Financial services minister André Ebanks has made some frosty remarks about the digital asset industry, which is currently suffering from a ‘crypto winter’ of falling prices, suggesting the sector is clamouring for regulation.
At the Chamber of Commerce Parliamentary Luncheon on Thursday, Ebanks commented on government’s plans for digital assets saying, “you can see that cryptocurrencies are struggling right now”.
He said if government had gone to digital asset industry players seven or eight months ago, “they might have said, we don’t need any regulation, we’re fine; everything’s rosy.”
“But now that things have hit a bump in the road, they’re saying, well no, actually we need regulation. We need you because we need to separate the jokers out of the deck and keep the real cards.”
The price of bitcoin was hovering at US$21,400 on Friday after a high of US$67,500 in November 2021.
The collapse of stablecoin Terra/Luna in May has destabilised parts of the crypto ecosystem.
Together with falling digital asset values, this has prompted a liquidity crisis for crypto lenders and the fall of digital asset funds, including funds managed by Three Arrows in the BVI and Invictus Capital in Cayman.
In June, Ebanks led a delegation to the Point Zero Forum in Switzerland, a regulatory conference between the Swiss and the Singapore regulator about the state of cryptocurrencies.
At the time, he said insights gained at the event would inform the way forward for Cayman in relation to aspects of the digital asset industry.
On Thursday, Ebanks said cryptocurrencies were just a smaller aspect of “the real opportunity, which is the blockchain technology that underlies cryptocurrency”.
“That has the ability to change and has the ability to automate so many things. It has the ability to have smart contracts, eliminate unnecessary steps in the process. I also think it could be a means by which public authorities share information because it’s encrypted and locked,” he said.
“So, I’m actually even more excited about the actual blockchain technology and its applications than just maybe what might be right now a flavour of cryptocurrencies. I think the real opportunity is in the blockchain technology.”
Legislative changes contemplated
Cayman created a regulatory framework for crypto services in October 2020 with the Virtual Asset Services Providers Act.
However, this legislation, which empowered the Cayman Islands Monetary Authority to regulate the activities of virtual asset services providers (VASPs), has only been partially implemented.
Originally slated for full adoption in the summer of last year, government is still finalising parts of the regime.
At the Cayman Islands Digital Economy Conference, CYDEC, in June, Katherine Ebanks-Wilks, parliamentary secretary to Ebanks, said, “At present our VASP regime is focused on the second implementation phase with the emphasis on consumer protection.”
Key issues that are still being decided include CIMA’s supervisory duties for trading platforms, the fee structure for new licences and renewals, the framework for selling newly-created virtual assets to the public through initial coin offerings (ICOs) and setting up a sandbox regime.
Because government had discovered areas for improvement, she said, the ministry is currently considering, together with CIMA, legislative changes to the framework’s practical aspects.
So far, government has mainly been focused on ensuring that Cayman’s regulatory framework for crypto services is compliant with the anti-money laundering recommendations of the Financial Action Task Force.
Cayman is still under scrutiny by the FATF and listed as a jurisdiction that is under increased monitoring.
Ebanks-Wilks emphasised in June that “the Caribbean Financial Action Task Force, has received our VASP regime positively based on our adoption of the FATFs current position on virtual asset services, as described in their revised recommendation 15.
“In fact, the CFATF, which supports the FATF’s work in the Caribbean, gave Cayman a largely compliant rating for recommendations 15 – a feat achieved by only one another jurisdiction in the Caribbean.”
She said, “This puts Cayman in a strong position both regionally and globally.”
As of March 2022, Ebanks-Wilks added “dozens of VASPs”, ranging from dealer brokers and token issuers to trading platforms and custodians, had “expressed their interest” to CIMA in continuing and in some cases commencing their operations in Cayman.
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