Recently, the Cayman Islands government has proposed a large number of regulatory measures to regulate the local cryptocurrency industry. These measurements are designed to align the evolving industry with the requirements of the Financial Action Task Force(FATF), thereby enabling the country’s encryption service providers to gain global competitiveness.
The Virtual Asset Service Provider (VASP) Bill, submitted on April 28, 2020, is one of the five bills proposed by the government to reform its financial services industry. Its purpose is to provide a new regulatory framework, which specifies the registration process of the cryptocurrency business, the regulatory sandbox, and the powers and responsibilities of the regulatory agency.
If the bill is approved, the new rules will apply to cryptocurrency exchanges, crypto asset custodians and decentralized financial operators. In addition, the legislator also proposed to amend and supplement the existing financial regulations applicable to securities and stock exchanges.
New registration system
The Virtual Asset Service Provider (VASP) Bill requires that any company that is willing to provide encrypted asset services must register within an authorized institution and must update it’s license before January 15 of each year.
According to the Bill, for any virtual asset service provider (VASP), having a registered office in the Cayman Islands is a prerequisite for obtaining a business license. The Monetary Authority will consider various factors, such as whether the cryptocurrency company has sufficient technical staff, appropriate network security measures, sufficient funds and a sound accounting system.
Setting up a regulatory sandbox
The bill establishes a regulatory sandbox for VASP, which will be the highlight of this legislation.
The authorities will issue a sandbox license to companies that focus on cryptocurrencies or blockchain. The license allows related companies to continue to research emerging technologies with certain risks. The license is valid for one year, but the authority can choose to extend it.
However, to be qualified, companies must ensure that their services are of help in improving the island’s financial services and meet global standards such as anti-money laundering. But at the same time, companies in the sandbox can be exempted from other VASP requirements.
This option provides start-up companies with sufficient time and freedom to develop and test their products and services. This will facilitate the realization of the goal of “promoting the use of new technologies and the flexible foundation of innovative enterprises”.
Supervisory authority of the Monetary Authority
The proposed bill places the cryptocurrency industry under the supervision of the Cayman Islands Monetary Authority (CIMA) and gives the CIMA the authority to supervise the cryptocurrency industry.
The Monetary Authority can revoke the license, it has the authority to prosecute any company that does not comply with established guidelines to court, to force VASP to replace any senior management staffs, to appoint an external agency to supervise the company at its own expense, and to take any measurement that it considers necessary to protect consumers.
Summary and outlook
The Cayman Islands is known for its flexible and loose regulatory policies, and it is also one of the potential residences for BinanceBinance immigration registration. Due to its illegality and the suspicious nature of tax havenstax havens, the Cayman Islands has been blacklisted by the European Union.
The new law in the Cayman Islands reflects the global trend of integration, incorporating the relevant anti-money laundering, countering the financing of terrorism and counter proliferation financing (AML/CFT/CPF) frameworks adopted by the Financial Action Task Force(FATF) in 2019. The existing business areas have undergone integrated adjustments and gradually transitioned to FATF’s Travel Rule to enhance the global competitiveness of local companies.
The Finance Minister, Tara Rivers said that these measurements will ensure the Cayman Islands consolidates its position as a global digital currency hub. In addition, the proposed legislative improvements are designed to increase the attractiveness of jurisdiction as a business residence for virtual assets while ensuring that the Cayman Islands meets its international obligations.
The recently proposed cryptocurrency regulations are under review and are expected to be updated at the next Legislative Council meeting.
This also triggered the alarm for cryptocurrency exchanges. As global regulations is tightening, the dream of a tax haven may be broken.