Knowledge

The Cayman Islands ("Cayman") has a robust but flexible regulatory framework when it comes to businesses that use or rely on virtual assets. The regulation, registration and licensing, and enforcement of compliance of Virtual Asset Service Providers ("VASPs") is undertaken by the Cayman Islands Monetary Authority ("CIMA"). 

The Cayman framework provides certainty for investors and VASPs on legal treatment and regulation of virtual assets, whilst the introduction of Sandbox licences creates a carefully regulated environment for innovation.

Any business that is considered a VASP should register (or, as applicable, seek a licence) with CIMA. The registration requirements focus on VASPs' compliance with international standards on anti-money laundering ("AML"), countering the financing of terrorism ("CFT") and counter proliferation ("CPF"). 

Certain VASPs will also require a licence, in addition to their registration (see further below).

VASP legislation

The primary legislation is the Virtual Asset (Service Providers) Act (as revised) (the "Act"), and this is supplemented by the Virtual Asset (Service Providers) Regulations (as revised) (the "Regulations"). The Regulations set out definitions, the forms to be used for applications to register and a schedule of fees. 

The Act also contains provisions relating to enforcement, penalties and offences for those in breach of the Act.

VASPs will also need to consider the application of the Securities Investment Business Act (as revised) ("SIBA") to their activities.

What is a virtual asset?

The Act defines "virtual assets" as a digital representation of value that can be electronically traded or transferred and used for payment or investment purposes. That definition includes all transferrable/tradeable digital assets but expressly excludes non-transferable and non-exchangeable assets such as virtual service tokens or "digital representations of fiat currencies". The Act describes a "fiat currency" as one issued by a country or government which is designated by decree or law as legal tender in that country.

What are virtual asset services?

The Act defines "virtual asset services" as the issuance of virtual assets or providing, as a business, on behalf of a third-party entity or inpidual, 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.

Issuing virtual assets is subject to CIMA's approval, and the Act sets out the relevant factors CIMA must consider before giving such approval.

The Act defines a "virtual asset custody service" as the business of safekeeping or the administration of virtual assets (for example in a wallet) or the instruments that enable the holder to exercise control over virtual assets (such as security keys and codes).

What about trading platforms?

A VASP will require a licence from CIMA if they operate a "virtual asset trading platform", which for the purposes of the Act would be if, for reward or benefit, it operates a centralised or decentralised digital platform which facilitates third parties exchanging virtual assets for fiat currencies or other virtual assets where the VASP holds custody of or controls virtual assets on behalf of clients, or purchases virtual assets to sell them to a buyer as part of a process of matching bids or transactions.

Who can be registered or licensed as a VASP?

The Act expressly provides that individuals may not carry on virtual asset services as a business, nor purport to do so. Cayman companies, limited liability companies, foreign registered companies, partnerships, limited partnerships, exempted limited partnerships and limited liability partnerships can register and/or apply for a licence as necessary.

Who needs to be registered or licensed?

Any Cayman incorporated or registered entity which issues virtual assets or which provides virtual asset services on behalf of third parties in or from within Cayman (which expression includes the fact of using a Cayman registered/incorporated entity) as a business or in the course of a business will need to be registered or licensed as a VASP with CIMA. Existing CIMA licensees can apply to CIMA for a waiver on the basis that their virtual asset business does not materially change the business for which they are licenced and that they already have in place sufficient supervision and oversight.

Registration requirements

Schedule 1 of the Regulations has the Form to apply to CIMA with the details which CIMA will require on the entity and the virtual asset service to be offered. Details required for the application include the procedures (and officers) the entity has put in place to meet AML/CFT and CPF standards, its internal safeguards and data protection systems and the qualifications, expertise and relevant experience of its directors and senior officers.

Directors, senior officers and beneficial owners of applicants will be required to satisfy CIMA's standards on fitness and propriety.

Sandbox licences

Under the regulatory framework, CIMA is able to grant a VASP a temporary "Sandbox" licence for a period of up to one year, where the VASP proposes a virtual asset service which represents an innovative use of technology or uses an innovative method of delivery that CIMA considers will require a level of supervision and oversight not offered by registration under the Act (or any other existing Cayman legislation) or by CIMA granting a licence.

How does a Sandbox licence work?

During the licence year CIMA will assess, monitor and supervise the innovative use to ensure that the service complies with its principles, including standards of honesty, integrity, and fair treatment of customers and that it protects customers' data and assets. CIMA will also monitor to ensure the service meets Cayman and international financial regulations, in particular those for AML/CFT and CPF, and also with a view to developing best practices and guidance for the future. A Sandbox licence may be subject to restrictions or allow exemptions depending on the nature of the innovative use. CIMA will retain the power to review, amend or revoke licences (on notice).

How much does it cost?*

All VASPs must register with CIMA. The application fee payable is a flat KY$ 1,000 (~US$1,220), in addition to further fees which are payable depending on the service type and expected revenue:

Annually, registered VASPs will be required to pay an annual fee matching the amount paid at registration. 

Where a registered VASP is required to be licensed in addition to its registration (custody or trading platforms), the application fee payable is a flat KY $5,000 for all licence types. 

VASPs providing custody services will be required to pay a grant fee of KY$ 30,000, with renewal fees ranging from KY$ 30,000 to 200,000 based on revenue. 

VASPs providing trading platform services will be required to pay a grant fee of KY$ 100,000, with renewal fees ranging from KY$ 50,000 to 100,000 based on revenue. 

Local companies that are registered as VASPs can expect to pay lower fees, being KY$ 3,000 for custody services and KY$ 10,000 for trading platform services. 

Sandbox licences align to the general fee structure of the VASP regime but are subject to CIMA's discretion. Fees will be quantified by CIMA on review of the nature, scope, and complexity of the project.

*Figures are taken from the Virtual Asset (Service Providers) (Amendment) Regulations, 2025 and are subject to change (guidance only).

The 2025 Amendment Bill and tokenisation of funds

The Virtual Asset (Service Providers) (Amendment) Bill, 2025 (the "Amendment") was passed by the Cayman Islands Government in June 2025 and proposes to amend the Act. The Amendment is not yet in force, but it is expected to be the subject of a commencement order in early 2026.

The Amendment seeks to clarify the treatment of investment interests and tokenised equity in Cayman registered investment funds by changing the definition of "issuance of virtual assets" or "virtual asset issuance". As Cayman investment funds are considered a more traditional financial instrument, the clarification is helpful to cement the boundary between pure crypto assets and tokenised securities.

The Amendment seeks to clarify the regulation applicable in respect of fund tokenisation for registered Cayman funds registered under (as applicable) the Mutual Funds Act (as revised) or the Private Funds Act (as revised) and how this corresponds with the required regulation under the Act.

A clear regulatory landscape for VASPs and Cayman funds demonstrates the jurisdiction's adaptation to the global market and future-proofing for Cayman digital, funds and financial sectors.

Bedell Cristin

If you would like any further information or advice on Cayman's VASP framework, you would like to apply to CIMA to register as a VASP or for a licence, and/or you need advice on tokenised investment funds, please contact your usual Bedell Cristin contact or one of the contacts listed.