The Cayman Islands Monetary Authority (CIMA) – the regulatory authority for virtual assets – has recently published new legislation and guidance enhancing the virtual assets regulatory regime in the Cayman Islands. In this snapshot, we summarise the key changes.
Implementation of the ‘Phase 2’ licensing regime
The Virtual Asset (Service Providers) Act, 2020 (Commencement) Order, 2025 enacts the long-awaited Phase 2 licensing regime, commencing on 1 April 2025.
Phase 2 implements a licensing regime for virtual asset trading platforms and virtual asset custodians, as set out in the Virtual Asset (Service Providers) Act (Revised) (VASPA). All entities carrying on the provision of virtual asset custody services or the operation of a virtual asset trading platform in or from within the Cayman Islands will require a licence from CIMA.
Any current CIMA registered person (e.g. a current VASP) who at 1 April 2025 will be providing virtual asset custody services and/or operating a virtual asset trading platform must apply to CIMA for a virtual assets service licence within 90 days of 1 April 2025. Existing registrations will be cancelled if a licence is granted.
Importantly, the licensing regime is not a new requirement. The Phase 2 licensing provisions were included in previous iterations of the VASPA but without a commencement date while the first phase of the virtual assets regime was implemented in 2020 and refined.
Other changes under the Virtual Asset (Service Providers) (Amendment) Act, 2024 (the “VASP (Amendment) Act”)
The VASP Amendment Act has introduced a number of clarifications and new or enhanced requirements to bolster CIMA’s oversight and consumer protection in the sector. Such changes also come into effect on 1 April 2025. The key amendments include:
- definitions – clearer definitions, including new definitions for ‘convertible virtual asset’, ‘originator’ and ‘owner’, and the removal of redundant terms;
- audited accounts – in addition to the existing requirement to prepare annual accounts, CIMA has discretion to require a VASP to provide audited financial statements if CIMA determines it necessary due to the nature, size or complexity of the business or where it has reasonable grounds for believing that the VASP has provided false or misleading accounts;
- directors – a minimum requirement for virtual asset service providers (VASPs) to appoint at least three ‘fit and proper’ directors, one of whom must be an independent director with no vested interest in the company;
- accuracy of disclosures – VASPs must ensure the accuracy of all disclosures, advertising materials and communications relating to its virtual asset services with clients and members of the public. Knowingly making, issuing or permitting any misleading representation to the public about the VASP’s activities in any way will amount to an offence;
- business plan changes – a VASP must seek the prior written approval of CIMA to (i) make a change to its approved business plan that modifies the provision of the virtual asset service for which its licence or registration was granted or (ii) provide additional virtual asset services not included in its approved application or business plan;
- notifications to CIMA – CIMA has expanded the list of circumstances which must be notified to it to include commencement of any litigation proceedings against the VASP, and introduced a 30-day deadline in respect of all notifications to be made to CIMA under section 9(4)(c) of VASPA;
- custody disclosures – CIMA can require custodians to make more extensive disclosures to clients, including concerning the transparency of operations, internal safeguards, methods of access to virtual assets held, insurance, its regulatory obligations, grievance procedures, sharing of clients’ information with third parties and its internal custodial governance arrangements;
- custody and safeguarding – CIMA can also impose additional requirements on custodians relating to its safe custody of client assets, including relating to adequate safeguards against theft and loss, segregation of proprietary and client assets, and detailed record-keeping;
- fiat holdings – CIMA can require custodians to hold fiat currency in a bank regulated by CIMA or another regulator in a non high-risk jurisdiction, to be kept segregated from any fiat currency owned by the custodian; and
- regulator powers – CIMA has expanded oversight and enforcement powers against VASPs, including enhanced information and inspection powers as well as powers to revoke licences or waivers, impose conditions, and cancel registrations.
The new Virtual Asset (Service Providers) (Amendment) Regulations, 2025 (the “Regulations”)
The Regulations revise the Virtual Asset (Service Providers) Regulations, 2020 and come into force immediately following the VASP Amendment Act (i.e. on 1 April 2025). The Regulations primarily deal with the form of application documentation for registration or licence under the VASPA and the applicable fees.
The Regulations introduce a new Schedule 1A listing information to be provided to CIMA together with a completed application form. All applicants must complete the general information in Part A. Applicants who intend to provide virtual asset custodian services must complete Part B and applicants who intend to operate a virtual asset trading platform must complete Part C – these are new sections requiring more extensive documentation than under the 2020 Regulations. As previously, two senior officers of the applicant must sign the declaration confirming that (i) they have read and understand the VASPA and the Regulations as well as the Anti-Money Laundering Regulations 2025 and (ii) all information contained in the application is accurate in all material aspects to the best of their knowledge and belief. Applicants should ensure they are well-briefed ahead of making such declaration.
Schedule 2 sets out the revised fees for registration and licensing under the VASPA. This includes new fees in respect of virtual asset services licences under the Phase 2 licensing regime as follows:
- a non-refundable application fee payable at the time of submitting an application;
- a registration fee (varying depending on the type and scale of virtual services to be provided by registered persons, including the issuance of virtual assets);
- a licensing fee for the provision of virtual asset custody services only;
- a licensing fee for the operation of a virtual asset trading platform; and
- annual renewal fees (varying depending on the revenue projected or generated in the prior year from the provision of the relevant virtual asset services).
Reduced fees calculated at 10% of the standard fees apply if the applicant, registered person or licensee is a local company as defined under the Local Companies (Control) Act (2025 Revision) offering services in the Cayman Islands.
Expansion of CIMA fees
The Monetary Authority (Amendment and Validation) Act, 2024 came into force on 1 January 2025. The Act extends certain CIMA administrative fees to include all licensees and registered persons (i.e. including all registered and licensed VASPs).
Schedule 2 to the Act sets out the fees applicable to relevant activities, which include applications for a change of business plan, a certified copy of a licence, a change of company name and various other circumstances.
Our virtual assets practice
Our Band 1-ranked FinTech team in the Cayman Islands regularly advises businesses on the regulatory scope of the virtual assets regime and potential exemptions, steering clients through the CIMA application process and their ongoing regulatory obligations. We work with first-time founders through to some of the world’s largest cryptocurrency exchanges, together with our global team of technology and digital assets experts in all major offshore centres. Our work spans initial structuring, company set-up, establishing by-laws and governance structures, regulatory applications, token launches and other fundraising and investments, services agreements, software development and IP licensing arrangements, through to partnerships, acquisitions and exits (including IPOs). We also work with crypto-focused investment funds and other investors on their digital assets investments.
For further information, please contact:
Peter Colegate, Partner, Appleby
pcolegate@applebyglobal.com
