Nexo sues Cayman Islands regulator over VASP license denial

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Digital asset lender Nexo has filed a lawsuit against the Cayman Islands central bank after its application to obtain a license in the country was rejected.

In a lawsuit filed a week ago, Nexo called on the court to overturn the decision by the Cayman Islands Monetary Authority (CIMA), arguing that it has fulfilled the requirements needed to offer digital asset lending services in the island nation.

Nexo is one of a few digital asset lenders still standing as its peers, including BlockFi and Celsius Network, collapsed last year. It didn’t escape unscathed, however, and it has been on the receiving end of several regulatory and legal actions worldwide, primarily in the United States.

These actions cost the lender a license in the Cayman Islands.

Nexo applied for a virtual asset service provider (VASP) license in January 2021. In the following months, CIMA requested additional information to assess the application, and the lender reportedly complied.

However, in October, CIMA accused Nexo of failing to disclose “certain legal and regulatory matters as noted in the news media.” Two months later, the central bank rejected the application.

“Ignore our legal troubles”

Nexo believes the regulator’s decision was unjust, claiming in its lawsuit that CIMA “breached its constitutional and statutory duty to provide comprehensible, satisfactory and sufficiently detailed reasons for its Refusal Decision.”

The lender believes the regulator shouldn’t put too much weight on all the legal baggage. While it acknowledged that it faces several lawsuits, the lender argued that it has yet to be convicted of any misconduct.

“[Nexo] had diligently cooperated with all U.S. states and federal regulatory inquiries and has been proactive in maintaining dialogue with the respective regulators […] There have been some regulatory ambiguities with respect to the laws and regulations applicable to digital assets in the U.S. such that the fact of the regulatory enforcement itself does not connote any improper behaviour,” the lawsuit stated.

The Cayman Islands has grown to become a pivotal hub for digital asset companies. Bankruptcy documents in the FTX case showed that the island was the largest market for the exchange, accounting for 22% of the clients.

Nexo believes that the lawsuit is a natural step in such a dispute, with a spokesperson for the lender telling one outlet that it’s “a natural reflection of Nexo’s ongoing license acquisition mission around the world and something quite normal that occasionally happens throughout the process of getting authorized.”

While Nexo may be brushing its regulatory issues aside, it has been forced to exit some markets after regulators cracked down on it after years of unsupervised business. In December, the lender announced the “regrettable but necessary decision” to exit the U.S. market. The company had exited individual states initially, including Vermont and New York. However, regulatory actions continued to pile up, and it had to leave the country.

Until this month, almost all regulatory actions against Nexo have focused on securities violations for its interest-bearing accounts. However, this changed a week ago after Bulgarian authorities launched a probe into the company for money laundering and tax evasion.

The Bulgarian Prosecutor’s Office announced it’s also investigating claims of computer fraud and banking without a license.

As it often does, Nexo brushed aside the accusations, claiming that it was being targeted unfairly.

Unfortunately, with the recent regulatory crackdown on crypto, some regulators have recently adopted the kick first, ask questions later approach. In corrupt countries, it is bordering with racketeering, but that too shall pass. 6/

— Nexo (@Nexo) January 12, 2023

In a statement to one news outlet, the company further distanced itself from the claims, turning its attention on the Bulgarian authorities, which it described as “the most corrupt country in the EU.”

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