Virtual Asset Service Providers – CIMA Regulatory Policy

Jul 2024

The Cayman Islands Monetary Authority (CIMA) has issued a regulatory policy (the “Policy”) outlining the criteria for approving Registration or Licensing of Cayman Islands Virtual Asset Service Providers (VASPs).

The Policy applies to individuals or entities seeking to carry on virtual asset services in (or from within) the Cayman Islands and those seeking to provide Cayman Islands virtual asset custody services or to operate a Cayman Islands virtual asset trading platform in or from the Cayman Islands¹.

1. General Considerations

Prior to submitting applications, CIMA strongly encourages prospective applicants to contact the authority to schedule a pre-application meeting in order to discuss the prospective application and gain insights into CIMA’s requirements and expectations.

CIMA also invites applicants to undertake the following prior to submitting a registration or licence application:

1. Obtain a formal written independent legal opinion to support their application, ensuring that the prospective business appropriately falls within the VASP regime and that the submission is in compliance with the Virtual Asset (Service Provider) Act (the “VASP Act”) and other relevant regulatory laws;
2. Understand compliance obligations and familiarise themselves with all relevant acts, regulations, and regulatory measures to ensure they can meet Cayman Islands virtual asset compliance obligations once registered or licensed;

All applicants involved in virtual asset transfers must have systems established to comply with applicable money laundering, terrorist financing, proliferation financing and sanction requirements, including policies for secure and effective asset transfers and maintaining originator / beneficiary information.  If activities do not involve asset transfers, the applicant’s business plan must reflect this and explain why certain regulatory requirements are not applicable.

2. Procedure for Registration and Licensing VASPs

The Policy clarifies that applicants seeking to conduct virtual asset services must submit completed forms with all required information and pay the prescribed assessment fees.  While already registered persons wishing to engage in licensable activities must apply for a license as per the Cayman Islands VASP Act and Regulations. If satisfied, CIMA processes complete applications and issues registration or licenses accordingly. Incomplete applications may be rejected or returned.

Applications are presented to CIMA’s Management Committee for consideration, with approved applicants receiving notification letters of approval requirements within 2-3 business days. If an application is approved with specific requirements or conditions, applicants must meet these conditions within the given timeframe. Failure to do so will result in the approval becoming null and void.

CIMA may reject an application where it does not meet the requirements pursuant to the VASP Act, applicable regulations or the criteria set out in the Policy.  It may further reject an application where it believes that approving registration or issuing a licence would not be in the best interests of the public, proposed shareholders, customers, or creditors, or if it is not in line with CIMA’s risk appetite.

3. Assessment Criteria for Registering and Licensing

CIMA has established a comprehensive set of criteria for evaluating registration or licensing applications for VASPs. Key points on the criteria include:

1. Fit and Proper Criteria: Applicants must demonstrate that shareholders and senior officers are fit, proper, and pose no undue risk.
2. Ownership and Control: A detailed ownership structure chart must be provided showing all ultimate beneficial owners (UBOs) (i.e. any entities or persons with 10% or more ownership or control).
3. Corporate Governance: Applicants must submit corporate governance policies and procedures and list all proposed directors. CIMA encourages applicants to have at least three directors, including one independent director.
4. Business Plan: Applicants are expected to submit a detailed business plan clearly setting out (among other things) the proposed business, products and services including how they will be offered. Business plans must demonstrate that the Applicant has adequate resources including appropriate manpower and expertise. CIMA will also expect Applicants to explain why the Cayman Islands has been chosen as a location for the business operations.
5. Risk Management, Internal Operational Systems, and Controls: Applicants must provide comprehensive risk management policies and procedures designed to identify and mitigate against all relevant internal and external risks.

CIMA is committed to ensuring that VASPs operating in the Cayman Islands are well-regulated, transparent, and have robust systems in place to manage risks and comply with regulatory standards.

The Policy represents another step forward for the Cayman Islands in embracing virtual asset services and demonstrates CIMA’s recognition of the risks involved and ongoing need for robust regulatory oversight of this bourgeoning industry, in line with the Cayman Islands virtual asset law.

 

For further information on the digital asset advisory services that the Regulatory & Risk Advisory team offer, please download our VASP Service Offering factsheet below.

¹ This Policy is effective except for the licensing component which will become effective upon commencement of the licensing regime for virtual asset trading platform operators and virtual asset custodians.