Cayman Islands proposes legal framework for digital currencies

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The Cayman Islands government has proposed a raft of regulatory measures for the digital currency industry. The measures are meant to align the growing industry with FATF requirements, enabling service providers in the country to compete at the global level.

Known as the ‘Virtual Asset Service Provider Bill’, it’s one of five bills the government proposed as it seeks to reform its financial services sector. It sets out the registration process for digital currency businesses, a regulatory sandbox, the powers and responsibilities of the regulator and more.

The Bill brings the digital currency industry under the purview of the Cayman Islands Monetary Authority. It requires any company wishing to provide virtual asset services to register with the authority and be required to renew it every year before January 15.

The Authority shall consider factor such as whether the company has enough people with the required skills, adequate cybersecurity measures, sufficient capital and robust accounting systems. A virtual asset service provider (VASP) must also have a registered office in the Islands before being licensed to operate.

In what is the most significant legislation, the Bill establishes a regulatory sandbox for VASPs. The sandbox license shall be granted for a period of one year, but the authority can choose to extend it. To qualify, a company must prove that its service improves the financial services in the Islands and complies with global standards. Companies in the sandbox shall be exempted from requirements applying to other VASPs, allowing them to develop their services with much more freedom.

Beyond the licensing, the Bill also gives the Authority oversight powers over the industry. It may revoke the license, take to court any firm that fails to comply with set guidelines, order a VASP to substitute any senior officer, appoint an external authority to supervise a firm at its own cost and any other such measure it deems necessary to protect consumers.

The Finance Minister Tara Rivers said that these measures will ensure the Cayman Islands fortifies its position as a global digital currency hub. She stated, “The legislative enhancements being put forward are designed to increase the jurisdiction’s attractiveness as a domicile for virtual assets business while ensuring Cayman meets international obligations.”