Minister of Financial Services Tara Rivers has announced that government favors a regulatory sandbox-type framework for digital assets. The minister outlined government’s approach to regulating digital assets in a statement in the Legislative Assembly on Nov. 14.
While many countries have enacted legislation quickly to be the first to “jump on the bandwagon,” the minister said, Cayman’s government had opted for a steady, cautious and prudent approach.
To develop a framework that attracts innovative, cutting-edge businesses dealing with crypto assets, blockchain and other new financial technology, the ministry of financial services engaged several working groups and subcommittees that included subject matter experts, government officials and regulators.
After a Digital Assets Working Group, launched by the Cayman Islands Monetary Authority in March, made certain recommendations, the ministry sought further input from companies operating in the Fintech space and a Financial Services Legislative Committee’s FinTech Subcommittee was formed in June.
“Through a series of consultations, these two groups agreed on the broad parameters of a framework that Cayman should adopt to promote and regulate new financial technologies, such as crypto assets and FinTech solutions,” the minister said.
Because new technologies are constantly evolving, Ms. Rivers said, government has agreed that “an adaptable, technology-neutral, regulatory sandbox-type framework is the best approach for our jurisdiction.”
The term regulatory sandbox typically describes a “safe space” in which businesses can test new products, services and business models without immediately being subjected to all regulations and licensing requirements.
Fintech companies and their service providers are concerned how regulators are going to treat new types of services and that they may face potential enforcement actions in the future as regulations take shape. Firms that must be authorized to engage in specific activities will also incur significant costs before they can ever determine any consumer appetite for their services.
The sandbox framework helps firms manage regulatory risks and uncertainty when they test, finance and bring their products and services to market.
Ms. Rivers said the approach would welcome new and existing, innovative and pioneering companies but at the same time provide “sufficient oversight and monitoring to ensure the activities taking place are compliant, fair and transparent.”
The versatile approach would allow regulators to observe new ideas, understand them and generate feedback for mainstream regulatory activities. It would “encourage, foster and incubate legitimate activities” and allow for the adaptation of laws and regulations on an ongoing basis.
Ms. Rivers said her ministry was engaged in the process of resolving the necessary legislative changes to implement a regulatory sandbox framework and actively exploring how regulated digital identification systems could streamline anti-money laundering compliance.