New Crypto Licensing Regulations in the Cayman Islands
The Cayman Islands has recently introduced new regulations regarding crypto licensing, aiming to enhance investor protections and market integrity. These regulations will require virtual asset service providers (VASPs) offering custody and trading services to obtain approval from the Cayman Islands Monetary Authority.
Mandatory License Requirement
- All crypto firms operating in custody or trading services must secure a formal license under the new framework.
- This regulation applies to both newly established entities and the 17 VASPs currently registered in the Cayman Islands.
- Companies have a 90-day compliance window, until July 1, 2025, to meet the necessary requirements.
As part of the licensing process, custody providers must disclose the types and values of digital assets they hold and provide a clear explanation of their custodial purpose to ensure compliance with anti-money laundering and counter-terrorism financing standards.
Trading platforms will be required to report their projected revenue and disclose the physical location of their supporting hardware to enhance regulatory transparency and jurisdictional oversight.
Enhanced Compliance Measures
The new regulations build upon the Virtual Asset (Service Providers) Act 2020 to align with recommendations from the Financial Action Task Force (FATF).
- CIMA has been working to tighten regulatory measures, including implementing the “Rule for Virtual Asset Custodians and Virtual Asset Trading Platforms” to create a structured compliance environment for digital asset businesses.
- The stricter licensing rules are expected to raise the bar for operational compliance in the Cayman Islands’ crypto sector, attracting established firms while weeding out non-compliant operators.
The upcoming deadline in July is anticipated to drive system upgrades and compliance efforts among existing VASPs. The requirement for trading platforms to disclose hardware locations could improve accountability in cross-border transactions, setting a precedent for other jurisdictions.
While the updated framework aims to strengthen investor protections and market stability, smaller firms may face challenges meeting the financial and operational demands of compliance. Larger players with more resources may find it easier to comply, giving them a competitive edge in the market.
