Update: Virtual Asset Service Provider Regime – Technology – Cayman Islands

VASP Transitional Provisions

The Virtual Asset Service Providers (Amendment) Act, 2020
(“VASP Amendment Act”) is now in force, as of 15 January
2021.  The VASP Amendment Act supports the continuing
implementation of Cayman Islands’ virtual asset service
provider regulatory framework by allowing persons engaged in the
provision of virtual asset services (“VASPs”) to continue
operating as the provisions of the Virtual Asset (Service
Providers) Act, 2020 (the “Act”) are commenced. 
Notably, the VASP Amendment Act brings the Virtual Asset (Service
Providers) (Savings and Transitional) Regulations, 2021
(“Savings and Transitional Regulations”) into
effect.

The Savings and Transitional Regulations provide that:

(a)    a VASP who:

        (i)    was carrying
on virtual asset service immediately before 31 October 2020;
and 

        (ii)    is not an
existing licensee

may, until 30 January 2021, continue
to carry on virtual asset service without being registered under
section 6(3) of the Act where the VASP submits the application for
registration under section 6(1) promptly to the Cayman Islands
Monetary Authority (“CIMA”), in order to be registered by
CIMA on or before 31 January 2021;

(b)    an existing licensee who was carrying on
virtual asset service immediately before 31 October 2020 may, until
30 January 2021, continue to carry on virtual asset service by
providing notice to CIMA in accordance with section 15 of the Act
on or before 31 January 2021, or such earlier date as may be
specified by CIMA; and 

(c)    no liability for a criminal offence under
section 35 of the Act for which there is a penalty of conviction or
an administrative fine shall be imposed on:

        (i)    a VASP who
fails to be registered in accordance with section 6 prior to 31
January 2021; or 

        (ii)    an existing
licensee who fails to notify the Authority prior to 31 January 2021
in accordance with section 15 of the Act.

Supervisory Circular

On 15 January 2021, CIMA issued an industry advisory
(“Advisory”), confirming that it has commenced the
registration and notification process for entities wishing to
provide virtual asset services with effect from 31 October
2020. 

The Advisory reminded industry that all New Market Entrants,
Pre-Existing Service Providers and Other Authorized Entities (as
defined in the Supervisory Information Circular issued on 30
October 2020) wishing to provide virtual asset services are
required to complete the registration / notification process by
completing the following forms via REEFS, on or before 31 January
2021: 

(a)    VASP Registration Process —
APP-101-84 (Registration / Notification Application);
and 

(b)    AML / CFT Inherent Risks – Virtual Asset
Service Provider – AIR 157-84 (Inherent Risk
Form). 

Entities providing virtual asset services that fail to complete
these forms on or before 31 January 2021 will, in respect of the
conduct of virtual asset services, be in breach of the Act as of 1
February 2021 and must cease the conduct of virtual asset services
as of that date.  Failure to do so, may result in enforcement
measures being taken by CIMA, including potential administrative
fines.

Overview of the VASP Regime

The Act was introduced to align the Cayman Islands’ framework
with international standards for VASP regulation. 

The Act, in conjunction with:

(a)    amendments made to related laws; 

(b)    the Virtual Asset (Service Providers)
Regulations, 2020 (“VASP Regulations”); and 

(c)    guidance (yet to be introduced)

provides a prudential regulatory framework for oversight and
enforcement for VASPs, virtual asset custodians and virtual asset
trading platforms (“VASP Framework”).  CIMA will be
the principal authority with regulatory oversight of the VASP
Framework.

The Act will be…