This Virtual Assets Act of 2020 (VASP Act), as amended, establishes the legal framework for the trading of virtual assets in the Cayman Islands. And it regulates the registration and licensing of virtual asset service providers. Since the adoption of the VASP Act, the Cayman Islands Monetary Authority (CIMA) has received a large number of applications for registration and obtaining crypto license in the Cayman Islands to operate like exchanges and brokers, crypto markets and other enterprises operating and providing services in the field of digital assets.
According to the CIMA, trading platforms account for 55 percent of the VASPs registered in Cayman, with a daily transaction volume of USD5.1 billion (2 to 3 percent of total global volumes).
A “virtual asset,” according to the VASP Act, is “a digital representation of value that can be exchanged or transferred digitally. It can also be used for payment or investment purposes”.
The VASP Act distinguishes between a “virtual asset,” as defined above, and a “virtual services token,” which is defined as “a digital representation of value that cannot be transferred or exchanged with a third party at any time, and includes digital tokens. The only function of tokens is to provide access to an application or service, a function directly to its owner.”
This proposal is intended to address the oft-asked question of whether a digital token or coin is a secure token or a useful token. Virtual services tokens would be recognized as utility tokens and thus would be exempt from the registration and licensing requirements of the VASP Act.
“Virtual service tokens are not virtual assets for purposes of law, and a person or entity offering services that include virtual service tokens is not required to obtain a license or registration under this Act,” Section 3(2) of the VASP Act states.
Under the VASP Act, virtual asset services are defined as:
Under the VASP Act virtual asset service provider (VASP) is a company or limited liability company incorporated in the Cayman Islands, which provides virtual asset services as a business or in the course of doing business in or from the Cayman Islands and is registered or licensed under the VASP Act, or is a current licensee who is licensed.
Because it is not providing a virtual asset service as a company or in the course of business, a Cayman entity’s trading activity to buy and dispose of cryptocurrencies for its personal benefit would not be regulated under the VASP Act. The VASP Act only applies to people who provide virtual asset services as a business or in the course of a business for or on behalf of other people. A natural person cannot operate a virtual asset service as a business or in the course of business in or from the Cayman Islands.
A VASP must either register with the CIMA or be licensed by the CIMA under the VASP Act. The activity performed by the VASP will determine if the VASP is required to register or be licensed. However, in general, a virtual asset service licence is necessary for the supply of virtual asset custodial services or the operation of a virtual asset trading platform (e.g. crypto exchanges, trading platforms). Registration with the CIMA appears to be necessary in most circumstances when the VASP is carrying on business as a VASP but is not providing virtual asset custody services or operating a virtual asset trading platform.
VASPs and their operators will face significant administrative nes from the CIMA if they operate in violation of the VASP Act without first obtaining a CIMA registration or a license (as necessary).
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