The Cayman Islands has solidified its reputation as a global leader in the establishment of alternative investment funds and digital assets. This article explores the types of funds available, their structures, regulatory requirements, and the benefits they offer. Additionally, it highlights the innovative legislation fostering the growth of the digital assets marketplace and driving new investment opportunities.
The Cayman Islands: A Hub for Crypto Funds and Digital Assets
For over 30 years, the Cayman Islands has been the premier offshore jurisdiction for establishing mutual funds and private funds. Its renowned reputation stems from its innovative legislation, absence of taxation and exchange controls, and the presence of sophisticated professional service providers. Recent legislative advancements further reinforce the Cayman Islands’ position as a global leader in the digital asset space.
Fund managers and virtual asset service providers (VASPs) often choose the Cayman Islands to establish funds investing in cryptocurrencies, Web3, and blockchain projects, thanks to its robust yet flexible regulatory framework.
Virtual Asset (Service Providers) Act (VASPA)
Introduced in 2020, VASPA establishes a robust framework for regulating VASPs and ensures compliance with international standards.
Scope: VASPA applies to entities involved in activities such as:
(i) exchange between virtual assets and fiat currencies;
(ii) exchange between one or more other forms of convertible virtual assets;
(iii) transfer of virtual assets;
(iv) virtual asset custody service;
or (v) participation in, and provision of, financial services related to a virtual asset issuance or the sale of a virtual asset.
Registration: All VASPs must register with CIMA Licensing requirements, though anticipated, are not yet active. Virtual asset service providers must not conduct any virtual asset business without such registration or licensing in place subject to penalty.
Special Economic Zones Act (SEZA)
SEZA enables digital asset businesses to establish operations within the Cayman Islands' Special Economic Zone (SEZ), offering tax incentives, streamlined regulatory processes, and a collaborative environment for innovation.
Digital Asset Structures
Exempted Companies
Exempted companies are the most common vehicles for VASPs, offering limited liability, corporate personality, and privacy protections. These structures suit token issuers, NFT creators, and trading platforms.
Foundation Companies
Foundation companies, blending the features of trusts and corporations, are ideal for DAOs and developer entities. They support decentralization, have no shareholder requirements, and can serve commercial or philanthropic purposes.
Regulatory Obligations
Anti-Money Laundering (AML)
Funds and VASPs must comply with the Cayman Islands’ AML regime, appointing officers for AML compliance and conducting regular audits. VASPs are also subject to the AML Travel Rules.
Data Privacy
Under the Data Protection Act, entities must adhere to strict principles when handling personal data.
Beneficial Ownership
The Beneficial Ownership Transparency Act, 2023 (BOTA), requires in-scope entities to maintain a register of beneficial owners. This new regime includes VASPs and funds previously excluded.
Conclusion
The Cayman Islands continues to lead in alternative investment funds and digital assets, offering sophisticated legal and regulatory frameworks, innovative structures, and a thriving business environment. From mutual funds to DAOs and DeFi projects, the Cayman Islands’ legislation, including VASPA and SEZA, provides unparalleled opportunities for digital innovation and alternative investments.