From 1 April 2025, phase two of the Cayman Islands Virtual Asset Service Provider (VASP) licensing regime took effect, introducing pivotal changes that reshape how virtual asset businesses operate in the jurisdiction.
While these changes bring a more formalised licensing process, they also offer clear opportunities for businesses and families involved in digital assets to strengthen their compliance, governance, and long-term sustainability.
For those who already hold digital assets in Cayman, or those looking to structure virtual asset businesses in Cayman, these changes bring much-needed legal clarity and guidance. Here’s a closer look at what the updates mean for you, and why these developments are significant for the future of your business and/ or your family’s digital assets.
1. A Shift from Registration to Licensing
The first major change: VASPs will now need to obtain a licence from the Cayman Islands Monetary Authority (CIMA) to operate. This shift from a registration process to licensing solidifies Cayman’s position as a regulated, compliant jurisdiction for digital assets. For businesses operating or considering virtual asset services like cryptocurrency exchanges or wallet provision, this new requirement is non-negotiable.
Why It Matters:
For companies in the virtual asset space, securing a CIMA licence isn’t just a legal obligation – it’s a powerful signal to investors and clients that your business operates under rigorous compliance standards, which helps build trust and credibility.
2. Defining Virtual Assets in More Detail
The definition of virtual assets has now been expanded to cover not only traditional cryptocurrencies like Bitcoin and Ethereum but also utility tokens, stablecoins, and blockchain-based digital assets. This broader scope ensures that the regulatory framework remains relevant as new asset types emerge.
Why It Matters:
This clarity means that Cayman Islands trusts, foundation companies or other entities managing a diverse range of digital assets now have clearer guidelines and a recognised framework in which to operate. Whether you’re holding cryptocurrencies or other blockchain-based assets, you can ensure your trust, foundation or company structure is fully aligned with the updated regulatory landscape.
3. Strengthened Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) Controls
VASPs are now subject to more stringent AML and CFT procedures. These include robust customer due diligence (CDD) and know-your-customer (KYC) obligations, along with mandatory reporting of suspicious activities. Compliance is critical, as failure to adhere to these regulations could lead to serious penalties.
Why It Matters:
For virtual asset businesses and trusts, implementing these enhanced procedures is crucial to maintaining compliance and avoiding costly fines. Additionally, these measures safeguard your operations against financial crime, ensuring the integrity of your business.
4. Independent Director Requirements
Corporate governance standards have been raised, requiring VASPs to appoint a minimum of three directors, with at least one being independent—someone without a vested interest in the company. This change aims to improve transparency and accountability within the industry.
Why It Matters:
Appointing independent directors helps meet regulatory requirements and provides an additional layer of oversight, ensuring that your operations are both legally compliant and ethically sound.
5. Fit and Proper Tests for Key Personnel
Key personnel, including directors, officers, and controllers, will now undergo a “fit and proper” test. This ensures that those in charge of managing virtual asset businesses or trusts have the right qualifications and are not involved in any criminal activities. Companies must also demonstrate sound corporate governance structures and practices.
Why It Matters:
This test guarantees that your leadership team is competent and trustworthy, which is vital for maintaining the reputation and integrity of your business in a highly regulated space.
6. Strengthened Risk Management and Internal Controls
VASPs must now implement rigorous risk management frameworks, especially regarding market risks, cybersecurity, and operational risks. These internal controls are designed to prevent fraud, misappropriation of funds and other illicit activities.
Why It Matters:
For virtual asset businesses, ensuring you have robust internal controls in place is essential not only for regulatory compliance but also for safeguarding clients’ assets against potential security breaches or mismanagement.
7. Enhanced Reporting and Ongoing Supervision by CIMA
CIMA will now conduct regular audits and ongoing supervision of VASPs, ensuring continuous compliance with the law. This will include submitting annual financial and operational reports.
Why It Matters:
This requirement ensures transparency and accountability, which in turn strengthens the reputation of your business. Being prepared for these ongoing audits will position your business for long-term success in Cayman.
8. Licensing Fees and Penalties
Companies will be required to pay annual licensing fees to CIMA. These fees may vary depending on the type and scale of services provided.
Why It matters:
Failure to comply with the new licensing regime may lead to significant penalties, including fines and the potential suspension or revocation of licenses.
9. Consumer Protection Measures
VASPs will be required to provide clear disclosures regarding their services, including risk warnings, fees, and policies. This aims to protect consumers and improve market confidence.
Why It Matters:
The regime ensures VASPs maintain appropriate safeguards against hacks, theft, and loss of funds, in order to keep investors assets secure.
10. Cross-Border Coordination
The Cayman Islands is working closely with international regulatory bodies to align with global standards for virtual assets. The Financial Action Task Force Travel Rule has been integrated into the regime. The Travel Rule requires virtual asset businesses to share specific information about transactions, such as the identity of both the sender and the recipient, when transferring virtual assets above a certain threshold.
Why It Matters:
This change is aimed at reducing anonymity in digital asset transactions and further aligns Cayman with global standards on financial transparency, establishing a level of credibility to the Cayman Islands VASP.
11. Transition Period for Existing Cayman Islands VASPs
Existing virtual asset businesses operating in the Cayman Islands have been given a transition period to apply for the new licenses. These companies are required to bring their operations into compliance with the new regime within a defined timeframe.
Why It Matters:
Existing Cayman VASPs need to take advice and act fast to ensure they comply with the new standards.
How Can IMG Trust Help Navigate These Changes?
IMG Trust is here to guide you through the complexities of Cayman’s new VASP regime, offering a range of services to help you comply, grow, and thrive in the virtual asset space. In particular we can guide you on creating trust structures specifically designed to manage cryptocurrency holdings, NFTs, and other blockchain-based assets. Here’s how we can assist:
1. Setting Up Virtual Asset Trust Structures
We can help you establish trust structures that legally protect and properly administer your digital assets, ensuring compliance with Cayman’s updated regulations.
As a professional trustee, IMG can manage the digital assets within the trust, ensuring compliance with relevant regulations and the smooth administration of the trust’s operations, including distribution to beneficiaries.
2. Regulatory Compliance and Reporting
IMG can assist in ensuring that virtual assets held within trust structures are subject to ongoing compliance monitoring and periodic reporting to regulatory authorities, especially in jurisdictions where virtual asset businesses are licensed.
3. Independent Director Services
Independence and support. We can provide independent directors to help meet Cayman’s governance standards, offering strategic oversight and regulatory compliance.
4. Risk Management and Asset Protection
From secure custody solutions like cold storage to portfolio diversification, we provide families and founders with expert advice to protect and grow your digital assets.
5. Tax Planning and Wealth Optimisation
Navigating the complexities of digital asset taxation? We can help optimise your tax strategy to ensure compliance and minimise liabilities.
6. Philanthropy and Charitable Giving
We can help you incorporate digital assets into your philanthropic strategies, aligning charitable giving with your family’s long-term values.
7. Advisory Services and Portfolio Diversification
For clients holding significant virtual assets, IMG can assist clients by working with trusted partners to offer advice on portfolio diversification, including balancing cryptocurrency holdings with other investments such as stocks, bonds, or real estate.
8. Educational Services and Family Governance
IMG offers educational programmes to help your family members understand digital asset complexities and establish governance structures that ensure responsible management and preservation of assets.
For families holding significant virtual assets, IMG can help establish governance structures that ensure wealth is managed responsibly, and decisions about digital assets are made collectively and in line with family values.
Get In Touch
For businesses and families navigating the evolving VASP regime in the Cayman Islands, Colin Robinson and Avinash Luckhun of IMG Trust are the experts you can rely on.
With their extensive experience in the Cayman Islands financial services sector, they can guide you through the complexities of virtual asset management, compliance, and structuring. Whether you’re looking to establish Cayman entity, ensure regulatory compliance, or optimise your digital asset strategy, Colin and Avinash are available to provide tailored advice and support. Contact IMG today to discuss how IMG Trust can help you navigate this rapidly evolving landscape – colin.robinson@imgtrust.ky.