|Regulations around crypto currencies are always evolving, and the Cayman Islands took a step towards becoming one of the preferred locations for blockchain based companies last week when legislative assembly passed the Virtual Asset (Service Provider) Law, 2020. This was accompanied with updates to a number of other laws including the Monetary Authority (Amendment) (No.2) Law, 2020; the Securities Investment Business (Amendment) Law, 2020; the Mutual Funds (Amendment) (No. 2) Law, 2020; and the Stock Exchange Company (Amendment) Law, 2020. |
The Cayman Islands Ministry of Financial services states that these laws form part of a regulatory framework to promote the development and use of innovative financial services. The framework seeks to provide regulatory certainty and a solid foundation for legitimate financial services innovators who are operating in or from within the island, while also complying with emerging global standards. The framework implements a flexible regime for the supervision of innovative financial services which scales to the size and nature of a company and also includes a regulatory sandbox which aims to speed up the adoption of new innovative services, technologies and methods of delivery in the jurisdiction.
What has changed?
The following are the main changes included in these laws:
Meeting FATF requirements
The Virtual Asset (Service Provider) law is based on the requirements brought out by the FATF in 2019. The law is applicable to any persons involved in providing virtual asset services. This is defined as the issuance of virtual assets or providing one or more of the following services:
– exchange between virtual assets and fiat currencies;
– exchange between one or more other forms of convertible virtual assets;
– transfer of virtual assets;
– virtual asset custody service; or
– participation in, and provision of, financial services related to a virtual asset issuance or the sale of a virtual asset;
Any organisation offering Virtual Asset services, which does not require a license (exchanges and custodians), will be required to register with the Cayman Islands Monetary Authority (CIMA) and pay the required assessment and application fee.
Licensing for virtual asset exchanges
With the new Virtual Assets law and updates to the Stock Exchange Company (Amendment) Law, 2020, the restriction where the Cayman Islands Stock exchange (CEX) had the sole right to operate a securities exchange on island were revised. Under these changes a virtual asset trading platform can now obtain a license and operate from within the Cayman Islands as long as they only list virtual assets.
Licensing for custodians
The law also introduced a specific license for custodians of virtual assets. This law includes disclosure requirements from the custodian as well as the ability of the authority to impose certain requirements around segregation of assets, insurance requirements and cyber security measures to ensure the protection of users of these services.
The implementation of regulatory sandbox
The law puts in place a regulatory sandbox license. The license will be granted for a period of one year and is meant to facilitate the adoption of innovative technology and delivery methods in financial services. The licence is available on a voluntary basis to fintech service providers, providing a service that uses innovative technology to improve, change or enhance financial services but is not a virtual asset service.
Issuance of virtual assets
All virtual asset issuances to the public will be required to submit a virtual asset issuance request to the Authority in the prescribed form and obtain the approval of the Authority before issuance. Issuances below the prescribed threshold (which is still to be defined) can be made directly to the public. For issuances above the threshold the assets shall be issued by through a virtual asset trading platform which is licensed or supervised in this or another non high-risk jurisdiction.
|Frequently asked questions|
|When do I have to register or apply for a license? |
The law has currently only been passed by the legislative assembly and is not in effect yet. Regulations and guidance still need to be drafted and produced. These should come into effect later this year.
How much will registration or licensing cost?
The application fee range will be outlined in the regulations put in place by government and guidance from the CIMA and will be consistent with existing regulatory fees.
Does an organisation already licensed by CIMA need to register to deal in Virtual Assets?
An organisation which has already been granted a licence by CIMA under another law is required to provide a notice to the authority. The notice should outline basic information on the virtual asset service they wish to provide. CIMA may, on review of the information, waive the requirement for registration or a Virtual Asset Service Licence, or require licensing under the proposed virtual asset service providers (VASP) law.
Will funds issuing virtual assets as a representation of equity or investing in virtual assets be required to register or apply for a license?
There is no requirement for registration or licensing under the proposed VASPs law if a fund does not issue virtual assets or provide virtual asset services.
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