Cayman Islands: Securities-Related Laws

In the Cayman Islands, the definition of a “security” is set out in the Securities Investment Business Law (Revised) (SIBL). Unlike the definition of a security contained in the U.S. Securities Act, SIBL defines “securities” in a list of instruments that are common in today’s financial markets. This list does not include an equivalent to the expansive concept of an “investment contract”, and therefore one does not need to apply the four part Howey test in order to determine whether a token is a security.

Another relevant comparison between SIBL and the U.S. Securities Act of 1933 is the legal consequence of a token being classified as a security. In Cayman it is possible for a token to be classified as a security but for the token issuer nonetheless not to be carrying on “securities investment business”.

Under the Securities Investment Business Law (2015 Revision), 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. Taking these into consideration, an ICO can be classified as a security without the ICO company falling within the scope of the Securities Investment Business Law.

Clearly any regulatory analysis for an ICO will depend on its particular features. It is also to be understood that the zeitgeist among onshore regulators is to try to bring tokens within their regulatory scope. The Cayman Islands Monetary Authority (CIMA) has not made any public comment about its approach. As currently drafted, however, the Cayman legislation allows for a more robust interpretation than may be possible in other jurisdictions and means that many ICOs and Cayman issuers will not be required to be registered or licensed with the Cayman regulator.

Each ICO should be evaluated on its merits and for many (eg, ICOs involving so-called ‘usage’ or ‘utility’ tokens), the Securities Investment Business Law will not be applicable.


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