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The government of the Cayman Islands has published proposed amendments to its investment fund laws, which would redefine how tokenized investment funds are regulated in the jurisdiction.
The step would mark a key development in the digital asset framework in operation in the Cayman Islands, considered to be the world’s largest hub for offshore funds. It’s home to over 30,000 investment funds managing $16 trillion in assets. Approximately 58% of the world’s digital asset hedge funds are based there.
The proposals amend three key pieces of legislation: the Virtual Asset (Service Providers) Act, the Mutual Funds Act, and the Private Funds Act.
The amendments to the Virtual Asset (Service Providers) Act make clear that tokenized private and mutual funds that are registered with the Cayman Islands Monetary Authority are excluded from the operation of the Virtual Asset (Service Providers) Act. That Act was introduced in 2023 and governs all digital asset service providers operating in the Cayman Islands. In other words, tokenized funds will not be regulated as digital asset service providers in the Cayman Islands.
That amendment then clears the way for the subsequent two amendments to the Mutual Funds Act and Private Funds Act. Those acts currently govern the legal operation of private and mutual funds operating in the Cayman Islands; the proposed amendments would bring tokenized funds within those regimes, rather than the Virtual Asset Service Providers regime.
In effect, the changes would treat tokenized investment funds the same way as standard investment funds. Rather than creating new categories of regulated entities, the law simply recognizes that mutual and private funds may both utilize tokenization technology in their offerings.
As with private and mutual funds, the Cayman Islands Monetary Authority (CIMA) has regulatory oversight of tokenized funds and is empowered to inspect the underlying technology.
There are some new obligations tailored to the unique character of tokenized funds. For instance, operators of tokenized funds must submit annual confirmations, assuring that all information relating to issuances, creations, sales, transfers, and ownership interests of digital equity tokens are properly recorded and maintained.
“The publication of these Bills for consultation represents an important step in providing legal clarity for the tokenization of fund interests within Cayman’s existing regulatory framework,” says Haymond Rankin, Associate Director for the fintech, virtual assets, and banking sectors at Cayman Finance.
“By addressing how tokenized mutual funds and private funds are treated under Cayman law, the proposed amendments help reduce uncertainty while maintaining appropriate regulatory oversight.”
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