Regulatory & Risk Advisory Review: Cayman Islands – April to June 2025

2.1. CIMA Regulatory Policy – Registration or licensing of Virtual Asset Service Providers (May 2025)

CIMA issued an updated Regulatory Policy on the registration and licensing of VASPs, effective May 2025. The Policy outlines the criteria and procedures for approving VASP registrations, licences, or waivers under the VASP Act and related regulations. It applies to entities seeking to provide virtual asset services, including custody services and trading platforms, in or from within the Cayman Islands but excludes those applying for a sandbox licence. The Policy emphasizes the need for applicants to demonstrate robust compliance with Anti-Money Laundering (AML) and counter-terrorist financing requirements, sound corporate governance, risk management, and cybersecurity measures. Applicants are encouraged to seek independent legal advice and engage with CIMA early in the process to ensure readiness and compliance with all regulatory obligations.

CIMA’s assessment process focuses on the fitness and propriety of shareholders, directors, and senior officers, as well as the adequacy of business plans, internal controls, and ownership structures. The Policy details the documentation required for applications, the evaluation of business continuity and outsourcing arrangements, and transitional provisions for entities moving between registration and licensing statuses. It also provides for waivers in exceptional cases and cautions that operating without the necessary registration or licence is a contravention of the VASP Act, subject to enforcement action. The Policy reinforces CIMA’s commitment to maintaining the Cayman Islands’ reputation as a leading, well-regulated financial centre by ensuring that VASPs meet international standards of transparency, consumer protection and market integrity.

2.2. CIMA Supervisory Information Circular – Amendments to the Virtual Asset (Service Providers) Act in Effect 1 April 2025

CIMA issued a Supervisory Information Circular advising that Phase Two of the VASPs legislative framework came into effect in the Cayman Islands. The supervisory circular provides practical information to VASPs with respect to their obligations upon commencement, process for licence, registration or waiver application and future expectations.

2.3. CIMA Regulatory Policy – Domestic Systemically Important Deposit Taking Institutions (D-SIDTIs)

CIMA has issued a new Regulatory Policy outlining the framework for identifying and supervising Domestic Systemically Important Deposit Taking Institutions (D-SIDTIs) within the jurisdiction. The policy aligns with international standards set by the Basel Committee on Banking Supervision and establishes a methodology based on five key factors: size, interconnectedness, substitutability, complexity, and households’ dependency. Institutions designated as D-SIDTIs are those whose distress or failure could significantly disrupt the Cayman Islands’ financial system and economy. The assessment is conducted using an indicator-based approach, with equal weighting given to each factor, and includes both quantitative analysis and supervisory judgment. The policy applies to all locally incorporated banks, credit unions, building societies, and the development bank supervised by CIMA, but not to foreign branches, which are primarily overseen by their home regulators.

Designated D-SIDTIs are subject to enhanced regulatory requirements, most notably a Higher Loss Absorbency (HLA) capital buffer ranging from 1% to 3% above the minimum capital requirement, depending on their systemic importance score. These institutions must also engage in recovery and resolution planning to ensure their resilience and facilitate orderly resolution in the event of distress. While no additional routine reporting is currently required beyond existing obligations, CIMA may request further information as needed and will maintain a more intensive supervisory approach, including enhanced inspections and ongoing engagement with senior management. The policy underscores CIMA’s commitment to safeguarding the stability of the domestic financial system and protecting the interests of depositors and the broader economy.

2.4. CIMA Supervisory Information Circular – Key Findings from Onsite Inspections of Registered Persons

This Circular sets out the findings by the Authority from Inspections conducted on Registered Persons (RPs) for the period 1 January 2022 to 31 March 2024. RPs are defined under Schedule 4 and Section 5(4) of the Securities Investment Business Act (SIBA). RPs carry out securities investment business in or from the Cayman Islands, including dealing in securities, arranging deals, investment management, and providing investment advice. The SIBA provides for the regulation of the RPs engaged in these activities in or from the Cayman Islands, including market makers, broker-dealers, securities arrangers, securities advisors, and securities managers.

In 2020, CIMA commenced its risk-based approach to supervision of RPs to assess their AML, countering the financing of terrorism, countering proliferation financing and targeted financial sanctions, policies, procedures, systems, and controls. The Authority conducted on-site inspections to determine whether RPs met the requirements of the Anti-Money Laundering Regulations (AMLRs), the Guidance Notes on the Prevention and Detection of Money Laundering, Terrorist Financing and Proliferation Financing in the Cayman Islands, as well as other applicable legislations, rules, and accepted standards of best practice.

CIMA noted an improvement in compliance by RPs since the prior period’s results but found there is still room for improvement in the effectiveness of the policies and procedures, particularly around CDD, ongoing monitoring and maintenance of an appropriate effective independent audit function. CIMA issued requirements to the inspected RPs and expects that they will address identified deficiencies in a timely and thorough manner. CIMA is also taking enforcement action where appropriate and proportionate.

CIMA continues to expect that all RPs will take note of these findings and act to ensure that their own AML/CFT compliance frameworks meet the standards prescribed and periodically assess their AML/CFT compliance programmes to ensure that they are appropriate for the nature, size and complexity of their business. CIMA will continue to promote its supervisory mandate through both offsite monitoring and onsite inspection processes. Any breach of a law, regulation or rule or non-compliance with a statement of guidance may result in an enforcement action. This may also include or be in addition to the imposition of an administrative fine for any breach of the AMLRs.

2.5. List of Approved Stock Exchanges

The updated List of Approved Stock Exchanges was published by CIMA in April 2025. The list details all stock exchanges approved for purposes of the Regulatory Acts pursuant to CIMA’s Regulatory Policy – Approved Stock Exchanges.