For more information, please review the Cayman Islands Monetary Authority’s supervisory circular.
- What are VASPs?
Virtual asset service providers (VASPs) are persons and entities whose businesses, on behalf of another person or entity, provide certain services that use or rely on virtual assets.
- What is a virtual asset?
In the Cayman Islands, a virtual asset is defined as a digital representation of value that can be electronically traded and used for investment purposes. A common type of virtual asset is cryptocurrency.
- How does regulating VASPs protect consumers?
The Cayman Islands is committed to meeting international standards with regard to anti-money laundering and countering the financing of terrorism (AML/CFT) measures. As a result, Cayman has adopted legislation to regulate virtual assets, identified in 2019 as needing new requirements by the FATF, the global standard-setter for AML/CFT practices. By regulating services involving virtual assets the Cayman Islands Government helps to ensure that only legitimate business takes place in the country, which in turn protects users of these services.
- Who needs to comply with the VASPs regime?
Anyone who is now offering virtual asset services in the Cayman Islands to local residents or overseas clients (such as those engaged in initial coin offerings), and persons and entities who want to offer virtual asset services.
- How is Government regulating VASPs?
Government regulates VASPs through the laws listed below, which together form the comprehensive regulatory framework:
- Virtual Asset (Service Providers) Law: This is the main law for VASPs, as it provides the legal basis for virtual asset business in Cayman
- Monetary Authority (Amendment) (No.2) Law: The amendment to this law allows CIMA to have regulatory powers over local VASP activity
- Securities Investment Business (Amendment) Law: The amendment to this law provides parameters for the treatment of virtual assets as securities
- Mutual Funds (Amendment) (No.2) Law: The amendment to this law allows for the use of virtual assets in the funds space
- Anti-Money Laundering Amendment (No. 2) Regulations, 2020: The amendment outlines key AML/CFT requirements for VASPs
The following were published on 28 October 2020 to bring into force certain provisions of the VASP regulatory framework:
- Virtual Asset (Service Providers) Law, 2020 (Commencement) Order, 2020;
- Monetary Authority (Amendment) (No.2) Law, 2020 (Commencement) Order, 2020;
- Securities Investment Business (Amendment) Law, 2020 (Commencement) Order, 2020;
- Mutual Funds (Amendment) (No.2) Law, 2020 (Commencement) Order, 2020; and
- the Virtual Asset (Service Providers) Regulations, 2020
The Virtual Asset (Service Providers) (Amendment) Bill, 2020, which will better facilitate the phased commencement approach, is expected to be presented at the first sitting of the Cayman Islands House of Parliament.
By commencing in two phases, the regime will first bring into effect global regulatory standards, and then give persons and entities time to become compliant with the standards.
- Phase one commenced on 31 October 2020 with the requirement for persons and entities who offer, or wish to offer, virtual asset services to notify and register with CIMA. More information, including deadlines, is here.
VASPs who do not notify or register with CIMA, but who engage in virtual asset services on and after 31 January 2021, are subject to penalties and other enforcement measures.
Phase one satisfied FATF standards on anti-money laundering (AML) and countering the financing of terrorism (CFT) compliance, supervision and enforcement.
- When it commences, phase two will focus on licensing requirements for specific persons and entities (including those who provide for the safekeeping of virtual assets on behalf of others and entities who have an electronic platform to facilitate the trading of virtual assets)
- How do I register? What about fees?
Registration/notification will be done through the VASP Application Form on CIMA’s REEFS online platform. Persons who need access to REEFS should e-mail email@example.com.
More details on operational matters, like fees, can be found in the Cayman Islands Monetary Authority’s supervisory circular.
- What is the “travel rule” and is it currently in force?
The “travel rule” is a set of requirements adopted by the FATF which imposes certain obligations on VASPs when transferring virtual assets on behalf of another person or entity. The travel rule is outlined in Regulation 49C and 49F of the Anti-Money Laundering Regulations (2020 Revision) (which were amended by the Anti-Money Laundering Amendment (No. 2) Regulations, 2020).
The travel rule is currently not in force during phase one of commencement, as Regulations 49C and 49F are not yet commenced. VASPs will only be required to comply with the travel rule when these regulations come into effect.
- What is the sandbox and when is it coming into effect?
The VASP regulatory framework includes provisions for a regulatory sandbox by which new technologies can be observed before being used more widely in the country. The sandbox is currently expected to come into effect during phase two.
- Do I need to register or apply for a licence in order to use virtual assets personally or as a consumer?
No, persons using virtual assets for their own purposes only are not required to register or apply for a licence.