Cayman Islands is set to clarify regulations for tokenised funds with proposed amendments to existing laws. These amendments, released in early February, aim to integrate tokenised mutual and private funds into the current funds regime, addressing key legal concerns for UK managers and investors.
Cayman Advances Tokenised Funds Rules: Regulatory Clarity by February 7
The Cayman government introduced amendment bills to modernise the funds framework. These measures confirm that issuing tokens by regulated funds does not qualify as “virtual asset issuance” under the Cayman Islands Virtual Asset Service Provider (VASP) Act.
Details of the Amendments
The proposed changes allow tokenised structures to operate within existing compliance obligations. This includes aligning on-chain share registers and wallets with regulatory duties without creating a separate regime. Additionally, the bills introduce technology risk standards that the Cayman Islands Monetary Authority (CIMA) can oversee.
- Regulated fund tokens are not deemed as virtual asset issuances.
- Service providers may still need VASP registration for exchange, custody, or transfer services.
- Funds can function under existing laws, maintaining distinct compliance paths for VASPs.
Implications for UK Managers and Investors
The new regulatory framework facilitates quicker transactions, improving subscription and redemption processes within whitelisted wallets. For UK fund managers, these measures simplify offshore structuring and ensure compliance with the Financial Conduct Authority (FCA) requirements.
Key benefits include:
- Faster asset transfers and improved liquidity management.
- Use of smart contracts for efficient onboarding, corporate actions, and audit trails.
- Greater transparency in the ownership records maintained on-chain.
Technical Oversight and Risk Management
CIMA’s supervisory role will extend to core technological aspects, risk management, and contingency protocols within these tokenised funds. Managers must be prepared for reviews that focus on wallet management, incident documentation, and compliance with anti-money laundering (AML) regulations.
Timeline and Future Developments
Parliament will review the proposed bills next month. Following their approval, initial tokenised fund launches could occur shortly thereafter, assuming compliance readiness and proper offering documentation are in place.
To mitigate risks, managers are advised to conduct:
- Technology due diligence.
- Smart contract audits to identify vulnerabilities.
- Assessment of valuation and pricing mechanisms.
Conclusion
The anticipated regulatory clarity regarding Cayman tokenised funds aims to enhance operational efficiency and investor protection. By aligning token issuance with existing laws, the changes strive to minimise regulatory overlap. Managers and investors alike should stay informed about the developments as they prepare for the potential launch of these tokenised funds.
For ongoing updates, keep track of government summaries and official announcements regarding the tokenisation framework.
