Cayman Islands:

Government Commences Framework For Virtual Asset Service Providers


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The Cayman Islands’ ability to regulate and attract persons
and entities that deal with virtual assets as a business is now
strengthened, with the commencement of legislation for virtual
asset service providers (VASPs).

In Cayman, a virtual asset is a digital representation of value
that can be electronically traded and used for investment purposes.
A common type of virtual asset is a cryptocurrency. The VASPs
legislation allows for the supervision of persons and entities who
are involved in providing business services that use or rely on
virtual assets on behalf of another person or entity.

The following were gazetted on Wednesday, 28 October to enact
certain provisions of the Virtual Asset (Service Providers) Law,
2020:

The regulatory framework for VASPs will commence in two phases.
Phase one, which begins 31 October, will focus on anti-money
laundering (AML) and countering the financing of terrorism (CFT)
compliance, supervision and enforcement. Current VASPs and new
entrants will need to notify and register with the Cayman Islands
Monetary Authority (CIMA). Phase two, which will include licensing
requirements and prudential supervision, is expected to come into
force in June 2021.

The Virtual Asset (Service Providers) (Amendment) Bill,
2020, which will introduce provisions to better facilitate the
phased commencement approach, was published on Thursday, 29 October
and will be presented at the next sitting of the Legislative
Assembly.

Cayman’s AML/CFT regime, along with our efforts to counter
proliferation financing (CPF), is currently being assessed by the
Caribbean Financial Action Task Force (CFATF) and the Financial
Action Task Force (FATF). The FATF sets the global AML/CFT/CPF
standards. The CFATF is the regional body that monitors compliance
with the FATF standard. Cayman’s VASPs framework incorporates
the FATF’s recommendations for AML/CFT/CPF, which the FATF
adopted in 2019.

The AML/CFT focus in phase one provides VASPs with the
opportunity to demonstrate their compliance with global standards
for AML/CFT/CPF. The launch of phase one will be communicated to
the CFATF for its consideration prior to the outcome of
Cayman’s CFATF re-rating, which will be reported on at their
November plenary.

The FATF review of our regime is to be completed shortly
thereafter, with Government anticipating the FATF to announce its
findings by the end of Q1 2021.

To clarify, the CFATF’s re-rating evaluates the
jurisdiction’s progress in addressing the FATF’s technical
compliance concerns identified in Cayman’s Mutual Evaluation
Report. The FATF review speaks to Cayman’s effectiveness in
implementing the FATF recommendations.

Originally Published 2nd November 2020

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
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