The Cayman Islands published a process to establish a regulatory framework to attract and enforce crypto businesses.
According to a press release, the Cayman Islands government wants to build a legal framework for crypto service providers in order to attract them to the island.
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An attractive regulatory framework for crypto
The Cayman Islands Ministry of Financial Services announced on Saturday that they are working on a regulatory framework for „virtual asset service providers“ (VASPs).
It also offered an initial preview of a set of rules that came into effect on October 28. Thus, this initiates a two-phase process.
Phase one of the framework will determine how the Cayman Islands will regulate and enforce anti-money laundering (AML) and counter-terrorist financing (CFT) measures.
Accordingly, phase one focuses on anti-money laundering compliance, supervision and enforcement and therefore crypto businesses, or VASPs, will be required to register with the Cayman Islands Monetary Authority to demonstrate compliance with international standards.
In fact, the Ministry previously published a draft law on active crypto. This seeks to create ground for the gradual implementation of the new rules.
„The Cayman Islands‘ ability to regulate and attract individuals and entities dealing with virtual assets… is strengthened, with the commencement of legislation for virtual asset service providers (VASPs),“ the ministry explained.
Thus, although already underway, phase two is expected to come into effect sometime in June 2021. During this phase, it will analyse the licensing requirements and „prudential supervision“ for crypto companies.
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Proper regulation is excellent
The possible regulation of the crypto market has generally been given a negative connotation. In general because of the fear that too restrictive regulations will be established and that they will affect growth.
However, bear in mind that the lack of regulation is also a major disincentive in the crypto market. The reason is very simple: Crypto companies run an important risk associated to regulatory uncertainty.
Therefore, if appropriate regulation is put in place to encourage healthy growth in the crypto sector, it will be beneficial for mass adoption.
In this regard, the Cayman Islands‘ latest effort in crypto regulation seeks to comply with the FATF recommendations to combat illicit activities.
In fact, the Cayman Islands is being evaluated by the FATF and its Caribbean counterpart; this following a Mutual Evaluation Report. Accordingly, the Ministry has stated that it will inform the CFATF of the launch of phase one.