Cayman’s regulatory framework for service providers in the virtual asset space came into force on 31 Oct. in the first of two phases.

Under phase one, which focusses on anti-money laundering compliance, supervision and enforcement, virtual asset services providers (VASPs) will need to register with the Cayman Islands Monetary Authority to demonstrate compliance with international AML standards.

Phase two, which includes licensing requirements and prudential supervision, is expected to come into force in June 2021.

Certain provisions of Cayman’s Virtual Asset (Service Providers) Law, 2020, were enacted with the publication of various commencement orders in the official Gazette on 28 Oct.

Amendments to the law to facilitate the phased commencement approach will be presented at the next sitting of the Legislative Assembly.

In Cayman, a virtual asset is a digital representation of value that can be electronically traded and used for investment purposes, such as a cryptocurrency.

VASPs include crypto exchanges, wallet providers and any other business services that deal with virtual assets on behalf of others.

The new regulatory regime incorporates last year’s recommendations by the Financial Action Task Force (FATF) to fight the use of crypto assets and related services for money laundering and the financing of terrorism.

These recommendations include the so-called ‘travel rule’, which requires VASPs to collect and share personal data on the originator and beneficiary of transactions.

The anti-money laundering regime in Cayman is currently under review by both the FATF and the Caribbean Financial Action Task Force following a critical evaluation issued last year.

Cayman’s Ministry of Financial Services said in a press release that it will inform the CFATF of the launch of phase one before the organisation considers a re-rating of Cayman and reports on it at its November plenary.

The FATF review of Cayman’s AML regime will be completed shortly thereafter, and the findings are expected by the end of the first quarter 2021.

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