As perhaps one of the most publicly recognised applications of fintech, cryptocurrencies are virtual currencies that use cryptography to secure and verify transactions, and to control the creation of additional units. But fintech – a shortened form of ‘financial technology’ is broader than just cryptocurrencies.
The Virtual Asset (Service Providers) Law, 2020
On 25 May 2020 the Cayman Islands government passed The Virtual Asset (Service Providers) Law, 2020 (“Law”), which provides a legislative framework for the conduct of virtual assets business in the Cayman Islands and for the registration and licensing of persons providing virtual asset services. The Law is intended to place the Cayman Islands with a cutting edge, robust framework which is in alignment with global regulatory standards, protect consumers and meet the requirements of the Financial Action Task Force recommendations in respect of virtual assets.
1) What is a Virtual Asset and a Virtual Asset Service Provider?
The Law defines a “virtual asset” as a digital representation of value that can be digitally traded or transferred and can used for payment or investment purposes, but does not include a digital representation of fiat currencies. For the purposes of the Law, virtual service tokens are not classed as virtual assets.
“Virtual asset service” means the issuance of virtual assets or the business of providing one or more of the following services of operations:
(a) exchange between virtual assets and fiat currencies;
(b) exchange between one or more other forms of convertible virtual assets;
(c) transfer of virtual assets;
(d) virtual asset custody service; or
(e) participation in and provision of financial services related to a virtual asset issuance or the sale of a virtual asset.
A person is a “virtual assets service provider” (“VASP”) under the Law, if it is (i) a partnership or entity formed and/or registered under the applicable Cayman Islands legislation (ii) provides a virtual asset service as a business or in the course of business in the Cayman Islands and (iii) is registered or licensed in accordance with the Law or is an existing licensee that is granted a waiver under the Law. A natural person cannot carry on or purport to carry on a virtual asset service as a business or in the course of business in or from within the Cayman Islands.
The Law requires a VASP to register with or be licensed by the Cayman Islands Monetary Authority (“CIMA”) dependent on the activity carried out by the VASP.
2) Registration of VASPS
Any person who is already carrying on a virtual asset service at the date of commencement of the Law or wishes to carry on a virtual asset service (for which a licence is not required under the Law), will be required to apply to CIMA in order to become a “registered person” under the Law.
Financial Technology ‘FinTech’
As perhaps one of the most publicly recognised applications of FinTech, cryptocurrencies are virtual currencies that use cryptography to secure and verify transactions, and to control the creation of additional units. But FinTech – a shortened form of ‘financial technology’ – is broader than just cryptocurrencies. FinTech also refers to computer programming and other technology that is revolutionising the delivery of financial services via digital applications, retail banking, and investment markets. The term used by the Cayman Islands Government to describe FinTech is ‘digital assets’. Particularly in recent years, financial services in Cayman have increasingly reflected the value of delivering products and services through digital assets. Some of the digital asset-related activities that take place within Cayman include crypto exchange services, initial coin offerings and fund-issuing tokens that exist in or originate from the Cayman Islands. Government’s position on digital assets is similar to what is found in many other jurisdictions. The Virtual Asset (Service Providers) Law, 2020 has introduced a framework to regulate digital assets, in order to ensure that any risks associated with such activities are analysed and mitigated, and that any benefits are realised in a manner consistent with a well-regulated financial services jurisdiction. For updates on the Cayman Islands’ digital assets regulatory framework, visit the Cayman Islands Monetary Authority’s website at www.cima.ky.