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Crypto Funds in the Cayman Islands - Rise, Regulations and Structures
The Cayman Islands has been the leading offshore jurisdiction for the establishment of mutual funds and private funds for more than 30 years. Its’ phenomenal reputation has been due in part to the use of innovative legislation and the absence of taxation and exchange controls. This, together with the presence of sophisticated and professional service providers has resulted in the jurisdiction’s reputation for responsible supervision and regulation of funds. In addition, the Cayman Islands has introduced innovative legislation to regulate virtual asset service providers, opening the doors to this market.
It is no surprise therefore that when fund managers were looking for the best jurisdiction to establish new funds investing cryptocurrencies and blockchain products that the Cayman Islands was the jurisdiction of choice
Regulation of Crypto Funds
The Cayman Islands are home to both regulated mutual funds (open-ended) and regulated private funds (closed-ended) for which both are applicable to cryptocurrency and blockchain structures. Mutual Funds are regulated under the Mutual Funds Act (the “MFA”). The MFA applies to all open-ended funds (funds in which the investors have the right to redeem their interests at their option), except those specifically excluded from regulation. Therefore, Tokens which carry an entitlement to participate in the profits or gains of the company will require registration under the MFA if they are redeemable at the option of the holder. There are at least six 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 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.
- Submit to CIMA a current copy of the fund offering document. The offering document must describe the equity interests offered to investors in all material respects and must contain such information as is necessary to enable a prospective investor to make an informed decision as to whether or not to purchase the equity interests.
- Submit to an annual audit and file accounts within six months of the end of the fund’s financial year. This will involve appointing an auditor in the Cayman Islands. All of the major accounting firms are represented in the Cayman Islands.
- Pay a prescribed fee.