting of the Legislative Assembly.