Overview of recent developments in the Cayman Islands Virtual Asset regulatory framework

Are you involved in virtual asset trading, custody, or issuance from the Cayman Islands? If your business touches the virtual asset space, it's time to pay close attention.

The Cayman Islands Monetary Authority (“CIMA”), as the primary regulator of virtual asset services, recently announced the commencement of Phase 2 of the Virtual Asset Service Providers (VASPs) legislative framework which took effect on 1 April 2025. The Phase 2 implementation is supported by revised legislation and guidelines, further strengthening the jurisdiction’s virtual asset regulatory framework.

In this article, we highlight the key changes you need to know to stay ahead and ensure compliance.

1) Implementation of the ‘Phase 2’ licensing regime

The highly-anticipated Phase 2 licensing regime took effect on 1 April 2025 pursuant to the Virtual Asset (Service Providers) Act, 2020 (Commencement) Order, 2025. .

Phase 2 focuses mainly on the licensing of virtual asset trading platforms and custodians which will include additional obligations for such service providers. Any entity established in or operating from within the Cayman Islands offering such services will require a licence from CIMA.

Existing registered virtual asset service providers (“VASPs”) currently providing virtual asset trading platform or custodian services and intending to continue operating after 1 April 2025 must apply for a licence within 90 days from that date. Upon approval, the existing registration will be cancelled.

It is important to note that the Phase 2 regime is not a newly introduced concept—its provisions were already embedded in the original version of the Virtual Asset Service Providers Act (VASPA), although no effective date had been set until now. The implementation of this phase marks a significant milestone in the jurisdiction’s phased regulatory rollout of virtual asset supervision, which commenced in 2020.

2) Key changes under the Virtual Asset (Service Providers) (Amendment) Act, 2024

Effective 1 April 2025, the Amendment Act introduces several substantive updates aimed at enhancing regulatory oversight of the conduct of virtual asset services and investor protection, including:

• Refined definitions: Clarifications and new terms added (e.g., “convertible virtual asset,” “originator,” “owner”) while removing redundant terminology;
• Audited accounts: in addition to the existing obligations of licensed VASPs to provide annual audited accounts, CIMA is empowered to request audited financial statements from a registered VASP in specific cases, such as where the nature or complexity of business warrants it or where there is reasonable suspicion of false or misleading financial reporting;
• Board composition: VASPs must appoint at least three fit and proper directors, including at least one independent director without a vested interest in the VASP;
• Disclosure obligations: All disclosures, promotional content, and communications must be accurate and non-misleading. Any deliberate misrepresentation will be deemed a breach of the law;
• Changes to business plans: Any changes to approved business plans that modifies approved provision of services, or the introduction of new virtual asset services require prior written approval from CIMA;
• Notification requirements: Additional matters now require notification to CIMA, including any legal proceedings involving a VASP. A 30-day notification timeline has been introduced for disclosures under section 9(4)(c) of VASPA;
• Enhanced Custody disclosure standards: section 10 (c) now contains further details regarding disclosures that CIMA may require Custodians to provide to clients including in relation to operational transparency, risk controls, access protocols, insurance arrangements, and more;
• Asset protection measures: Enhanced requirements for segregation of client assets, loss prevention protocols, and detailed record keeping to ensure secure custody;
• Fiat currency holding requirements: a VASP licensee, that holds fiat currency on behalf of clients must do so with banks regulated by CIMA or another regulator in a non-high-risk jurisdiction, separate from funds owned by the licensee;
• Expanded regulatory powers: CIMA’s supervisory and enforcement tools have been broadened, and includes powers to obtain information, conduct inspections, revoke licences or waivers, and impose conditions or cancellations.

3) Virtual Asset (Service Providers) (Amendment) Regulations, 2025

These Regulations amend the original 2020 regulations by introducing detailed requirements for VASP Licence applications. The Regulations came into effect concurrently with the provisions of the Amendment Act on 1 April 2025. Key highlights include:

• Schedule 1A: Sets out detailed documentation requirements for applicants as follows:
• Part A: General Information (required for all applicants);
• Part B: Information on Virtual Asset Custodial Services;
• Part C: Information on Virtual Asset Trading Platforms;
• Executive declarations: Two senior officers must co-sign a declaration confirming their understanding of VASPA, the Regulations, and the Anti-Money Laundering Regulations, 2025, and attest to the accuracy of the information submitted;
• Schedule 2: Updated fee structure covering application, registration, licensing, and annual renewal fees;
• Fee concessions: Locally controlled companies (as defined under the revised Local Companies (Control) Law, 2025) providing services in the Cayman Islands may benefit from a 10% reduction on standard fees.

4) Expansion of CIMA fees

Effective from 1 January 2025, the Monetary Authority (Amendment and Validation) Act, 2024 broadens the scope of CIMA’s administrative fees to cover all licensed and registered entities, including all VASPs.

Schedule 2 of the Act sets out applicable fees for various administrative functions, including business plan modifications, certified licence copies, name changes, and other routine filings.

5) The above updates should be considered along with the regulatory measures for Virtual Asset Custodians and Virtual Asset Trading Platforms issued by CIMA in December 2024.

Our Virtual Asset & Investment Fund support services

Harneys Fiduciary is a leading provider of professional corporate, fiduciary and compliance services in the Cayman Islands, supporting virtual asset service providers, investment funds, tech enterprises, and private clients.

We offer end-to-end solutions for entity formation, ongoing management, and regulatory compliance, including:

• Establishing customised structures for virtual asset trading, custody, or issuance;
• Providing qualified and independent directors to meet CIMA’s governance standards;
• Preparing and submitting registration and licensing applications and compliance documentation;
• Delivering company secretarial support, records management, and ongoing compliance monitoring to ensure VASPA and AML obligations are continuously met;
• Working alongside Harneys, our affiliated global law firm, to offer integrated legal and regulatory support across structuring, token issuance, platform operation, and digital asset investment strategies.

Our experienced team in the Cayman Islands works closely with Harneys’ global legal experts to provide seamless, coordinated service across multiple jurisdictions. Whether you are launching a digital asset initiative or managing an established investment structure, we are here to help you navigate the evolving regulatory environment with confidence.

Please feel free to contact us to learn how Harneys Fiduciary can support your virtual asset or investment structure with robust governance and compliance solutions.