Cayman Islands
Answer ... The Virtual Assets (Service Providers) Act (‘VASP Act’) governs any entity that issues virtual assets or provides certain virtual asset services.
The VASP Act’s implementation is occurring over two phases and began in October 2020. Phase 1 brought into force the anti-money laundering, counter-terrorist financing of terrorism, compliance and supervision provisions of the VASP Act.
Phase 2 has yet to come into force. When implemented, Phase 2 will introduce additional licensing requirements applicable to custody services and trading platforms and will provide for sandbox licences.
The VASP Act defines ‘virtual assets’ as “a digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes but does not include a digital representation of fiat currencies”. In this regard, the VASP Act distinguishes between virtual assets and ‘virtual service tokens’, which are defined as “digital representations of value which are not transferable or exchangeable with a third party at any time and includes digital tokens whose sole function is to provide access to an application or service or to provide a service or function directly to its owner”.
The VASP Act requires all virtual asset service providers (VASPs) to register or obtain a licence (as applicable). A ‘virtual asset service’ is defined as the issuance of virtual assets or the business of providing one of more of the following services or operations for or on behalf of a natural or legal person or legal arrangement:
- 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.
Cayman Islands
Answer ... Under the Proceeds of Crime Act (2020 Revision) and the Anti-Money Laundering Regulations (2020 Revision), and their applicable guidance notes (together, ‘the AML laws’), any person, formed, registered or based in the Cayman Islands conducting “relevant financial business” is subject to various obligations aimed at preventing, identifying and reporting money laundering and terrorist financing. VASPs must comply with the AML laws.
The requirements include (but are not limited to) the following:
- appointing a managerial level employee as an AML compliance officer (who must be approved by the Cayman Islands Monetary Authority (CIMA) under the VASP Act);
- appointing a managerial-level employee as the money-laundering reporting officer and a deputy for the same; and
- implementing comprehensive procedures to ensure that clients are properly identified, risks assessed and requisite records maintained.
Cayman Islands
Answer ... Aside from the requirements of the VASP Act, which provides a level of consumer protection, CIMA has in the past made statements concerning the operation of certain exchanges from the jurisdiction where those exchanges may have been operating without licences or registration.
Cayman Islands
Answer ... No Cayman Islands taxes currently apply to cryptocurrencies.
Cayman Islands
Answer ... No regulatory requirements apply to an individual who is trading cryptocurrencies on his or her own behalf, provided that he or she is not offering any virtual asset services as defined under the VASP Act. An exchange operating as a business may be subject to the VASP Act and therefore will need to register as a ‘registered person’ or obtain a licence under the VASP Act.
Cayman Islands
Answer ... On the basis that the coin being offered falls within the definition of a ‘virtual asset’ as defined in question 3.1, and that the initial coin offering falls within the definition of an ‘issuance of virtual assets’ as set out in question 3.1, the entity conducting the issuance will be required to register as a ‘registered person’ under the VASP Act.
A securities token offering may be regulated by both the VASP Act and the Securities and Investment Business Act (SIBA). This will be the case where the token falls within the definition of a ‘virtual asset’ as set out in question 3.1 and the definition of a ‘security’ as set out in Schedule 1 of SIBA. Currently this would require the issuing entity to become regulated under both acts; however, a waiver process is expected to be introduced whereby regulation under both regimes should not be required.
Once the waiver provisions are brought into force, CIMA may grant a waiver to any person already licensed under another regulatory act (eg, SIBA). Section 16 of the VASP Act expressly provides that CIMA may issue such waiver if it determines that:
- the virtual asset service does not materially change the nature of the activity for which the existing licensee is already licensed; and
- the supervision and oversight in relation to that licensee is sufficient to include the virtual asset service carried on by it.
The aforementioned waiver provision in the VASP Act appears designed specifically to address a securities token offering situation and in that context, were the entity already regulated by SIBA, it could apply for a waiver from the VASP Act (or vice versa).