Virtual Asset Service Provider Law (VASP) Regime to Commence in Phases

Game Changer! Introduction of the regulation of Virtual Assets in the Cayman Islands 

On 25 May 2020 the Cayman Islands government passed The Virtual Asset (Service Providers) Law, 2020 (“VASP Law”), which provides a legislative framework for the conduct of virtual assets business in and from the Cayman Islands through requiring either (i) the registration or (ii) the licensing, of persons providing virtual asset services. The Cayman Islands already has the benefits of a being friendly jurisdiction for token issuers, cryptocurrency funds, and developers of other forms of digital assets. The Cayman Islands Government intends for the VASP Law to place the Cayman Islands with a cutting edge, robust framework which is in alignment with global regulatory standards, protect consumers, and meet the requirements of the Financial Action Task Force recommendations in respect of virtual assets. The new legal framework also makes the Cayman Islands an attractive destination for virtual asset service providers (“VASPs”), as it provides legal and regulatory certainty and supports innovation. For more information on the VASP Law, please see Part 1 of our previous Legal Update.

VASP Regime to commence in Phases

The Cayman Islands Government recently announced that the VASPs regulatory framework is being commenced in two phases. According to the Government, Phase one, which began 31 October 2020, will focus on anti-money laundering (AML) and countering the financing of terrorism (CFT) compliance, supervision and enforcement. Persons engaged in or wishing to engage in virtual asset services must be registered with the Cayman Islands Monetary Authority (“CIMA”) under the VASP Law. Persons engaged in or wishing to engage in virtual asset services currently holding a licence granted by CIMA under another regulatory law must notify CIMA under the VASP Law.

Provisions of the VASP Law which relate to enforcement, penalties or offences will be commenced on 31 January 2021. Persons who have not registered or notified CIMA by CIMA’s application deadline, but who are engaging in virtual asset services on and after 31 January 2021 will be subject to penalties and other enforcement measures. Registration/notification is via the VASP Application Form on CIMA’s REEFS online platform. CIMA will publish a date by which applications have to be received in order to be considered prior to 31 January 2021.

Phase two, which is expected to begin in June 2021, will bring into force the remaining provisions of the VASP Law, including the licensing requirement for virtual asset custodians and trading platform operators, the sandbox licensing regime and other elements of the VASP Law.
The Virtual Asset (Service Providers) (Amendment) Bill, 2020, which will introduce provisions to better facilitate the phased commencement approach, was published on 29 October 2020 and will be presented at the next sitting of the Legislative Assembly.

For specific advice on the application of the VASP Law to your Cayman company or limited partnership, please contact any of:

E: gary.smith@loebsmith.com
E: elizabeth.kenny@loebsmith.com
E: santiago.carvajal@loebsmith.com