1 Legal and enforcement framework
1.1 In broad terms, which legislative and regulatory provisions govern the fintech space in your jurisdiction?
Fintech businesses in the Cayman Islands generally operate within and are governed by the existing financial services legislation and the corresponding regulatory regime of the Cayman Islands Monetary Authority (CIMA), and benefit from the inherent flexibility and adaptability of the Cayman Islands approach to business. The extent to which the regime is applicable to a given fintech business will depend on various factors – including primarily whether the business will be operating within a regulated sector and whether the business has elected to have a physical presence in the Cayman Islands.
The sectors which CIMA regulates are banking services, insurance, trust, securities, mutual funds, cooperative and building societies, corporate services, and money services business. CIMA is accordingly the regulatory body in the Cayman Islands most likely to regulate business that involves fintech.
Various government and industry initiatives are focused on ensuring that the existing legislative and regulatory framework appropriately encourages and supports fintech innovation in the financial services sector, including CIMA's Digital Assets Working Group; and the fintech Legislative Development Sub-Committee under the auspices of the Financial Services Ministry and Digital Cayman, a dedicated industry body.
1.2 Do any special regimes apply to specific areas of the fintech space?
With few exceptions (eg, see question 3.6 with respect to virtual asset service providers), fintech participants in the Cayman Islands are generally governed by the existing financial services legislation in place in the Cayman Islands, which allows for significant flexibility in the scope and scale of their operations.
With that flexibility in mind, the government of the Cayman Islands has plans to implement an adaptable, technology-neutral regulatory sandbox to further nurture the growth of the fintech industry within the Cayman Islands. This idea is inspired by the approach taken by the United Kingdom's Financial Conduct Authority when it introduced its own regulatory sandbox in 2015. CIMA may, for example, provide the appropriate regulatory support by relaxing specific legal and regulatory requirements prescribed by CIMA, to which the sandbox entity would otherwise be subject, for the duration of the sandbox. The approach is expected to enhance the Cayman Islands' reputation as a flexible and business-friendly jurisdiction from which to do business.
While not generally required, those fintech businesses that do seek to establish a physical presence in the Cayman Islands can take advantage of the special economic zone (SEZ) regime, which is currently operated by Cayman Enterprise City. The SEZ allows certain types of technology companies to establish and operate seamlessly in a commercially conducive environment at a reduced cost and subject to less regulatory red tape. In September 2018 Cayman Enterprise City welcomed its 250th company to set up a physical presence in the Cayman Islands and become part of a growing community of knowledge-based companies, active predominantly in the fintech, commodities, maritime, aviation, digital marketing, media and health science industries. In contrast, a fintech participant seeking to establish a physical presence in the Cayman Islands outside the SEZ regime will be subject to:
- the business licensing and local ownership requirements of the Trade and Business Licensing Law and the Local Companies (Control) Law, unless another exemption applies; and
- the requirement to advertise job vacancies and hold valid work permits for most expatriate employees.
1.3 Which bodies are responsible for enforcing the applicable laws and regulations? What powers do they have?
As noted above, CIMA is the regulatory body in the Cayman Islands for financial services and thus is most likely to cover business that involves fintech. CIMA has expansive enforcement and prudential supervisory powers conferred under the Monetary Authority Law and the various regulatory laws (including the power to impose an administrative fine on a person that breaches a provision prescribed in the Monetary Authority Law, a regulatory law or the money laundering regulations).
CIMA works closely with the Cayman Islands Tax Information Authority (TIA), which was established by the Tax Information Authority Law and is the Cayman Islands competent authority for the purposes of international assistance in tax matters. TIA will have regulatory authority where the fintech business operates as a financial institution (eg, a custodial institution, a depository institution, an investment entity or a specified insurance company). The relevant tax reporting legislation sets out various penalties for non-compliance.
As noted at question 1.2, a fintech participant seeking to establish a physical presence in the Cayman Islands outside the SEZ regime will be subject to the regulatory oversight of the Trade and Business Licensing Board which oversees both the Trade and Business Licensing Law and the Local Companies (Control) Law and the Cayman Islands Government Department of Immigration, which administers work permits. Both of these regulatory bodies have the ability to issue fines and commence regulatory action for non-compliance.
1.4 What is the regulators' general approach to fintech?
Among CIMA's obligations in carrying out its functions is the requirement to recognise the desirability of facilitating innovation in financial services business. This obligation is borne out in CIMA's overall nurturing approach to the fintech industry and, for example, CIMA's establishment of the Digital Assets Working Group.
1.5 Are there any trade associations for the fintech sector?
Cayman Finance, a group that represents the Cayman Islands' financial services sector, is a key advocate and is engaging with the financial services industry, regulators, the government of the Cayman Islands and the media to promote the development of the fintech industry within the Cayman Islands. As noted above, there is also Digital Cayman, a dedicated industry body.
2 Fintech market
2.1 Which sub-sectors of the fintech industry have become most embedded in your jurisdiction?
The Cayman Islands has seen wide adoption of the fintech industry across various crypto funds, investment funds investing in blockchain projects, protocols and technologies, issuers of cryptocurrencies, cryptographic coins or tokens (collectively, ‘digital assets') undertaking security token offerings (STOs), initial exchange offerings (IEOs) or initial coin offerings (ICOs), joint venture vehicles developing blockchain projects, protocols or technologies, companies involved in broader fintech research and development and various specialist fintech service providers catering to these new market participants (eg, with certain know your client and other anti-money laundering-focused compliance applications). A common Cayman Islands structure could include several of these features – such as a funding entity in the Cayman Islands (eg, an STO, IEO or ICO issuer entity), one or more operating companies in various jurisdictions and a Cayman Islands holding company over the structure which is owned by the relevant founders or is decentralised (see further question 2.3).
In the purely domestic economy, mobile payment systems are also in use and, for example, in 2017 various participating banks in the Cayman Islands implemented the Cayman Islands Automated Clearing House, which is an electronic payment and cheque imaging system that is shared by various banks in the Cayman Islands.
2.2 What products and services are offered?
The Cayman Islands has a number of banks, fund administrators, general administrators, trustees, auditors, legal firms and specialist fintech service providers to help support these businesses.
In terms of products and services offered by existing fintech participants, they include such matters as:
- crypto funds and investment funds investing in blockchain projects offering investors opportunities to invest in various fintech-related projects; and
- entities undertaking an STO, IEO or ICO offering investment opportunities to persons taking part in those projects and, depending on the nature of the underlying business, access to information, software, services or other utilities related to their project.
2.3 How are fintech players generally structured?
Depending on the nature of the business in question they are generally structured using one or more of the following:
- an exempted company which is a limited liability company with a board of directors and shareholders with the ability to pay dividends and is generally the default form of entity through which to run the fintech business. An exempted company is directed at doing business outside of the Cayman Islands and is restricted from taking part in most domestic business. Exempted companies are required to have a minimum of one shareholder and one director (although there is no requirement to have a director resident in the Cayman Islands);
- a special economic zone (SEZ) company, which is a type of exempted company that is authorised to carry on business in an SEZ;
- a foundation company, which is often used where the promoters are looking to build a decentralised and ownerless entity that will be governed by a community of beneficiaries. It is a body corporate with limited liability and separate legal personality from its members, directors and officers. Foundation companies have restrictions on payments of dividends and distributions which can give participants comfort that contributions to the foundation company will be used for the stated purpose objectives of the foundation company; or
- a Cayman Islands limited liability company, which is often used where the parties are creating a joint venture to develop a blockchain project, protocol or technology, given the ease of combining shareholder obligations (which might otherwise reside in a separate shareholder or joint venture agreement) within the limited liability company agreement itself, while also having the benefit of the corporate form and separate legal personality.
As noted at question 2.1, it is not uncommon to see several of these elements incorporated into a single structure for tax planning, regulatory or risk mitigation reasons which is then headquartered in the Cayman Islands.
2.4 How are they generally financed?
are financed. For example, depending on the nature of the fintech's operations, it may be:
- self-funded by the founders (and their friends and family);
- financed through various forms of debt (eg, bank debt or promissory notes issued by the fintech company);
- financed by venture capital backers;
- financed through an STO, IEO or ICO, all of which have become popular means of fundraising for new projects (particularly those that utilise blockchain technology); or
- some combination of the above.
2.5 How are they positioned within the broader financial services landscape?
From a legal and regulatory standpoint, neither the Cayman Islands Monetary Authority (CIMA) nor Cayman Islands law differentiates between fintech participants and those within the broader financial services landscape. A fintech participant will fall within CIMA's regulatory scope if it conducts a licensed or registrable activity, although this is generally unlikely if proper steps are taken at the outset to structure the business.
With the rise (and fall) and rise again of the crypto markets generally, we have seen increasing interest from investors seeking to invest in crypto funds and various traditional service providers (eg, fund administrators and auditors) competing for their business. We are seeing also a broader integration of fintech across more conventional industries (eg, insurance) and also the growth of a specialist industry (eg, advisers, blockchain developers and KYC/AML providers) catering to the specific requirements of the fintech industry.
2.6 Do start-ups generally outsource back office functions and is there a developed market for them to access? What are the legal implications of outsourcing?
As a result of the existing infrastructure in the Cayman Islands that has developed from the jurisdiction's longstanding position as the leading offshore jurisdiction, a number of qualified service providers across a range of industries can assist with back office functions.
Notwithstanding the above, a start-up operating through a Cayman Islands structure is generally not required to have a physical presence in the Cayman Islands and can outsource back office functions to service providers within the Cayman Islands or in any other jurisdiction. This flexibility allows such start-ups to source services from a broad range of qualified service providers and ensures healthy competition for business among such service providers.
Those start-ups that opt to have a physical presence in the Cayman Islands and that operate within the SEZ can draw upon support from Cayman Tech City, part of the Cayman Enterprise City SEZ, which offers various support services, or can otherwise make referrals to other service providers in the Cayman Islands for such support.
In certain limited circumstances, a start-up may be conducting a relevant activity for the purposes of the International Tax Co-operation Economic Substance Law, in which case additional care should be taken with respect to the nature and scope of certain limited types of outsourcing.
3.1 How are the following key technologies in the fintech space regulated and what specific legal issues are associated with each? (a) Internet (e-commerce); (b) Mobile (m-commerce); (c) Big data (mining); (d) Cloud computing; (e) Artificial intelligence; and (f) Distributed ledger technology (Blockchain, cryptocurrencies)
(a) Internet (e-commerce)
The Electronic Transactions Law specifically recognises the ability to execute, deliver and enforce contracts in electronic form and was established to resolve any questions with respect to conducting transactions electronically. It was seen at the time of its last revision in 2003 as an important piece in the support and development of e-commerce. It has yet to be specifically tested how this law interacts with more modern technologies (eg, smart contracts), although we would expect the courts to give the legislation a broad reading that gives meaning to smart contracts.
Notwithstanding the above, as the Cayman Islands legal system is based on centuries of case law and well-established principles of contract law, there has been little question as to whether contracts could arise electronically between the relevant parties, with the provisions of the Electronic Transactions Law merely setting out certain provisions as to form and evidence rather than of material substance with respect to these matters.
No further specific legislation governs e-commerce in the Cayman Islands, although existing legislation (as relevant) would apply to this type of business. As noted at question 5.1, the Data Protection Law applies to personal data processed by ‘data controllers' and ‘data processors', and is likely to have application for persons operating an e-commerce business. In addition, an e-commerce company seeking to carry on business within the local Cayman Islands market will be required to have certain levels of local ownership and participation, unless a relevant exemption applies. To the extent the business is focused on customers outside the Cayman Islands, it may be appropriate to locate the business within the SEZ, which precludes the requirement for local ownership and participation. The Cayman Islands (see further below) has a robust IP regime that will help protect intellectual property created or otherwise owned or operated in the course of this business.
(b) Mobile (m-commerce)
See question 3.1(a).
(c) Big data (mining)
See question 3.1(a).
(d) Cloud computing
See question 3.1(a).
(e) Artificial intelligence
See question 3.1(a).
(f) Distributed ledger technology (Blockchain, cryptocurrencies)
Distributed ledger technology is subject to the existing Cayman Islands legislative and regulatory framework. There is no statutory definition of ‘cryptocurrencies' under Cayman Islands law; nor is there any specific legislation which regulates the use of distributed ledger technology.
Each project will therefore need to be considered on a case-by-case basis, although the following legislation is most likely to be of relevance for this type of business:
- The Proceeds of Crime Law, Anti-Money Laundering Regulations and existing guidance notes are likely to apply where the entity in question is an investment fund or undertaking another form of relevant financial business (eg, creating and issuing certain types of digital assets or undertaking a virtual asset service);
- The Securities Investment Business Law may apply to certain securities-related investment, advisory or broker/dealer activity, although many forms of digital assets will be out of scope given that they would generally not be caught within the definition of a security;
- The Foreign Account Tax Compliance Act and the Common Reporting Standard and related reporting and information-sharing regimes ill apply to financial institutions (eg, a custodial institution, a depository institution, an investment entity or a specified insurance company);
- The Money Services Law may apply to certain activities with respect to certain limited types of digital assets;
- The Mutual Funds Law applies to most types of open-ended investment funds;
- The beneficial ownership regime requires certain relevant entities in the Cayman Islands to maintain registers of their beneficial owners; and
- The International Tax Co-operation Economic Substance Law applies to a limited number of ‘relevant activities' (eg, certain types of financing and leasing businesses and IP businesses), and requires such relevant entities to have a certain degree of economic substance in the Cayman Islands.
We note the recent addition of ‘virtual asset service' to the scope of ‘relevant financial business' for the purposes of the Anti-money Laundering Regulations, following the recent revisions to the Financial Action Task Force's definitions. A ‘virtual asset service' means the business of conducting one or more of the following activities or operations for or on behalf of a person:
- exchanging between virtual assets and fiat currencies;
- exchanging between one or more other forms of convertible virtual assets;
- transferring virtual assets;
- safekeeping or administering virtual assets or instruments enabling control over virtual assets; and
- participating in and providing financial services related to an issuer's offer or sale of a virtual asset.
While a ‘virtual asset' is defined as a digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes, and is likely to capture most forms of digital assets, the reality is that most digital asset issuers and investors will not be impacted by the change, given that they are not involved in such activities or operations for or on behalf of a person. In contrast, however, certain service providers to the crypto industry (eg, most wallet providers and crypto exchanges) will most likely fall within the definition (see further question 6.1).
4.1 How are the following key activities in the fintech space regulated and what specific legal issues are associated with each? (a) Crowdfunding, peer-to-peer lending; (b) Online lending and other forms of alternative finance; (c) Payment services (including marketplaces that route payments from customers to suppliers (eg, Uber and AirBnb); (d) Forex; (e) Trading; (f) Investment and asset management; (g) Risk management; (h) Roboadvice; and (i) Insurtech.
(a) Crowdfunding, peer-to-peer lending
Neither crowdfunding nor peer-to-peer lending is specifically regulated under existing legislation, although the existing legislative regime relating to capital raising and lending activities in the Cayman Islands could apply depending on the nature of the specific business. For example:
- capital raising is generally not regulated in the Cayman Islands, although it is subject to general disclosure requirements as a matter of Cayman Islands common law, which is based largely on longstanding principles of English and Commonwealth law; and
- lending activities could, for example, be subject to the International Tax Co-operation Economic Substance Law where the business in question amounts to a financing business.
In addition, lending is caught within the definition of ‘relevant financial business' and could therefore impose the Cayman anti-money laundering regime (see question 6.1) on such activities, to the extent that they are undertaken in the course of business.
(b) Online lending and other forms of alternative finance
Lending activities (see question 4.1) of any kind may be subject to the existing legislative regime in the Cayman Islands.
Lending and other forms of alternative finance must also take note of the general prohibition against undertaking banking business within the Cayman Islands without a licence. ‘Banking business' is defined in the Banks and Trust Companies Law as the business of receiving (other than from a bank or trust company) and holding on current, savings, deposit or other similar account money that is repayable by cheque or order and may be invested by way of advances to customers or otherwise.
Accordingly, depending on the manner in which the online lending or other forms of alternative finance are undertaken, they may fall within the scope of the Banks and Trust Companies Law and may also be subject to the Cayman anti-money laundering regime.
(c) Payment services (including marketplaces that route payments from customers to suppliers (eg, Uber and Airbnb)
The Money Services Law regulates money services business, which is defined as the business of providing (as a principal business) any or all of the following services:
- money transmission;
- cheque cashing;
- currency exchange;
- the issuance, sale or redemption of money orders or traveller's cheques; and
- such other services as the governor in cabinet may specify by notice published in the Gazette.
Depending on the manner in which the payment services are undertaken, they may fall within the scope of the Money Services Law; although, as noted at question 4.4, most forms of digital assets will fall outside the definition of ‘currency' for the purposes of this law and so this law may have limited application for fintech operators dealing in most forms of digital assets.
There are no exchange control restrictions or regulations in the Cayman Islands. Funds can be freely transferred in and out of the Cayman Islands in unlimited amounts. The Cayman Islands dollar is tied to the US dollar, and both Cayman dollars and US dollars are readily accepted and used within the local Cayman Islands economy.
The Money Services Law regulates money services business, which includes, as noted above, currency exchange. The Securities Investment Business Law may also regulate certain types of forex broker-dealers and market makers. Such activities would necessarily impose the Cayman anti-money laundering regime on the relevant business. If, however, the forex in question is being done by an entity on its own account, then the Money Services Law and the Securities Investment Business Law will not apply to such activities.
Notwithstanding the above, it is likely that many forms of digital assets will not be a currency for the purposes of the Money Services Law or a security for the purposes of the Securities Investment Business Law. Accordingly, while a careful analysis of those laws is required, it may be that in most circumstances the Money Services Law and the Securities Investment Business Law have little or no application to many fintech businesses that issue or otherwise deal in digital assets.
A Cayman Islands entity can trade in its own securities or the securities of other entities that it trades for its own account and there are specific safe harbour provisions for such activities under the Securities Investment Business Law. In contrast, people dealing in securities, arranging deals in securities, managing securities or advising on securities for other persons as well as broker-dealers and market makers, are regulated pursuant to the Securities Investment Business Law detailed at question 4.1(f), unless one of the various other exemptions apply.
As noted in question 4.1(d), many forms of digital assets will not be a security for the purposes of the Securities Investment Business Law and so the provisions of this law (while requiring a careful analysis on a case-by-case basis) may have little or no application to many forms of fintech businesses that issue or otherwise deal in digital assets.
The Cayman Islands Stock Exchange (CSX) has been granted the sole and exclusive right to operate one or more securities market(s) in the Cayman Islands. A ‘securities market' is broadly defined under the Stock Exchange Company Law, as is the definition of a ‘security', which has a broader definition than under the Securities Investment Business Law (although neither expressly includes reference to any form of digital assets). In light of the above, there is some question as to whether a crypto exchange could operate from the Cayman Islands or whether this would impinge on the CSX's monopoly.
(f) Investment and Asset Management
Investment funds: The regulation of an investment fund in the Cayman Islands will depend upon the nature of the fund – in particular, whether the fund is open ended (eg, a traditional hedge fund) or closed ended (eg, a private equity or venture capital fund):
- If the fund is open ended, it will need to register with the Cayman Islands Monetary Authority (CIMA), unless an exemption applies. Such open-ended funds generally pursue strategies that are more liquid in nature and allow investors to redeem their investment at their own election.
- If the fund is structured as a closed-ended fund, then registration with CIMA is not required. The closed-ended structure is more common for funds looking to make long-term investments or investments where the assets are illiquid or otherwise difficult to value.
Regardless of the structure of the fund, it will be subject to the Cayman anti-money laundering regime and ongoing Foreign Account Tax Compliance Act and Common Reporting Standard reporting (see further at question 3.1f). While advances are being made by various fintech participants and service providers (both in the Cayman Islands and elsewhere), a number of challenges remain from a technological, commercial, legal and compliance standpoint with respect to investment funds seeking to tokenise their equity. We expect further developments on this front from a number of stakeholders.
Asset management: The Securities Investment Business Law regulates securities and investment business in the Cayman Islands. ‘Securities investment business' refers to dealing in securities, arranging deals in securities, managing securities and advising on securities. The definition of a ‘security' is broad (and includes securities, instruments creating or acknowledging indebtedness, instruments giving entitlements to securities, certificates representing certain securities, options, futures and contracts for difference); but it does not specifically include any form of digital assets, although any given digital asset could fall within the existing securities definition depending on its particular features and characteristics.
- asset management undertaken by an operator of a relevant entity (eg, a board of directors of a company or the general partner of a partnership) is not subject to the Securities Investment Business Law; and
- Schedule 3 of the Securities Investment Business Law includes broad categories of ‘excluded activities' that are also outside the scope of the Securities Investment Business Law.
An investment manager that manages securities for an investment fund is likely to be undertaking fund management business for the purposes of the International Tax Co-operation Economic Substance Law and to be subject to the economic substance requirements under that law.
(g) Risk management
With few exceptions, no specific risk management provisions apply to businesses operating in the Cayman Islands.
The key exceptions are that Cayman Islands banks, insurance companies and certain types of regulated asset managers are subject to a certain degree of risk management regulation by CIMA. CIMA has produced, for example, certain prudential standards, statements of guidance and rules that are applicable to those entities, although they do not apply to the broader fintech market in the Cayman Islands.
The Cayman Islands legislation does not expressly contemplate roboadvisers. To the extent that a Cayman Islands entity is undertaking such a business, it is likely to be caught within the broader investment and asset management regime in the Cayman Islands (see question 4.1(f)).
We are not aware of any insurtech business in the Cayman Islands.
5 Data security and cybersecurity
5.1 What is the applicable data protection regime in your jurisdiction and what specific implications does this have for fintech companies?
The Data Protection Law is effective from 30 September 2019 and provides a framework of rights and duties designed to give individuals greater control over their personal data (ie, any information relating to an identified or identifiable natural person). It was implemented with the specific aim of achieving compliance with EU requirements for personal data to flow freely between EU member states and the Cayman Islands without the need for additional mechanisms to be implemented.
The Data Protection Law applies to personal data processed by ‘data controllers' and ‘data processors'. Financial sector entities established in the Cayman Islands will generally be data controllers and/or data processors, as will data controllers and/or data processors outside the Cayman Islands that process personal data within the Cayman Islands.
In general terms, the Data Protection Law:
- requires relevant persons to comply with eight data protection principles when processing personal data and to ensure that those principles are complied with in relation to personal data processed on their behalf pursuant to a written contract;
- includes provisions with respect to data security, data breaches and the rights of individual data subjects, including providing a privacy notice;
- includes provisions giving individuals the right to access personal data held about them and to request that any inaccurate data be corrected or deleted; and
- requires businesses to cease processing personal data once the purposes for which that data has been collected have been exhausted.
Although prescribed data retention periods are not set out in the Data Protection Law, analysis will need to be undertaken on a case -by-case basis to determine how long data should be retained.
5.2 What is the applicable cybersecurity regime in your jurisdiction and what specific implications does this have for fintech companies?
The Information and Communications Technology Authority (ICT) is an independent statutory authority in the Cayman Islands which is responsible for the regulation and licensing of telecommunications, broadcasting and all forms of radio, including ship, aircraft, mobile and amateur radio. The ICT conducts the administration and management of the ‘.ky' domain, and also has a number of responsibilities under the Electronic Transactions Law.
The Computer Misuse Law includes various provisions dealing with such matters as:
- unauthorised access to computer material;
- unauthorised access with intent to commit or to facilitate the commission of further offences;
- unauthorised modification of computer material;
- unauthorised use or interception of computer service; and
- interference with computers that causes them to cease to function.
CIMA has additionally published guidance notes with respect to cybersecurity and the need for licenced entities to take steps to implement prudent cybersecurity measures. The guidance notes also require certain cybersecurity breaches to be disclosed to CIMA.
6 Financial crime
6.1 What provisions govern money laundering and other forms of financial crime in your jurisdiction and what specific implications do these have for fintech companies?
The Cayman Islands has established a sophisticated anti-money laundering regime, which is set out in:
- the Proceeds of Crime Law;
- the Anti-money Laundering Regulations;
- the Proliferation Finance (Prohibition) Law;
- the Terrorism Law;
- the Guidance Notes on the Prevention and Detection of Money Laundering and Terrorist Financing in the Cayman Islands; and
- the Financial Account Tax Compliance Act and Common Reporting Standard and related reporting and information-sharing regimes.
The Proceeds of Crime Law is generally applicable to all Cayman Islands entities and requires them to take certain steps in relation to the prevention of money laundering and terrorist financing, including the imposition of various penalties for non-compliance. The Proceeds of Crime Law requires businesses carrying on ‘relevant financial business' to comply with the broader Cayman anti-money laundering regime. Relevant financial business is broadly defined to cover a range of activities – those most relevant to the fintech sector include:
- money or value transfer services;
- issuing and managing means of payment (eg, credit and debit cards, cheques, traveller's cheques, money orders and bankers' drafts, electronic money);
- individual and collective portfolio management advice;
- the conduct of securities investment business;
- otherwise investing, administering or managing funds or money on behalf of other persons; and
- providing virtual asset services.
An entity subject to the Cayman anti-money laundering regime is required to implement comprehensive risk-based know your customer and anti-money laundering policies, procedures and controls appropriate to the nature and scale of the business.
Certain types of fintech operators that that fall within the scope of the Cayman anti-money laundering regime (eg, a wallet provider, a crypto exchange or another form of virtual asset service provider) may experience tension between their regulatory requirement to have detailed customer know your customer on hand and the pseudo-anonymous nature of their potential client base.
7.1 Does the fintech sector present any specific challenges or concerns from a competition perspective? Are there any pro-competition measures that are targeted specifically at fintech companies?
The Cayman Islands does not have competition legislation to promote or seek to maintain market competition or to prohibit the misuse of market power.
In terms of competition within the broader market, fintech companies (particularly those involved in investment and asset management) have begun to compete for capital with more traditional investment and asset management participants. While the overall market share for such new participants remains small, they are attracting attention from family offices and institutional investors that see greater possible returns by placing their capital with such new players in the market. Broader market penetration (which is being encouraged by more traditional service providers – such as auditors and administrators supporting this business) will, we expect, continue this trend.
The establishment of the special economic zone (SEZ) has given fintech participants a competitive advantage as against their non-SEZ counterparts – in particular with respect to the ease and efficiency of setting up business in the Cayman Islands. The regulatory sandbox will also provide fintech participants with the opportunity to explore business opportunities not as accessible to more traditional businesses.
8.1 How is innovation in the fintech space protected in your jurisdiction?
The Cayman Islands has a robust IP regime designed to protect most forms of innovation in the Cayman Islands. The Cayman Islands Intellectual Property Office, a division of the Cayman Islands government's General Registry Department, is the point of contact with respect to such matters in the Cayman Islands.
Copyright: The Cayman Islands recently updated its copyright laws to bring them into line with the UK Copyright, Designs and Patents Act. For example, the regime in the Cayman Islands now expressly includes protection for computer programs and databases within the definition of ‘literary works'.
Trademarks: The Trade Marks Law allows fintech companies to obtain trademark protection in the Cayman Islands.
Patents: Patents and industrial designs registered in the United Kingdom or at the European level can also be protected in the Cayman Islands by extension with the Cayman Islands Register of Patents and Trademarks. The Cayman Islands regime also prohibits bad faith infringement claims by ‘patent trolls'.
Trade secrets: Trade secrets are capable of protection in the Cayman Islands through a combination of contractual arrangements, common law and rules of equity. For example, confidential information can be protected through:
- contractual agreements requiring relevant counterparties to treat relevant information as confidential and not otherwise disclose the information other than in accordance with the provisions of the agreement or as otherwise compelled by applicable law;
- common law obligations which can be enforced to keep information confidential based on the nature of the relationship between the discloser and disclosee (eg, a fiduciary relationship as would apply between an employee and his or her employer); and
- equitable remedies (eg, injunctions or orders for specific performance) that would prevent the use or disclosure of trade secrets.
8.2 How is innovation in the fintech space incentivised in your jurisdiction?
Innovation in the fintech space is incentivised in the Cayman Islands through:
- the lack of direct taxation in the Cayman Islands;
- the friendly regulatory environment, which actively encourages this type of business;
- the lack of a requirement for fintech entrants to have a physical presence in the Cayman Islands – although for those that do pursue this approach, the special economic zone provides a streamlined and cost-effective solution;
- the Cayman Islands' status as one of the foremost offshore financial centres and being well regarded by investors in all jurisdictions;
- the Cayman Islands' status as home to approximately 70% of the world's offshore investment funds, which provide fintech business with ample sources of potential capital;
- the fact that 47 of the top 50 banks in the world have some type of presence in the Cayman Islands; and
- the jurisdiction's familiarity and popularity among global investors, sound legal framework, stable government, modern infrastructure and state-of-the-art communication systems.
9 Talent acquisition
9.1 What is the applicable employment regime in your jurisdiction and what specific implications does this have for fintech companies?
The Cayman Islands government recognises the small pool of local candidates for specialist jobs and is accommodating in granting work permits (where necessary) to encourage the growth of the industry.
While there is no requirement for most types of fintech entrants to have a physical presence in the Cayman Islands, for those that do pursue this approach, the option of operating from within the special economic zone (SEZ) can help to streamline the process, given that it exempts the business from the local ownership requirements of the Local Companies (Control) Law and also allows for SEZ operators to source expedited work permits.
The SEZ certificates can be granted for a period of five years and are renewable. Such certificates do not require the employer to advertise the position locally and are generally granted within five business days. See further question 1.2 in this respect.
9.2 How can fintech companies attract specialist talent from overseas where necessary?
The Cayman Islands lifestyle – which provides an ideal work/life balance while also providing challenging work opportunities – is attractive to many potential candidates. No direct taxation, a large expat community, English as the primary language, geographic proximity to the United States, direct air service to 25 cities in 21 metro areas, a well-established common law legal system and longstanding political stability also add to the broad appeal of the jurisdiction.
10 Trends and predictions
10.1 How would you describe the current fintech landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
The Cayman Islands has taken prudent and meaningful steps to cement its position as the leading offshore jurisdiction for fintech business. The longstanding success of the jurisdiction over a number of decades – and of the early fintech entrants that have benefited from its pro-business regime – has encouraged stable and sustainable growth that regularly brings new entrants to the jurisdiction. The government's commitment to the industry – through the creation of various working groups, the support of various fintech conferences in the Cayman Islands and the upcoming regulatory sandbox – further encourages these trends.
The sophisticated regulatory environment of the Cayman Islands will ensure that fintech will continue to prosper in the jurisdiction while a number of stakeholders – both in government and in the public sector – have a shared vision and interest in the success of the industry.
11 Tips and traps
11.1 What are your top tips for fintech players seeking to enter your jurisdiction and what potential sticking points would you highlight?
Do your research: Choosing the correct jurisdiction from which to launch a fintech business is critical. This decision will be dictated largely by the current jurisdiction of the founders, the jurisdiction of the proposed customers, the jurisdiction of the proposed employees and the jurisdiction of the proposed investors into the business. Given the global nature of most fintech operations, the Cayman Islands is the ideal neutral jurisdiction, which is desirable for all relevant stakeholders.
Plan ahead: Implementing the structure in the Cayman Islands early in the process can help to resolve certain taxation, capital gains and regulatory issues that could otherwise arise from a delayed commitment to an offshore model. We have seen from experience that:
- moving an existing fintech business from another jurisdiction to the Cayman Islands is possible, although it may result in a number of complications and further costs (eg, in relation to tax and regulatory matters), and does not provide the same ‘clean slate' that would otherwise have been the case had it launched initially from the Cayman Islands; and
- those that rush to market in order to raise capital invariably increase their overall legal and compliance costs, increase the overall complexity of their business and attract additional regulatory and tax scrutiny from various regulatory agencies outside the Cayman Islands.
Consider your footprint: Take proper tax, regulatory and legal advice at the outset to confirm whether there is a need for a physical presence in the Cayman Islands. While this is the ideal option for some (and easily done though the special economic zone), many operators may be reluctant to relocate, given their roots in their existing community, or may find they can benefit from the Cayman Islands' business-friendly regime without the additional time and effort (even if nominal) of setting up a physical presence in the Cayman Islands.
Build a team: Work with an experienced team of experts (across onshore legal, onshore tax and offshore legal) before investing any securities or digital assets or enter into any pre-sale agreements with respect to such investments.
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