From 1 April 2025, Phase 2 of the Virtual Asset Service Providers ("VASP") Regulatory Framework (Licensing Phase) comes into effect in the Cayman Islands pursuant to the introduction of the Virtual Asset (Service Providers) Amendment Act, 2024 (the "VASP Amendment Act") which amends the Virtual Asset (Service Providers) Act (Revised) (the "VASP Act"). Additionally, other amendments to the VASP Act and its regulations will also come into effect at this time which will affect all existing entities regulated under the VASP Act.
Introduction of VASP Phase 2
The VASP Amendment Act establishes the regulatory framework for phase two of the Cayman Islands' VASP regime, introducing a licensing system for virtual asset trading platforms and custodians.
Under this amendment, any entity already registered and providing virtual asset custody services or operating a virtual asset trading platform at the time the Act takes effect must apply for a licence within 90 days of its commencement. Any entities wishing to provide virtual asset custody services or operate a virtual asset trading platform in the future must apply for a licence under the VASP Act prior to commencing operations.
New requirements under the VASP Act for all VASPs
Directors
All VASPs are required to appoint at least three directors, including one independent director. The independent director must be a director who does not have a vested interest in the VASP.
Financial Reporting
If determined by CIMA and based on the VASPs nature, size, complexity, registered VASPs will be required to provide audited financial statements.
Business Plan Changes
Any changes to a VASPs approved business plan, including provision of new virtual asset services, must be approved by CIMA prior to undertaking any new activities.
Rules and Statement of Guidance
New Rules and Statement of Guidance for VASPs will be effective 1 April 2025 and are intended to ensure compliance, effective risk management and client protection in the provision of virtual asset services by virtual asset custodians and virtual asset trading platforms.
Increased Regulatory Oversight
CIMA will have additional statutory powers to:
- Set conditions for licence and registration applicants based on the nature, risk, and scale of their business.
- Order entities to cease activities that violate the VASP Act.
- Impose penalties on virtual asset service providers that knowingly make, issue, or allow misleading representations to the public.
- Revoke licences, waivers, or cancel registrations as necessary.
Safeguarding Custodians and Trading Platforms
VASPs who provide custodial services must now ensure client assets are safeguarded and segregated through the implementation of custodial policies. Trading Platforms must also safeguard their platforms to ensure that regular assessments are undertaken to monitor and detect market abuse by identifying and mitigating risk, including a mandatory requirement to advise clients and customers of the available option of seeking third-party custodial services.
Additionally, VASP Custodian and Trading Platform, as well as any other VASP entity, that hold fiat currency on behalf of clients must do so in a bank regulated by CIMA or another regulator in a non-high-risk jurisdiction, ensuring segregation of funds.
Originally published 13 March 2025
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