The Cayman Islands' ability to regulate and attract persons and entities that deal with virtual assets as a business is now strengthened, with the commencement of legislation for virtual asset service providers (VASPs).
In Cayman, a virtual asset is a digital representation of value that can be electronically traded and used for investment purposes. A common type of virtual asset is a cryptocurrency. The VASPs legislation allows for the supervision of persons and entities who are involved in providing business services that use or rely on virtual assets on behalf of another person or entity.
The following were gazetted on Wednesday, 28 October to enact certain provisions of the Virtual Asset (Service Providers) Law, 2020:
- Virtual Asset (Service Providers) Law, 2020 (Commencement) Order, 2020;
- Virtual Asset (Service Providers) Regulations, 2020;
- Monetary Authority (Amendment) (No.2) Law, 2020 (Commencement) Order, 2020;
- Securities Investment Business (Amendment) Law, 2020 (Commencement) Order, 2020; and
- Mutual Funds (Amendment) (No.2) Law, 2020 (Commencement) Order, 2020
The regulatory framework for VASPs will commence in two phases. Phase one, which begins 31 October, will focus on anti-money laundering (AML) and countering the financing of terrorism (CFT) compliance, supervision and enforcement. Current VASPs and new entrants will need to notify and register with the Cayman Islands Monetary Authority (CIMA). Phase two, which will include licensing requirements and prudential supervision, is expected to come into force in June 2021.
The Virtual Asset (Service Providers) (Amendment) Bill, 2020, which will introduce provisions to better facilitate the phased commencement approach, was published on Thursday, 29 October and will be presented at the next sitting of the Legislative Assembly.
Cayman's AML/CFT regime, along with our efforts to counter proliferation financing (CPF), is currently being assessed by the Caribbean Financial Action Task Force (CFATF) and the Financial Action Task Force (FATF). The FATF sets the global AML/CFT/CPF standards. The CFATF is the regional body that monitors compliance with the FATF standard. Cayman's VASPs framework incorporates the FATF's recommendations for AML/CFT/CPF, which the FATF adopted in 2019.
The AML/CFT focus in phase one provides VASPs with the opportunity to demonstrate their compliance with global standards for AML/CFT/CPF. The launch of phase one will be communicated to the CFATF for its consideration prior to the outcome of Cayman's CFATF re-rating, which will be reported on at their November plenary.
The FATF review of our regime is to be completed shortly thereafter, with Government anticipating the FATF to announce its findings by the end of Q1 2021.
To clarify, the CFATF's re-rating evaluates the jurisdiction's progress in addressing the FATF's technical compliance concerns identified in Cayman's Mutual Evaluation Report. The FATF review speaks to Cayman's effectiveness in implementing the FATF recommendations.