Cayman Islands Tokenised Fund Legislation 2026

For tokenised funds domiciled in the Cayman Islands that wish to enter into subscription credit facilities or other capital call-backed financings, the new legislation provides several practical advantages:

• The fund borrower can point to a clear statutory basis for the legal characterisation of its tokenised investor interests, simplifying the lender’s legal due diligence and reducing the need for extensive legal opinions on novel points of law.
• The statutory requirement for operator-approved transfers gives the fund and its lender an enforceable gating mechanism over changes to the investor base, directly supporting the integrity of the collateral pool.
• The legislatively mandated record-keeping obligations, backed by annual confirmation to CIMA, provide lenders with a higher standard of assurance over the accuracy of the investor register than is typically available in non-tokenised fund structures.
• The blockchain-integrated register offers the potential for real-time supervisory access, programmable automation of compliance checks and an immutable audit trail (capabilities that can enhance the lender’s monitoring of the collateral).
• Moreover, the possibility of establishing smart contracts to automate enforcement upon the occurrence of specified events (such as an event of default under a facility agreement) is a feature of tokenised structures that has been recognised as a significant potential advantage for secured lenders.²

Tokenised Funds Under Cayman Islands Law

The new legislation amends the Private Funds Act (2025 Revision) and the Mutual Funds Act (2025 Revision) respectively to introduce dedicated definitions and requirements for tokenised funds. A “tokenised private fund” is defined as a private fund that has any of its investment interests represented by “digital investment tokens,” being a digital representation of the whole of an investment interest held by an investor in a private fund. The equivalent concept for open-ended structures, the “tokenised mutual fund,” is a mutual fund that has any of its equity interests represented by “digital equity tokens,” defined as a digital representation of the whole of an equity interest held by an investor in a mutual fund.

This clarity of definition is of fundamental importance for funds seeking debt financing. The essential characteristic of subscription credit facilities is the lender’s ability to take security over the fund’s right to call and receive capital contributions from its investors. The legal characterisation of the investor’s interest (and the medium through which it is evidenced and transferred) is central to any lender’s credit analysis and security package.

By recognising tokenised investment interests at the statutory level, the Cayman Islands has removed the threshold uncertainty that continues to hamper tokenised fund financings in other jurisdictions. Whereas academic commentary¹ has highlighted that “the lack of legal clarity remains among the most cited concerns regarding tokenisation”, the Cayman Islands has addressed this head-on with primary legislation.

Lender Due Diligence for Tokenised Funds in the Cayman Islands

A tokenised private fund applying for registration must obtain and securely maintain all records relating to the issuance, creation, sale, transfer and ownership of an investment interest represented by a digital investment token and must make these records available to the Cayman Islands Monetary Authority (“CIMA”) within such period as may be specified. The operator of the tokenised fund must confirm annually to CIMA that all such records have been properly kept and maintained in compliance with the legislation. The same obligations apply to tokenised mutual funds.

For a lender advancing a subscription facility secured over unfunded capital commitments, the integrity and transparency of the investor register is paramount. In a traditional fund structure, lenders rely on the general partner’s or operator’s maintenance of books and records to verify investor commitments and to confirm that capital calls can be directed to the secured account.

The new Cayman Islands legislation mandates a higher standard of record-keeping for tokenised funds, backed by statutory obligations and regulatory oversight, providing lenders with an enhanced level of comfort that the investor register (now maintained on a blockchain-integrated infrastructure) is accurate, up-to-date and verifiable.

The immutable, append-only nature of distributed ledger technology means that lenders can benefit from a cryptographically verifiable history of token issuance, transfers and redemptions, reducing the risk of disputes over the composition or accuracy of the investor base.

Transfer Restrictions and Lender Security in Tokenised Funds

A critical feature of the new framework from a financing perspective is the statutory requirement that an investment interest represented by a digital investment token (or digital equity token, in the mutual fund context) is only transferable with the approval of the operator of the tokenised fund in accordance with the offering document.

This controlled transferability mechanism is highly advantageous for fund borrowers and their lenders. In a subscription line facility, the lender’s security package is underpinned by the creditworthiness and enforceability of uncalled capital commitments from a known and pre-approved group of investors. Unrestricted transfer of interests could dilute the quality of the collateral pool or introduce investors whose commitments are less creditworthy.

The statutory restriction on transfers without operator approval (which in practice will be governed by the terms of the offering document and any side letters or facility documentation) gives both the fund and the lender a robust, legislatively backed mechanism to ensure that the investor base (and therefore the collateral pool) remains stable and of the agreed quality. This is a significant improvement over the position in many onshore jurisdictions, where transfer restrictions are purely contractual and may be subject to challenge.

Cayman Islands Risk Disclosure Requirements for Tokenised Funds

The new Cayman Islands legislation requires that any offering document of a tokenised fund disclose any risks specific to the digital investment tokens (or digital equity tokens), including considerations regarding cybersecurity, the transferability of the token and any other potential risks identified by CIMA. The offering document must further set out how those identified risks are addressed or mitigated for investors.

For a fund borrower, these disclosure requirements serve a dual purpose. First, they compel the fund to articulate and address the technology and operational risks inherent in its tokenised structure at the outset, which in turn strengthens the fund’s operational resilience and makes it a more attractive borrower.

Second, the mandated disclosure gives lenders a clear, standardised source of information against which to assess the operational and technological risks of the tokenised collateral structure. Rather than requiring bespoke due diligence on novel technological arrangements on a case-by-case basis, lenders can look to the offering document (prepared under a statutory disclosure standard) as a reliable baseline.

CIMA’s Supervisory Role for Tokenised Funds

CIMA is empowered to exercise supervisory powers over tokenised funds to ensure compliance with the legislation and the protection of investor interests, including carrying out inspections of the underlying technology and digital investment token transactions. CIMA may also impose specific restrictions on the characteristics of digital investment tokens and require periodic reporting from tokenised funds.

This proactive regulatory supervision is a distinguishing feature of the Cayman Islands framework. For institutional lenders, the knowledge that a tokenised fund’s blockchain infrastructure and token transactions are subject to supervisory inspection by a well-regarded financial services regulator provides a level of institutional assurance that is not readily available in other offshore or, indeed, many onshore jurisdictions.

Lenders can take comfort that the technology underpinning their collateral (including the smart contracts governing token issuance, transfer and record-keeping) is subject to ongoing regulatory scrutiny.

The Cayman Islands: Jurisdiction of Choice for Tokenised Fund Finance

The Cayman Islands’ new tokenised fund legislation represents a deliberate and sophisticated response to the needs of the modern funds industry. By providing statutory clarity, mandating robust record-keeping, requiring controlled transferability, imposing comprehensive risk disclosure obligations and empowering CIMA with technology-specific supervisory powers, the Cayman Islands has created a legislative environment that is not merely accommodating of tokenised funds, but actively supportive of the financing structures upon which those funds rely. The Cayman Islands’ depth of service providers, including expert professional independent directors from the Maples Group, can also support wider adoption of tokenised funds, dealing with key questions around governance in terms of investor fairness and arbitrage risks for managers. These issues are considered in our recent article: Tokenisation: A Force Multiplier for Investment Funds.

For fund sponsors, operators and their lending counterparties, the message is clear: the Cayman Islands is open for tokenised business and leading the way.

Footnotes

1 “Legal Structures of Tokenised Assets,” European Journal of Risk Regulation (Cambridge University Press, 2025)

2 Taking security over cryptoassets (PLC article, 2019)