In the heart of the Caribbean, the Cayman Islands have witnessed a remarkable transformation in recent years, positioning themselves as a dynamic force in the realms of financial services, innovation, and technology. With the advent of blockchain technology, artificial intelligence, and digital currencies, this picturesque archipelago has harnessed the power of technological innovation, creating a wealth of opportunities for both the region and its people.well-regulated
In this article, Hon. André M. Ebanks MP, Minister for Financial Services and Commerce, as well as the Minister for Investment, Innovation, and Social Development in the Cayman Islands Government, explores the pivotal role that the Cayman Islands now occupies on the global stage, where innovation and sound regulatory frameworks converge to drive economic growth and social development.
It is my pleasure to be addressing you as the Minister for Financial Services and Commerce, as well as the Minister for Investment, Innovation and Social Development in the Cayman Islands Government.
Together, both Ministries are at the forefront of advancing the Cayman Islands as a globally respected financial services and innovation centre of excellence.
Worldwide evolution of virtual assets has been plentiful over the years, and the rise of blockchain technology, artificial intelligence programmes, digital currencies and the like have led to new economic opportunities for Caribbean countries like the Cayman Islands. Our people have an increasing connection to digital innovations and greater worldwide connectivity through mobile devices.
As a result, our people can be upskilled and help our community in new ways by increasing their study of and their employment in computer science, software engineering, cybersecurity and related professions. Much of our current and future relationship with the leading entrepreneurs in the technology sector centres on maintaining a business environment that is conducive to sound business establishment and thriving in our community. In an effort to keep up with global technological advances and improve the services available to our residents and clients, we have progressed our virtual asset service provider (VASP) regime.
Focus on VASPs
In the Cayman Islands, VASPs are defined as persons and entities whose businesses, on behalf of another person or entity, provide certain services that use or rely on virtual assets. Our VASP legislative framework will also extend, via the regulatory sandbox on a voluntary basis, to Fintech service providers who are developing new technologies which impact the delivery of financial services, such as artificial intelligence and blockchain or regtech innovations.
Our VASP framework has been in place since October 2020, built on our principal law, the Virtual Asset (Service Providers) Act. This act empowers the Cayman Islands Monetary Authority (CIMA) to regulate local VASP activity, including in our securities and investment funds sectors.
A key upcoming feature of our framework is providing the necessary supervision to help protect users of trading platforms (also known as exchanges) and virtual asset custodial services. This helps the Cayman Islands by ensuring that only legitimate business takes place here. The regulatory framework also helps boost the reputation of virtual asset business, with VASPs able to highlight their presence in our well- regulated jurisdiction as a considerable advantage.
As VASPs increase their relationship with the Cayman Islands, they will not only be able to benefit from our economic stability and wide range of financial services expertise but also tap into a Caymanian workforce with a growing appetite for tech-related career opportunities.
Importantly, at this juncture, embracing regulation as a globally respected centre of excellence means complying with international standard setters. As you might know, the Financial Action Task Force (FATF) serves as the governing body, setting global standards for anti-money laundering and countering the financing of terrorism (AML/CFT). Its regional arm, the CFATF – the Caribbean Financial Action Task Force – has received our VASP regime positively, based on our adoption of the FATF’s 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 the Cayman Islands a largely compliant rating for Recommendation 15. We were one of the first jurisdictions to receive such a positive rating, and it is a feat that has put Cayman in a strong position for VASPs, both regionally and globally.
We have been on a multi-year journey to bolster our technical framework and demonstrate the effectiveness of our methods. To achieve delisting would not only be a major success for us but a further testament that the Cayman Islands is an effective partner in global finance, doing the right things to foster sound business.
In the meantime, we continue to move forward with establishing a framework that is attractive for users of virtual assets. Our VASPs regime is focused on its second implementation phase, with an emphasis on consumer protection. Key aspects being finalised include CIMA’s supervisory duties for licensing trading platforms and custodians (including the fee structure for new licenses and renewals).
Once this is completed, we will further enhance our regime by implementing a regulatory framework for the selling of newly created virtual assets to the public (that is, offerings or ICOs); and setting up the sandbox regime that I mentioned earlier, which is intended to facilitate the safe adoption of new technologies in the Cayman Islands.
As of October 2023, dozens of VASPs have expressed their interest to CIMA for continuing and, in some cases, commencing their operations in the jurisdiction. Their submissions highlight an array of activities in the space, from dealer brokers and token issuers to trading platforms and custodians.
As we’ve progressed our implementation of the VASP framework, like with all of our other subjects, we have discovered areas for refinement. The Ministry of Financial Services and Commerce, together with CIMA, is therefore currently considering changes to the legislative framework and its practical aspects.
Although we acted swiftly to prevent the misuse of new technologies to facilitate money laundering, we opted to take a careful strategic approach in implementing the prudential regulatory framework in the principal VASP Act.
Both the Ministry and the regulator have been observing recent developments in the virtual assets sector. We believe that next year, we will be ready to implement phase two of the VASP framework – namely, the licensing regimes for trading platforms and custodians. Our approach is to ensure this is done in a careful and fit-for-purpose manner to lay a strong foundation for the establishment of virtual asset service providers in the Cayman Islands.
Our aim is that the next phase of the framework will implement tried, tested and established standards – which will, in turn, promote consumer confidence from a retail and investor perspective. This framework can be a launch pad for future growth of the tech sector in the Cayman Islands and, likewise, help restore confidence in innovative financial approaches in general. It is also hoped that the framework can increase the Caymanian involvement in and benefit from the tech sector.
Ultimately, as the Cayman Islands seeks to increase its standing in the international technology sector, the Cayman Islands Government intends to strike the right balance between the societal and business needs of the country.
We’re therefore grateful that our Islands have a strong financial services industry, with an increasing number of VASPs, which work with the public sector toward shared goals and a shared vision of being a globally respected financial services and innovation centre of excellence. Together, we can enhance the Cayman Islands’ commercial and regulatory reputation globally while equally providing for our local needs.
I believe that in the final analysis, the Cayman Islands is well poised to maintain its appeal to cutting-edge investors as an attractive centre for tech-related business.
Source: The Fintech Times