Cayman Islands tightens crypto rules with mandatory licenses starting April 1

The Cayman Islands has introduced new crypto licensing regulations that will require virtual asset service providers (VASPs) offering custody and trading services to obtain approval from the Cayman Islands Monetary Authority.

The rules, set to take effect on April 1, 2025, are part of a broader effort to align the jurisdiction with international standards aimed at strengthening investor protections and improving market integrity.

Mandatory license

The new framework, outlined in the Virtual Asset Service Providers Amendment Regulations 2025, mandates that all crypto firms operating in custody or trading services secure a formal license.

The regulation applies to both newly established entities and the 17 VASPs currently registered in the Cayman Islands. Companies will have a 90-day compliance window, which extends until July 1, 2025, to meet the necessary requirements.

As part of the licensing process, custody providers must disclose the types and values of digital assets they hold and provide a clear explanation of their custodial purpose. This measure is intended to ensure compliance with anti-money laundering and counter-terrorism financing standards.

Additionally, trading platforms will be required to report their projected revenue and disclose the physical location of their supporting hardware, a move designed to enhance regulatory transparency and jurisdictional oversight.

All applicants must submit cybersecurity plans, risk management strategies, and details on how they intend to prevent asset loss or theft, reinforcing efforts to address vulnerabilities in the digital asset sector.

Improving compliance

The regulations expand upon the Virtual Asset (Service Providers) Act 2020, which was updated last year to align with recommendations from the Financial Action Task Force (FATF).

In recent years, CIMA has been working to tighten regulatory measures. It previously implemented the “Rule for Virtual Asset Custodians and Virtual Asset Trading Platforms” to create a structured compliance environment for digital asset businesses.

The stricter licensing rules are expected to reshape the Cayman Islands’ crypto sector by raising the bar for operational compliance. With a stronger regulatory framework in place, the jurisdiction may attract established firms looking for a stable and well-regulated environment while weeding out operators that are unable to meet the requirements.

The upcoming July deadline is expected to spur system upgrades and compliance efforts among existing VASPs. The new requirement for trading platforms to disclose the location of their hardware could also improve accountability in cross-border transactions, potentially setting a precedent for other jurisdictions.

While the updated framework is designed to strengthen investor protections and market stability, smaller firms may struggle with the financial and operational demands of compliance. Meanwhile, larger players with greater resources may find it easier to meet the cybersecurity and risk management requirements, giving them a competitive advantage.

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