Virtual-Asset-Service-Providers-Act (the "Act")
Current legislation in effect, regulating the provision of virtual asset services in the Cayman Islands. The Act was passed in May 2020 and partially commenced in October of that same year. The Act imposes a requirement for persons engaged in virtual asset services to register with the Cayman Islands Monetary Authority (“CIMA”) and comply with relevant requirements in the Act. The Ministry for Financial Services and Commerce (the “Ministry”) is now in process of commencing additional provisions of the Act relating to the licensing of virtual asset trading platforms and custodians and proposes revisions to the Act to facilitate this process. The ministry has also identified and proposes a number of changes to the Act which are necessary for the supervision of virtual asset services in the Cayman Islands. This landing page will outline and provide some context for the principal changes to the Act, as well as provide some guidelines for participating in the GitHub consultation (the "Platform").
Participating In the Consultation
Welcome to the Ministry of Financial Services and Commerce GitHub consultation platform for proposed amendments to the Virtual Asset Service Providers Act. This platform is being used in parallel with our standard consultation process and aims to seek constructive feedback from members of industry who are active in the virtual asset services sector via an innovative platform. The platform also allows for collaboration and discussion around the suggested changes and the legislation as a whole. Participants may discuss suggested changes in the discussion area, submit issues, and even propose direct changes to the legislation. Any feedback, comment, suggestion or other input provided through this platform will be made in a public manner unless they are submitted in a private manner (via private messages or by cloning into a private repository). Changes submitted in this platform will be considered suggestions and do not guarantee that changes will be made to the legislation. The Ministry for Financial Services and Commerce reserves the right to consider, delete, revise, or deny any input submitted by any user of the Platform. Feedback should be provided either in the discussion area or by creating a new issue. We encourage the community to discuss any proposed changes submitted by the Ministry or any other users of the Platform.
Proposed changes to the Legislation can be found Here
Comparative changes can be seen by clicking on a file and clicking on "history"
Participants may refer to PDF versions of the consultation note and draft legislation Here
Discussions may take place in the Discussions forum Here
And to report an issue, or create a ticket for discussion, click Here
In order to be considered, any suggestion and feedback;
i. may not weaken, amend, revise or otherwise affect existing Anti-Money Laundering or Countering the Financiing of Terrorism, beneficial ownership or tax compliance requirements currently in force;
ii. may not go against or be meant to circumvent any other regulatory requirement in the jurisdiction;
iii. must abide by existing regulatory intent which is to supervise virtual asset services taking place in or from within the Cayman Islands; and
iv. should promote the lawful use of new technologies and solutions and have as their main purpose the benefit of the public and the users of virtual asset services.
Timeframe
The Ministry will keep this Platform opened until April 3rd, 2024 and reserves the right to close the repository at any time and without warning.
Licensing Regime
The principal purpose of the proposed changes is to prepare the Act for the commencement of the licensing regime for virtual asset trading platform operators and virtual asset custodians. These specific activities were identified in the early stages of the policy development process as key services which would benefit from the application of standards and direct oversight by CIMA. The licensing regime seeks to impose requirements over and above the current requirements in the Act, namely to ensure these services are provided in a safe and regulated manner in of from within the Islands. The requirements for these activities can be found in Sections 10 and 11 of the Act.
Fees
The Act currently requires CIMA to assess a registration fee payable by any new applicants on receipt of an application. The Regulations which complement the Act indicate a fee range for different types of service providers. Feedback received by the Ministry indicated that this type of fee structure was difficult to apply for new applicants given the fee payable on registration could not be known prior to an application’s approval. The proposed changes seek to simplify the fee structure by removing the fee-assessment requirement, thus giving greater clarity on the fees payable by any new applicant.
New licensing fees are also proposed in the amendment to the Virtual Asset (Service Providers) Regulations.
“Operator” Definition
The Act contains a definition outlining who is and who is not considered the operator of a virtual asset trading platform. This definition is being revised to give greater clarity, especially in the case of innovative trading platforms which may or many not have a clearly identifiable group managing the platform, such as a Decentralized Autonomous Organization.
“Convertible Virtual Asset” Definition
This term is used in the Act and the accompanying regulations, but was not defined in the Act. The Bill proposes a definition for this term.
Requirement for Directors
The bill proposes to require a minimum of two directors for a virtual asset service provider. A provision is also added to the Bill which states that approval for a new director or senior officer lapses or be revoked by CIMA under specific circumstances (Section 9(9A) as proposed). These changes bring the Act in line with existing regulatory laws.
Financial Action Task Force Recommendations
The Cayman Islands has received a positive rating for its application of global Anti-Money-Laundering and Countering the Financing of Terrorism standards by the Caribbean Financial Action Task Force. The amendment bill also strengthens the application of these standards by various changes to the legislation which strengthen the regulator’s ability to enforce requirements. The revision of the “Operator” definition should also help expand and clarify the scope of who operating a VASP, and thus who is in scope of the legislation.
Other Clarifying Changes
A number of changes were made to clarify provisions of the Act and remove provisions which are no longer needed (such as Sections 22 and 23 of the Act) as they can be dealt with in regulation or Rules and Guidance from CIMA. The term “existing licensee” was revised to “supervised person” in order to provide greater clarity. Additionally, provisions relating to the audit of a licensee’s accounts have been revised for greater clarity and to bring them in line with other regulatory laws.