34 ASIAN LEGAL BUSINESS – JANUARY-FEBRUARY 2024 WWW.LEGALBUSINESSONLINE.COM time, many common mistakes will have already been made, and so time and energy are spent in rectification, rather than in further progressing and developing the business,” Mathews cautions. CAYMAN ISLANDS The Cayman Islands have been regulating virtual assets and their service provers since 2020 under the Virtual Assets (Service Providers) Act in two phases, says Chris Wall, an Ogier counsel in the Cayman Islands. Phase 1 focuses on AML/CFT compliance, supervision and enforcement, and other key areas of risk. During this time, entities engaged in or wishing to engage in virtual asset services must be registered with the Cayman Islands Monetary Authority (CIMA), the responsible authority under the Cayman VASPA. Phase two refers to the licensing approval process that will begin when the relevant provisions relating to licensing of the Cayman VASP Act come into effect. Wall expects that Phase 2 will also provide for the approval process for virtual asset issuances. “Once Phase 2 is in effect, businesses providing custodial services of virtual assets and businesses that operate or intend to operate a virtual asset trading platform will require a licence from, and be regulated by, CIMA. All other persons carrying on or intending to carry on virtual asset services will require registration.” Wall says. “It is expected that due to the nature of such services being undertaken by Cayman VASPs, strict prudential requirements will be imposed to ensure customers and their assets are adequately safeguarded under the Phase 2 regime,” he adds. “In much the same way as BVI, we see the main challenge here is complying with the ‘travel rule’. However, there are now a number of high-quality tech solutions available to participants which can assist in achieving compliance with this requirement,” Wall explains. While Cayman has very high standards for VASPs to ensure adequate protections are put into place to combat money laundering and terrorism/proliferation financing, this has not deterred top global market participants from setting up shop and creating innovative products. Cayman has 19 virtual asset service providers registered with CIMA, as of the date of this piece. Technology companies are also continuously looking to create solutions for specific compliance requirements to assist VASPs in the Cayman Islands. “Given the shift to ensure more credibility to the virtual asset market, the fact that there are high standards required in Cayman, is in itself an attractive proposition for virtual asset service providers to be regulated in the Cayman Islands. Even for those entities who are not required to be regulated under the Cayman VASP Act (or not required to comply with the Cayman AML Regs), we are seeing adoption of at least equivalent standards of AML/CFT compliance on a voluntary basis and putting specific policies and procedures in place as a matter of best practice,” Wall says. “Those that do not want to be regulated by CIMA have either moved their operations to other jurisdictions or otherwise changed their operating model to comply with Cayman laws and regulations pertaining to virtual assets,” Wall adds. Wall advises VASPs doing or looking to commence business in the Cayman Islands to engage advisors in the islands to ensure compliance with its unique requirements and laws. “For example, unlike other jurisdictions such as the BVI, Cayman regulates public issuances of tokens. Accordingly, care must be taken when issuing tokens in or from within the Cayman Islands such that they are deemed private sales, otherwise, any public offering or sale would require regulation under the Cayman VASPA,” Wall advises. “Furthermore, consideration must be given as to whether an entity is participating in virtual asset services, which, given the complexity of the asset class and decentralised nature of some structures, may not always be obvious,” he adds. OFFSHORE “Given the shift to ensure more credibility to the virtual asset market, the fact that there are high standards required in Cayman, is in itself an attractive proposition for virtual asset service providers to be regulated in the Cayman Islands.” — Chris Wall, Ogier Image: TY Lim/Shutterstock.com
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