The following statutory and regulatory regimes must be considered when structuring an ICO, conducting token sales, founding a token exchange, or founding a finance-related blockchain project in the Cayman Islands:

The Money Services Law

The Money Services Law regulates money services businesses in the Cayman Islands. These include businesses providing (as a principal business) money transmission and currency exchange. The applicability of the law will depend on the specifics of the ICO / money-related business activities.

The Securities Investment Business Law

Under the Securities Investment Business Law, a person cannot carry on or purport to carry on securities investment business unless he or she holds – or is exempt from holding – a licence granted under the law. The Securities Investment Business Law defines ‘securities’ through a list of instruments that are common in financial markets, with no specific mention of digital tokens or cryptocurrencies. It defines ‘securities investment business’ through a list of activities, including dealing in, arranging deals in, managing and advising on securities.

The Securities Investment Business Law contains a list of ‘excluded persons’ who are exempt from the requirement to hold a licence and a list of activities that do not constitute securities investment business for the purposes of the law. ICO coins/tokens can be classified as securities without the company falling within the scope of the Securities Investment Business Law. Each ICO is evaluated on its merits and for many (e.g., ICOs involving so-called ‘usage’ or ‘utility’ tokens), the Securities Investment Business Law may not be applicable.

The Proceeds of Crime Law, Anti-money Laundering Regulations and existing guidance notes

The anti-money laundering laws need careful consideration with respect to all Cayman-domiciled ICOs. The Proceeds of Crime Law generally applies to all Cayman-domiciled entities. The Anti-money Laundering Regulations 2017 and existing guidance notes focus primarily on the regulated sector in the Cayman Islands and prescribe the policies and procedures to be put in place by Cayman-regulated entities (ie, those undertaking relevant financial business, the definition of which is fairly broad) with respect to money laundering.

Given the general application of the Proceeds of Crime Law, ICO companies should not assume that if their intended ICO falls outside the ambit of the Anti-money Laundering Regulations, they need not concern themselves with anti-money laundering issues. Irrespective of the final determination, solutions are available in the market to mitigate against ICO companies falling foul of the anti-money laundering laws.

The Mutual Funds Law

If the ICO relates to an investment fund or investment fund activity, the proposed structure should be considered in the context of the Mutual Funds Law. Given the law’s definition of equity interests (a key determining factor as to whether an entity qualifies as a mutual fund), many of ICO companies – distinct from any blockchain or cryptocurrency asset class-focused fund – should be unaffected by the Mutual Funds Law.

The Electronic Transactions Law

The Electronic Transactions Law (ETL) should be considered when preparing and accepting the terms and conditions or purchase agreement relating to an ICO, smart contracts or any activities related to electronic transactions. As for the smart contracts, the Electronic Transactions Law (2003 Revision) provides that information, documents and contracts (or any provision thereof) shall not be denied legal effector validity solely because it is in electronic form. Similarly, evidence of a contract (or provision thereof) shall not be denied admissibility solely because it is in electronic form and electronic signatures are also expressly permitted. The effect of the Law is that it provides a lot of latitude for new technologies meaning that new legislation should not be necessary to enable new products and services to be developed. ETL also provides a framework for the use of electronic signatures as a digital proof.

Sources

• The Money Services Law (2010 Revision)

• The Securities Investment Business Law (2003 Revision)

• Proceeds of Crime Law (2008), Money Laundering Regulations (2013 Revision)

• The Mutual Funds Law (2015 Revision)

• The Electronic Transactions Law (2000, 2003 Revision not found)

• [https://www.cmscayman.com/law]

Experts’ comments

• Ogier

• Stuarts Law

• Proshareng

• Cayman Finance

• Kayman Journal