Video: Crypto Funds in the Cayman Islands

The Cayman Islands maintains its position as the leading offshore jurisdiction for the establishment of mutual funds and private funds and continues to position itself at the forefront of alternative funds investing in cryptocurrencies, Web3 and blockchain products.

Whether utilising a company, partnership or STAR trust structure, the sophisticated regulatory framework in the Cayman Islands can accommodate any mutual fund or private fund seeking a dynamic environment with sophisticated and professional service providers and legal infrastructure conducive to digital innovation.

Watch our video on Crypto Funds and their regulatory requirements in the Cayman Islands below.

The Cayman Islands has maintained its competitive position mainly due to the use of innovative legislation and the absence of taxation and exchange controls. This, together with the presence of sophisticated and world class professional and responsive service providers has resulted in the jurisdiction’s reputation for responsible supervision and regulation of funds.

Types of Crypto Funds

Currently there are six (6) types of mutual funds that are subject to regulation and supervision under the MFA by the Cayman Islands Monetary Authority (“CIMA”) but the one most popular for open-ended Crypto Funds is the Registered Mutual Fund which has a streamlined registration procedure available where:

the initial minimum equity interest purchasable by an investor is US$100,000; or
whose equity interests are listed on an approved stock exchange such as the CSX.

There are two (2) types of private funds that are subject to registration with CIMA: (i) the Registered Private Fund and (ii) the Registered Restricted Scope Private Fund. The most popular structure for closed-ended Crypto Funds is the Registered Private Fund where:

the holders of investment interests do not have day-to-day control over the acquisition, holding, management or disposal of the investments; and
the investments are managed as a whole by or on behalf of the operator of the private fund, directly or indirectly.

The Private Funds Act applies to all closed-ended funds (funds in which the investors do not have the right to redeem their interests at their option), except those specifically excluded from regulation.

Funds Exempt from CIMA Registration

It is worth noting what is not a mutual fund or a private fund. A fund with a single investor has no co-mingling of assets and is not registerable under the MFA or the PFA. Equity interests do not include debt so a fund which issues debt is not subject to the registration process under the MFA or the PFA. Lastly, the definition of a private fund does not include any ‘non-fund arrangement’. These include pension funds, joint ventures, securitisations, SPVs, holding vehicles and others, which Stuarts can advise on, on a case-by-case basis. Care must be taken to ensure that a fund structure is not caught under a different regulatory regime in the Cayman Islands such as the virtual asset regime which would require separate regulation by CIMA.

Other Crypto Structures

The Cayman Islands offers flexible vehicles which may be formed for and used in, a variety of contexts. For digital assets, the preferred vehicles are the exempted company and the foundation company. For more information on this, read our article on structures for crypto entities in the Cayman Islands.

Virtual asset entities including, for example, token issuers, non-fungible tokens (“NFTs”), decentralised autonomous organisations (“DAO”), decentralised finance entities, virtual asset trading platforms, centralised and decentralised exchanges and intellectual property holding entities are typically set up as an exempted company or a foundation company. A Cayman Islands special economic zone company can also be used for virtual asset businesses that desire to move to and physically set up shop in the Cayman Islands within the Special Economic Zone (“SEZ”). The SEZ provides a conducive environment for innovation, offering tax incentives, streamlined regulatory and immigration processes, and a collaborative ecosystem for digital asset businesses to thrive.

If you would like to discuss your requirements in further detail, reach out to us today or call +1 (345) 949-3344 and a member of our team will be glad to assist you.