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Virtual Assets (Service Provider) Act (2022 Revision) - Overview

With the coming into force of the Virtual Assets (Service Providers) Act (hereafter ‘VASPA’) on the 31st of January 2022 the Cayman Islands Government signalled its intention to lay the foundations for a new area for our financial industry to operate in.

This statute puts in place the frame work for the registration and ongoing regulation of companies who wish to offer and provide financial services to the ever-growing cryptocurrency markets and to those seeking to create and trade both fungible and non-fungible virtual assets.

A virtual asset service provider is a company, general partnership, limited partnership, or limited liability company or partnership that provides virtual asset service as a business or in the course of business in or from within the Cayman Islands. (Section 3 (1) VASPA)

Any business that intends to offer such services in the Cayman Islands must first register, or in the case of a business offering a custodian service or intending to operate a trading platform they must hold a Virtual Asset Service Licence. (Section 4)

The services covered includes the issuance of virtual assets, or the business of exchanging virtual assets and fiat currencies, of one form of convertible virtual asset for another, the transfer of virtual assets, or the offering of a custody service for virtual assets. This is in effect what a trading platform offers, and indeed the act defines and intends to regulate virtual asset trading platforms.

Virtual asset services are also to include participation in, and the provision of, financial services related to a virtual asset issuance or the sale of a virtual asset. This is an expansive definition and its parameters have yet to be established by the Courts. It is anticipated that for many businesses operating in the financial services industry their work may relate to the issuance or sale of virtual assets but the Cayman Islands Monetary Authority may require registration or licence under a different regulatory regime. (Section 6(2)(b)(ii) VASPA). What is clear is that the Government is signalling that if there is any doubt an application should be made, and CIMA will decide whether the application was warranted.

The criteria to register indicates that CIMA will take a holistic approach to its assessment of the business that seeks to become a virtual asset service provider – with 14 headings ranging from a focus on the expertise of the applicant up to an assessment of any impact on financial services or risks to the financial systems of the islands.

If you require advice or assistance in relation to seeking a licence, or to the ongoing regulation by CIMA of such a business Oliver Grimwood has a wide range of experience in financial regulation and AML requirements. He and other members of our specialist team can be contacted to assist on or +1(345)949 0123.