Amid the Cayman Islands’ pursuit of becoming a global financial and technological hub, the introduction of virtual asset service provider (VASP) legislation in 2020 has positioned it as an ideal domicile for digital asset businesses.
Gautam Ganeshan, partner, digital assets, and Gideon Smit, director, digital assets at KPMG explore the compelling reasons behind choosing the Cayman Islands for digital asset operations.
They delve into the VASP Act’s requirements, and highlight the region’s growing prominence in the digital asset fund space.
KPMG in the Cayman Islands, as a leading professional services firm, offers a comprehensive range of services to support businesses in this evolving landscape, from audit and assurance to tax and advisory services.
There are numerous factors for digital asset businesses to consider the Cayman Islands as a place of domicile. As part of the Cayman Islands’ continued efforts to be a leading global financial and technological hub, the Cayman Islands government, in 2020, introduced virtual asset service provider legislation.
This enabled high quality digital asset businesses to establish operations, operate in a regulated manner, and take advantage of all that the jurisdiction has to offer.
Why Cayman Islands
There are several reasons why the Cayman Islands are an ideal place to set up a digital asset business or re-domicile from another jurisdiction. The Cayman Islands are widely recognised as a leading global financial services centre with a strong regulatory and legal environment.
The Cayman Islands Government and the regulator, the Cayman Islands Monetary Authority (CIMA), have fostered an environment which is conducive to innovation and growth while maintaining appropriate safeguards in place to protect customers and stakeholders.
This is evident by observing the government and industry bodies’ early efforts to work together to create a welcoming regime for digital asset businesses, including the VASP Act, with the initial implementation of Phase One commencing in October 2020.
The Virtual Asset (Service Providers) Act
The VASP Act requires all VASPs to be licensed or registered with CIMA. VASPs are entities that issue virtual assets and provides other services, which among others, may include exchanging virtual assets for fiat currencies or other virtual assets, transferring virtual assets, or providing custodial services of virtual assets.
As of October 2023, there are over 20 entities which have been approved as a VASP by CIMA. The entities include OTC desks, brokers, and most recently, a non-custodial virtual assets exchange.
While the Cayman Islands authorities realise the transformative nature of virtual assets, the real-world compliance challenges of virtual assets have not been ignored. VASPs, registered in the Cayman Islands, must appoint an anti-money laundering compliance officer (AMLCO) (which for a VASP, needs to be approved by CIMA), a money-laundering reporting officer (MLRO), and a deputy money-laundering reporting officer (DMLRO).
Additionally, entities are to implement risk-based monitoring procedures requiring, amongst other requirements, that its counterparties are appropriately identified, suitable record-keeping is maintained, and employees are fully trained. The AMLCO, MLRO and DMLRO have the responsibility of overseeing the VASP’s adherence to the AML regulations.
Digital asset funds
The Cayman Islands is a global financial centre with, as of 30 June 2023, close to 30,000 private and hedge funds registered in the Cayman Islands. As with traditional funds, digital asset fund managers are also noting the Cayman Islands as the fund domicile of choice, with several leading digital asset fund managers maintaining registered funds in the Cayman Islands.
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