Cayman Islands Crypto Regulations 2025

The Cayman Islands have remained reputed as among the best classes in providing economic services with their very business-friendly environment. As such, this has drawn a number of interests for enterprise operators working within the cryptographic digital assets and blockchain space. For firms offering virtual asset services, obtaining a Virtual Asset Service Provider license is a key step forward in ensuring regulatory compliance and credibility. This article gives a glimpse into key areas of interest which one needs to note while obtaining a VASP permit in the Cayman Islands.

This recent surge in the popularity of digital currencies has called upon governments and regulatory bodies around the world to balance the scales between allowing innovation and securing their financial systems. As different jurisdictions have tried to find their way to regulate crypto-related activities, the Cayman Islands have definitely been one of the more interesting cases.

Government Stance and Definition

The Cayman Islands is a significant financial centre internationally, creative in the application of the rule of law, and friendly to business. Stability within its social and political sectors, in concert with the related legal ties with the United Kingdom, tax neutrality, and appropriate regulation within its financial services sector, makes this an appealing jurisdiction for increasingly sophisticated investor bases and institutional investor communities globally.

These attributes have created a position for the Cayman Islands as the jurisdiction of choice for the establishment of structures related to fintech. Be it fund vehicles that invest in digital assets, cryptocurrency exchanges, initial coin or token offerings, or the issuance of protocols or networks offering decentralized finance, each may rely on the reputation of the jurisdiction.

Cayman Islands

Capital	Population	Currency	GDP
George Town	68,136	The Cayman Islands Dollar	86,568.77 KYD

Recognizing the need to foster fintech and digital assets business, one speaks with the Government of the Cayman Islands, the Cayman Islands Monetary Authority (“CIMA”), and industry groups such as Cayman Finance and the Cayman Islands Blockchain Foundation with one voice. They work together in the interest of attracting and developing the sector, while maintaining the jurisdiction’s commitment to the very highest financial standards and transparency-in the context of digital assets.

In May 2020, the Cayman Islands updated its framework for the supervision and regulation of virtual asset service businesses-the Virtual Asset (Service Providers) Act, 2020 (the “VASP Act”) in accordance with international standards from the Financial Action Task Force. The law is implemented in two phases: Phase 1 focused on anti-money laundering regulations and VASP registration, while Phase 2, which will address licensing and additional matters, is yet to be implemented.

Although the date of implementation for the second phase is still pending, the new regime further cements the Cayman Islands as a state-of-the-art platform for VA businesses. Offering a flexible regulatory regime that provides clear guidance for operators of such businesses, it also ensures consistency with international standards.

Under the VASP Act, “virtual asset” is loosely defined as any digital representation of value that is traded or transferred digitally for payment or investment. Probably the most important items falling outside this definition are digital representations of fiat currencies and “virtual service tokens” that cannot be transferred or exchanged with third parties, which even includes tokens that do not provide any other function than access to, or provision of, a service.

To further elucidate the VASP Act, the Virtual Assets [Service Providers] Regulations (the “VASP Regulations”) were published in October 2020. It contains provisions about applications for registration and related information on fees payable, as well as additional guidance on an issuance of virtual assets, which is considered in greater detail below.

Crypto regulations

The VASP Act expressly confirms the legal validity of digital assets and cryptocurrencies within the Cayman Islands, while subjecting businesses offering services connected with virtual assets to regulation. Generally speaking, virtual assets as such, and persons dealing in them for their own internal purposes, are not regulated in the Cayman Islands.

The VASP Act requires all VASPs to be licensed, or registered with CIMA, exempt, or holders of a sandbox licence. A “VASP” is an entity incorporated or registered in the Cayman Islands and which, as part of its business, provides a virtual asset service.

By the meaning of the VASP Act, the “virtual asset service” refers to an issuance of virtual assets or the provision of any of the following services for or on behalf of any other person: Exchange between virtual assets and fiat currencies; Exchange between one form or more other forms of convertible virtual assets; Transfer of virtual assets. Custodianship of Virtual Assets refers to the holding or control of virtual assets or instruments enabling control over such assets; Participation in and provision of financial services related to a virtual asset issuance or the sale of a virtual asset.

Note that a cryptocurrency or digital asset business that does not fit within one of the above categories may remain subject to more general regulations in the Cayman Islands. Such non-digital asset-specific legislation includes the Securities Investment Business Act (“SIBA”), the Money Services Act, and AML regulations, each of which is described in greater detail below.

Sales regulations

Money Transmission Laws

Pursuant to the Money Services Act, any person operating a “money services business” in or from the Cayman Islands is required to obtain a license from CIMA. Operating such a business without a license is a criminal offense.
A “money services business” is defined as carrying on the business of providing any of the following services: money transmission or currency exchange. Although there is no absolute clarity regarding whether this encompasses transactions in cryptocurrency or digital assets, an impending reading of the statute may, in some cases, make it seem to apply. Particularly when digital assets are used in a manner whereby they are just facilitating fiat currencies or probably converting one fiat currency into another, the legislation may apply. In this respect, therefore, individuals intending to establish such organizations may consider seeking professional advice, where necessary, with regard to the applicability of the Money Services Act.

Anti-Money Laundering Requirements

The unique characteristics and intended features of the Digital Assets can increase the levels of compliance risk and practical challenges. For example, the absence of any trusted central counterparty, heightened anonymity, and easy cross-border transfer without restriction breed special considerations.
To address such concerns, Cayman Islands authorities have adopted the principle of balance. Under this principle, it has been possible to incorporate digital assets into the existing legal framework without developing a special regime for them. This approach focuses on the specific activity and nature involved with digital assets to identify whether they have the potential to be used in an illegal manner.
Under the Proceeds of Crime Act, the Anti-Money Laundering Regulations and associated guidance notes (together referred to as the “AML Laws”), a body which is formed, registered or based in the Cayman Islands carrying on “relevant financial business” must comply with various requirements which are designed to prevent, detect and report money laundering and financing of terrorism.
The term “relevant financial business” is defined in the Proceeds of Crime Act, and includes the provision of virtual asset services bearing in mind that the definition is slightly different from that under the VASP Act.
While detailed consideration of the specifics of the AML Laws is beyond the scope of this chapter, entities falling within the regime would typically be required to:

1. Appoint a named individual to the position of AML compliance officer, which should be approved by CIMA for VASPs, and such person shall ensure compliance with the Laws on AML, including dealing with the supervisory authorities.
2. Appoint named individuals as the money laundering reporting officer and a deputy, setting up an internal reporting structure in the business.
3. Put into place procedures that ensure proper identification of counterparties, risk-based monitoring, record-keeping, and thorough employee training.

CIMA has indeed issued guidance related to AML for VASPs and has imposed new regulatory requirements for intermediaries in respect of transfers of virtual assets. In practice, it is recommended that a business engages specialist third-party providers to ensure effective compliance.

Promotion and testing

Sandbox Licences

The VASP Act introduced sandbox licenses for providers of virtual asset services or other fintech services, making use of innovative technology or delivery methods. These licenses are flexible and may allow CIMA to apply additional requirements or specific exemptions relevant to the particular business.
Sandbox licenses are temporary and may last for a term period of one year. During this time, CIMA is expected to assess the most appropriate manner in which such businesses should be regulated in the future. This may include consideration about whether or not to introduce legislation in support of and to regulate such usage of the underlying innovations more effectively. Detailed eligibility criteria are not available at present.

Special Economic Zone

Added to this, the Government of the Cayman Islands actively promotes the Special Economic Zone for those looking to develop fintech-related products from the jurisdiction.
The SEZ represents the quickest path for a fintech company looking to establish a physical presence in the Cayman Islands. The benefits range from a smoother, quicker, and cheaper work permit processing, to exemptions of cases where local trade licenses and ownership are concerned, to being fully operational in four to six weeks, to office spaces.
With these advantages combined, added to the recently revised intellectual property laws of the jurisdiction, the SEZ has recently become quite popular in the fintech market. The amount of blockchain-oriented companies setting their base in the SEZ keeps growing.

Ownership and Licensing Requirements

Cayman Islands does not have any particular constraints or licensing obligations targeted precisely at owners holding or trading digital assets in their personal accounts.
As mentioned above, the VASP Law stipulates that any person falling within the definition of a VASP should be licensed or registered by CIMA, or exempted, or granted a sandbox license. It is important to note that other legislative frameworks may apply, such as the Mutual Funds Act and SIBA, addressed above in more detail.
Under the VASP Act, a VASP shall ensure that its beneficial owners obtain approval from CIMA as being fit and proper to exercise control or ownership. Unless the entity is a publicly traded company, no ownership interests or voting rights amounting to 10% or more may be voluntarily issued or transferred in a VASP unless it has been approved in advance by CIMA, with possible exceptions.

Mining

Currently, the Cayman Islands neither regulates nor prohibits digital-asset mining, and the VASP Act does not bring it within the scope of regulation or prohibition. It would be fair to note, however, that among the practical hindrances to establishing large-scale mining operations in the jurisdiction are import duties imposed on computing equipment and relatively high costs of electricity production. The above challenges may in the future to some extent be mitigated by the development and or accessibility of alternative sources of renewable energy and their reduced costs.

Reporting requirements

VASPs registered or licensed under the VASP Act shall be obliged to:

1. Prepare audited accounts annually and file those audited accounts with CIMA.
2. Obtain the prior approval from CIMA in respect of the appointment of senior officers or AML compliance officers.
3. Give specific notices to CIMA of its compliance with AML Laws and Data Protection Laws, that all communications about the virtual asset service is accurate;
4. Where there is a license or registration of the same business in another jurisdiction, an opening of an office or establishment of a physical presence in another jurisdiction, or holding/ acquiring a controlling interest in any other entity carrying on virtual asset service, it shall be informed to CIMA.

Further reporting and other requirements may apply, depending on the variety of virtual asset service provided. Where a payment or transfer is connected with the carrying on of a “relevant financial business” for the purposes of the AML Laws, any obligation to file reports or make filings in circumstances where suspicions of money laundering or otherwise criminal activity occur.

Why Choose Regulated United Europe

Despite the relative ease of obtaining a cryptocurrency license in the Cayman Islands, there is an obvious need for regular and invaluable assistance from highly qualified lawyers. RUE Law Firm focuses on such services. With our assistance, you will be able to start your cryptocurrency business on a legal footing as soon as possible. Our specialists assess all factors, including legal risks, so you can make weighted decisions. Then, our team will promptly begin the crypto license obtainment process, providing broad support in all stages of passing the licensing procedure and increasing the chances of a successful application approval.