Eternity Law International News Cayman Islands: a financial offshore for the blockchain industry

Cayman Islands: a financial offshore for the blockchain industry

November 27, 2020

The Cayman Islands are a British dependent territory. For the whole world, the Cayman Islands are known as well-developed and well-functioning financial services center, the main segments of which are insurance, banking and trusts management.

The islands occupy a relatively small area – 264 square meters, however, more than 100 thousand firms are registered there, about half a thousand banking institutions and about 800 organizations providing insurance services. In addition, the Caymans have become the place of registration of the largest number of investment companies in comparison with other jurisdictions. In addition, the Cayman Stock Exchange has been recognized by the London Stock Exchange, which means that securities listed on this exchange can be listed on the LSE international market. In terms of working capital, the Cayman Islands ranked 5th in the world. It is equal to $ 1.5 trillion.

The Cayman Islands have a solid legal framework. With all this, the regulatory authorities, so far, have not introduced any special requirements for conducting an ICO or carrying out crypto-transactions within this island state. Thanks to such a policy and a lower cost level compared to Singapore or, for example, Switzerland, the islands are attracting an increasing number of entrepreneurs who want to engage in activities whose business core is cryptocurrencies and blockchain.

Legal background of cryptocurrencies

The Cayman Island Monetary Authority (CIMA) has not yet shown a concrete opinion on the regulatory status of the cryptocurrency and the order of its turnover. Therefore, the cryptocurrency, now, is in a certain “gray zone”.

At the same time, the Money Services Law (MSL) may regulate the use of a crypto-coin as a means of payment. The provisions of this legislative act stipulate that in order to carry out financial transactions, legal entities must obtain an appropriate license permit from CIMA.

Regulation of ICO and tokens

Despite the fact that the regulators do not have a clear position on ICOs, all tokens that are issued inside the Cayman Islands are conventionally divided into three types:

  1. Payment tokens;
  2. Securities tokens;
  3. Utility tokens.

Legislative Framework of Crypto Activities

The Monetary Service Law (MSL) can regulate the use of tokens and cryptocurrencies, as crypto transactions can be regarded as financial services. Therefore, the company must obtain the appropriate authorization from CIMA.

MSL states that monetary services include the following:

  1. money transfers;
  2. cash withdrawal by checks;
  3. currency exchange;
  4. redemption, trading or issuance of traveler’s checks and payment orders;
  5. provision of the above mentioned services as agent or franchisee.

In addition, the companies are obliged to comply with the AML legal regime.

Foundations in the Cayman Islands focused on cryptocurrencies

The activities carried out by such funds and the procedure for registering them are regulated by the Mutual Fund Law (MFL). In this case, the company must also apply to CIMA for appropriate authorization. It is necessary that the shares of the firm meet the following criteria:

  • provide an opportunity to make a profit;
  • they can be redeemed in accordance with the requirements of a shareholder or participant.

In accordance with the Law, there are three available forms of regulation of mutual investment funds:

  1. Licensed mutual fund. The license to be issued at the discretion of CIMA. All founders are to be in good standing, the mutual fund should be managed by persons with sufficient experience to be directors (or, as the case may be, managers or other officers), and that the fund will operate properly. This method is suitable for mutual funds that are promoted by well-known and reputable organizations and that do not offer to appoint a Cayman Islands resident administrator.
  2. Managed mutual fund. The second way is for the mutual fund to appoint its headquarters in the Cayman Islands at the office of a licensed administrator. In this case, an application witch includes an approved form must be filed to CIMA and a registration fee of $ 4,268 must be paid. There is no need to obtain a license, instead, the fund administrator must ensure that each founder is in good standing, that the fund will be managed by individuals who have sufficient experience to run the mutual fund, and that the fund’s business operations are conducted properly.
  3. According to section 4 (3) of the Act, there is another category of regulated mutual funds that can be applied in the following cases:
    • if the minimum investment per investor is at least 100 thousand US dollars; or
    • if the shares in equity are quoted by a stock exchange.

The fund is not required to be licensed or provided with a head office by the Cayman Islands mutual fund administrator. The fund is simply registered with the Authority by submitting an application along with an approved form (Form MF1) and paying a fee of $ 4,268.

Pros of Cayman Foundations

  1. It is a respected offshore financial center.
  2. No tax collection. The Cayman Islands Foundation is not tax deductible.
  3. Speed ​​and efficiency. The creation of a fund is faster here than in other jurisdictions.
  4. Flexible terms.
  5. Professional service providers. The Cayman Islands are operated by reputable, regulated and professional service providers and institutions that accompany high-quality financial services.
  6. Legislative and regulatory framework. The laws of the Cayman Islands are largely based on English common law and a number of “key” English statutes. This makes the Cayman Islands’ regulatory system similar to that of many jurisdictions, including the United States. It also means that the mechanisms and types of securities that Cayman Islands funds offer are accepted around the world, including New York, London and Hong Kong.
  7. No restrictions and currency controls. There are no foreign exchange controls in the Cayman Islands.

Eternity Law International lawyers of are ready to provide you with qualified support and assistance in setting up a fund organization under the jurisdiction of the Cayman Islands. If you have any questions, please contact us by phones mentioned on the website or use the CRM form.

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