The Cayman Islands Creates Regulatory Framework to Attract Virtual Asset Business
On October 31, the Ministry of Financial Services of the Cayman Islands government announced that it has put new legislation for Virtual Asset Service Providers (VASPs) into effect.
The Ministry's new regulatory framework aims to strengthen its ability to attract and regulate companies and individuals that deal with digital assets as a business.
The Cayman Islands is a British overseas country that legally recognizes cryptocurrencies for trading and investment purposes. As the law implementation starts, the ministry seeks to effectively supervise firms and individuals that offer business services dealing with the use of cryptocurrencies on behalf of other entities or individuals.
The ministry announced the bill on 28 October, paving the way for the commencement of the regulatory framework in two phases. With the first phase started on October 31, the ministry focuses on enforcement, supervision, and compliance of countering the financing of terrorism (CFT) and anti-money laundering (AML) measures.
According to the law, virtual asset service providers already operating in the country or those intending to do so would need to notify the Cayman Island Money Authority (CIMA) and register with the agency and comply with the CFT/AML regulations.
The finance ministry said that the second phase would come into effect in June next year, which would focus on licensing requirements and supervision for VASPs. The ministry said that the new framework would strengthen the ability of the government to oversees activities of individuals and businesses offering cryptocurrency services in the country. In this way, the crypto enforcement framework would assist the government in fighting individuals and entities using digital assets for illicit ends.
The phase one of the cryptocurrency enforcement framework comes at a time when the Financial Action Task Force (FATF) and the Caribbean Financial Action Task Force (CFATF) are currently assessing the Cayman Island’s CFT/AML compliance program and its efforts to counter proliferation financing (CPF). The FATF is an intergovernmental organization that sets international standards against terrorist financing and money laundering. Countries should have national CPF/CFT/AML policies in compliance with the FATF standards. On the other hand, the CFATF is an organization of territories and states of the Caribbean Basin that have agreed to enforce key counter-measures against issues associated with money laundering.
The VASPs framework of Cayman Islands integrates the FATF’s standards for CPF/CFT/AML that the FATF revised and adopted in 2019. In the first phase, the CFT/AML standards provide virtual asset service providers with the opportunity to demonstrate their compliance with global standards for CPF/CFT/AML.
With the proliferation of cryptocurrencies, nations across the globe have been rushing to develop regulatory frameworks. Although there has yet to be international regulations concerning crypto assets, the Financial Action Task Force (FATF) has set recommendations on how to deal with non-fiat currencies.
Several jurisdictions all around the world have taken different approaches to crypto regulation. The industry is still evolving, but governments have been quite slow to regulate the landscape. The Cayman Islands is one of the major economies that are friendly towards blockchain and cryptocurrency-related businesses. The country is well-known for its lenient and flexible regulatory policies for new businesses.
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