Speaker: 00:00:01

It's not too bad.

00:00:02,936 --> 00:00:04,037

1515 podcast.

00:00:04,037 --> 00:00:08,341

I'm Chris Capewell and I'm the Head

of the Regulatory Team here at Maples.

00:00:08,341 --> 00:00:11,378

And joining me today,

I have my fellow partner, Adam Huckle.

00:00:11,411 --> 00:00:13,880

Hey, Adam, how're you doing?

Good stuff. Thanks.

00:00:13,880 --> 00:00:14,714

Good, good.

00:00:14,714 --> 00:00:19,152

And we also have our special guest flown

in, especially all the way from Asia.

00:00:19,652 --> 00:00:22,789

Daniel Moore,

who's of counsel in our Hong Kong office.

00:00:22,789 --> 00:00:25,392

And he's here today

in person to do the podcast.

00:00:25,392 --> 00:00:27,660

Hey, Dan. There you go. Thanks, Chris.

00:00:27,660 --> 00:00:28,661

Nice to be here.

00:00:28,661 --> 00:00:29,396

Good.

00:00:29,396 --> 00:00:33,199

Don't sound as enthusiastic as Adam,

but maybe you'll warm up.

00:00:33,199 --> 00:00:36,669

The march edition

today, we're going to cover

00:00:36,669 --> 00:00:40,840

all the latest developments

since our last episode in February.

00:00:40,874 --> 00:00:45,945

There's quite a bit, but then we need to

get into too much detail on any of them.

00:00:46,079 --> 00:00:48,014

We will be covering tokenized funds.

00:00:48,014 --> 00:00:50,717

There's some updates on

beneficial ownership guidance.

00:00:50,717 --> 00:00:53,586

There's AML and CFT updates.

00:00:53,586 --> 00:00:57,857

There's an update to the enforcement

and supervisory matters to CIMA.

00:00:57,957 --> 00:01:01,795

We've got a couple of FATAF reports

on virtual assets that I think, Dan,

00:01:01,828 --> 00:01:02,896

you're going to talk to.

00:01:02,896 --> 00:01:04,664

So so we'll crack on.

00:01:04,664 --> 00:01:10,003

As always, if you do want to subscribe,

please go to Apple Podcasts or Spotify.

00:01:10,036 --> 00:01:14,340

So Dan to you first

tokenized fund amendments.

00:01:14,774 --> 00:01:15,475

Thanks, Chris.

00:01:15,475 --> 00:01:17,410

So yeah, we've had some big news

00:01:17,410 --> 00:01:21,414

for the industry in that three

tokenized funds amendment bills

00:01:21,414 --> 00:01:27,053

were passed as anticipated by Parliament

in command on 5th of March 2026.

00:01:27,053 --> 00:01:30,256

And the framework is actually three

different pieces of legislation

00:01:30,256 --> 00:01:31,624

that are all interlinked.

00:01:31,624 --> 00:01:35,428

So we've got amendments

to the Mutual Funds Act, the Private Funds

00:01:35,462 --> 00:01:39,299

Act, and also to the virtual asset

service providers or VASP act.

00:01:39,299 --> 00:01:43,436

And it's quite big news

because together, these bills put together

00:01:43,470 --> 00:01:47,574

a framework for tokenized investment

fund structures in Cayman.

00:01:47,574 --> 00:01:51,478

And as some listeners will be aware,

tokenization refers

00:01:51,478 --> 00:01:55,782

to the digital representation

of an investors interest in the fund

00:01:55,782 --> 00:02:00,954

using blockchain or similar technology,

while at the same time the underlying

00:02:00,987 --> 00:02:05,058

legal ownership and the investor

rights remain as normal. So.

00:02:05,091 --> 00:02:09,462

So these structures offer potential

efficiencies in areas like record keeping,

00:02:09,562 --> 00:02:13,700

transfer controls, settlement processes,

onboarding and so on.

00:02:13,700 --> 00:02:17,704

And for those reasons,

they've been increasing in popularity

00:02:17,737 --> 00:02:19,072

for for a number of years.

00:02:19,072 --> 00:02:23,076

But the challenge

was that the absence of express statutory

00:02:23,076 --> 00:02:26,980

provisions gave rise to some legal

uncertainty, particularly around

00:02:26,980 --> 00:02:31,184

whether the issuance of digital tokens

by funds could fall within the scope

00:02:31,184 --> 00:02:34,521

of the VASP act,

and some actors were concerned

00:02:34,521 --> 00:02:38,591

that this could lead to dual regulation

under VASP and mutual

00:02:38,591 --> 00:02:42,896

or private funds, with the associated

costs and uncertainty that come with that.

00:02:42,896 --> 00:02:46,733

So, following consultation

with industry stakeholders,

00:02:47,000 --> 00:02:50,703

the Cayman Islands Monetary Authority,

the Ministry of Financial Services

00:02:50,737 --> 00:02:55,041

and Commerce all concluded that

tokenized funds are most appropriately

00:02:55,041 --> 00:03:00,313

regulated within Caymans

existing funds framework. The.

00:03:00,747 --> 00:03:05,752

Probably the most important amendment

is that the VASP Amendment Act clarifies

00:03:05,752 --> 00:03:09,355

that the issuance of digital tokens

by a regulated fund

00:03:09,389 --> 00:03:12,759

will not constitute a virtual asset

issuance under the VASP act.

00:03:12,759 --> 00:03:13,760

So that was the

00:03:13,760 --> 00:03:17,630

I think, the change that most industry

participants were looking for clarity on.

00:03:17,764 --> 00:03:23,836

In addition to that, the mutual funds

and private fund bills introduce

00:03:23,870 --> 00:03:26,539

a few new statutory provisions

for tokenized funds,

00:03:26,539 --> 00:03:30,777

and that includes specific legal

definitions of digital equity

00:03:30,810 --> 00:03:36,349

tokens, digital investment tokens,

some enhanced record keeping obligations,

00:03:36,382 --> 00:03:39,953

some clarifications around transferability

and how that would work,

00:03:39,986 --> 00:03:45,858

and also disclosure of technology

specific risks in fund documentation.

00:03:45,858 --> 00:03:48,094

So it's quite a big change.

00:03:48,094 --> 00:03:52,665

We'll be expecting to be advising

quite a lot on this for for our clients.

00:03:52,765 --> 00:03:54,834

Obviously we're available to do that.

00:03:54,834 --> 00:03:58,938

And I'd like to pass now to Adam,

who will pick up on beneficial

00:03:58,938 --> 00:04:00,039

ownership guidance.

00:04:02,976 --> 00:04:03,676

Thanks Dan.

00:04:03,676 --> 00:04:07,580

Yep, a quick update from me

on the beneficial ownership regime.

00:04:07,614 --> 00:04:11,317

So on the 25th of February this year,

00:04:11,417 --> 00:04:13,319

the Ministry published an updated

00:04:13,319 --> 00:04:16,756

guidance notes on complying

with the beneficial ownership regime

00:04:16,756 --> 00:04:20,693

and that updated guidance is now available

on the registrars website.

00:04:20,693 --> 00:04:23,630

And essentially,

it updates the existing document

00:04:23,630 --> 00:04:25,932

to take into account

some recent amendments

00:04:25,932 --> 00:04:29,902

to our Beneficial Ownership

Transparency Act and regulations.

00:04:30,236 --> 00:04:34,307

Now, I think it's worth

repeating that our clients and listeners

00:04:34,307 --> 00:04:38,544

should ensure that they are aware

of their own personal obligations, as well

00:04:38,544 --> 00:04:41,614

as those of their beneficial owners

under the current regime.

00:04:41,614 --> 00:04:45,385

In other words, not just the obligations

that otherwise sit

00:04:45,385 --> 00:04:49,055

with the corporate service provider

or registered office.

00:04:49,188 --> 00:04:53,493

And as we previously said on this podcast

and as many others have pointed out,

00:04:53,559 --> 00:04:58,665

although the regime does rely relatively

heavily on the registered office to ensure

00:04:58,665 --> 00:05:02,502

that the filing of beneficial ownership

registers works smoothly,

00:05:02,535 --> 00:05:06,639

there are numerous obligations

under the statute that require

00:05:06,673 --> 00:05:10,376

legal entities and their beneficial owners

to take certain actions,

00:05:10,376 --> 00:05:13,146

rather than just relying

on the registered office,

00:05:13,146 --> 00:05:16,549

and one of the reasons

why that is important is that

00:05:16,549 --> 00:05:20,720

we have started to see

the registrar again, reviewing entities

00:05:20,720 --> 00:05:25,625

filed beneficial ownership registers

and investigating where, for example,

00:05:25,658 --> 00:05:26,259

the required

00:05:26,259 --> 00:05:30,363

particulars are still outstanding

and the registrar or the register rather

00:05:30,363 --> 00:05:33,399

has been marked with pending status

for more than three months.

00:05:33,399 --> 00:05:37,537

And in those circumstances,

the registrar will likely seek responses

00:05:37,537 --> 00:05:41,507

from both the registered office

but also from the legal entity itself,

00:05:41,674 --> 00:05:45,311

as to why that beneficial ownership

information remains outstanding.

00:05:45,311 --> 00:05:49,949

And, you know, if no good answers

are given to to rebut the presumption

100

00:05:49,949 --> 00:05:55,021

of breach, the registrar can and often

will impose administrative

101

00:05:55,021 --> 00:05:59,258

finds, a topic that we'll come back

to later in this podcast.

102

00:06:00,860 --> 00:06:02,395

Adam, thanks for that.

103

00:06:02,395 --> 00:06:05,732

I think you're going to also mention

national risk assessment.

104

00:06:05,732 --> 00:06:07,633

There's been some updates there,

fact sheet.

105

00:06:07,633 --> 00:06:08,134

Yeah, yeah.

106

00:06:08,134 --> 00:06:11,871

Moving on to, you know, the NRA,

the National Risk Assessment,

107

00:06:11,871 --> 00:06:16,909

as well as the upcoming CF, ATF, mutual

evaluation of the Cayman Islands.

108

00:06:16,909 --> 00:06:22,014

So on the 2nd of March this year,

the government here published an updated

109

00:06:22,115 --> 00:06:25,051

25-26 National Risk Assessment

110

00:06:25,051 --> 00:06:28,221

fact sheet, which is now available

on the government's website.

111

00:06:28,588 --> 00:06:33,659

And just as a reminder that National Risk

assessment is a periodic review

112

00:06:33,659 --> 00:06:37,930

conducted by government

effectively to assess, identify

113

00:06:37,930 --> 00:06:42,435

and understand the jurisdictions risks

regarding money laundering, terrorist

114

00:06:42,435 --> 00:06:46,239

financing, proliferation financing

and targeted financial sanctions.

115

00:06:46,372 --> 00:06:50,376

And the fact sheet essentially sets out

it's quite a good, good go to guide.

116

00:06:50,376 --> 00:06:54,180

It sets out a summary of the objectives,

the strategic importance

117

00:06:54,180 --> 00:06:58,785

and timing for the NRA,

which has commenced relatively recently,

118

00:06:58,785 --> 00:07:02,155

and a lot of government

agencies are now busy working on it.

119

00:07:02,188 --> 00:07:05,558

The document also includes

a helpful FAQ section at the back.

120

00:07:05,558 --> 00:07:08,561

If you're trying to explain

what it's all about.

121

00:07:08,694 --> 00:07:13,232

And all of this and the NRA in particular,

is part of Cayman’s

122

00:07:13,232 --> 00:07:19,305

preparations for the fifth round Caribbean

Financial Action Task Force's (CFATF)

123

00:07:19,338 --> 00:07:22,341

mutual evaluation of the Cayman Islands,

which is scheduled

124

00:07:22,375 --> 00:07:25,378

to begin in 2027.

125

00:07:26,112 --> 00:07:28,414

One point

perhaps worth noting from the fact sheet

126

00:07:28,414 --> 00:07:32,852

is that some of the procedural steps,

you know, the timelines have been extended

127

00:07:32,852 --> 00:07:37,457

or pushed back by by sort of five months

or so, including, notably,

128

00:07:37,457 --> 00:07:42,829

the inherent risk assessment,

which now extends until until May 2026.

129

00:07:42,829 --> 00:07:46,899

So May this year, with the residual risk

assessment and the National Action Plan

130

00:07:46,933 --> 00:07:48,768

similarly being pushed back.

131

00:07:48,768 --> 00:07:51,771

And that may well be positive news

because it gives everyone a little bit

132

00:07:51,771 --> 00:07:55,541

more breathing space and allows the

potential for more industry consultation.

133

00:07:55,641 --> 00:07:58,177

Now what we'll be doing,

Chris, is providing

134

00:07:58,177 --> 00:08:03,182

continued upstate updates

in future podcasts as to both the progress

135

00:08:03,182 --> 00:08:07,386

of the NRA and the mutual and valuation

as those go forward.

136

00:08:07,720 --> 00:08:09,255

Yeah, and that's a good point.

137

00:08:09,255 --> 00:08:12,992

The risk assessment often does

get overlooked, and it's quite a key

138

00:08:12,992 --> 00:08:16,162

document, particularly

if simplified due diligence.

139

00:08:16,162 --> 00:08:20,833

You know, you do really need to to know

what's happening on the risk assessment.

140

00:08:20,833 --> 00:08:25,738

And as you mentioned, the CFATF review

that's coming up soon.

141

00:08:25,738 --> 00:08:28,241

The focus of that

will be on effectiveness.

142

00:08:28,241 --> 00:08:32,778

And that segways quite neatly into also,

another update that I want you to

143

00:08:32,812 --> 00:08:35,982

touch on Adam is some amendments

and proposed consultation

144

00:08:35,982 --> 00:08:40,520

to more enhance effectiveness

around AML and also sanctions.

145

00:08:40,520 --> 00:08:42,154

So do you want to talk on those?

146

00:08:42,154 --> 00:08:44,023

Yeah. You're right. Chris.

147

00:08:44,023 --> 00:08:47,460

You know, ahead of the mutual evaluation,

which as you say,

148

00:08:47,493 --> 00:08:50,630

is is typically focused on effectiveness.

149

00:08:50,663 --> 00:08:54,400

CIMA, so Cayman Islands

Monetary Authority is circulated

150

00:08:54,433 --> 00:08:58,538

to industry for consultation

to proposed new rules.

151

00:08:58,538 --> 00:09:00,273

So capital are rules.

152

00:09:00,273 --> 00:09:03,876

The first is the rule

on effective compliance program

153

00:09:03,876 --> 00:09:08,014

for AML, CFT, CPF for financial services

providers.

154

00:09:08,014 --> 00:09:11,117

And the second one is entitled

The Rule on Compliance

155

00:09:11,117 --> 00:09:14,854

with Financial Sanctions

and Targeted Financial Sanctions.

156

00:09:14,854 --> 00:09:20,092

And essentially, the two proposed rules

are intended to reflect

157

00:09:20,293 --> 00:09:25,064

what is already contained within

the AML regulations and the accompanying

158

00:09:25,298 --> 00:09:29,535

AML guidance notes, rather

than adding anything substantive or new.

159

00:09:29,535 --> 00:09:34,040

And the reason behind the new rules,

or at least one of them,

160

00:09:34,106 --> 00:09:40,079

and as communicated to industry by CIMA,

is that one of the criticisms of Cayman

161

00:09:40,112 --> 00:09:43,816

during the previous

see CFATF inspection was that the AML

162

00:09:43,883 --> 00:09:47,053

guidance notes were not by themselves

enforceable.

163

00:09:47,353 --> 00:09:47,653

Right.

164

00:09:47,653 --> 00:09:51,824

Because, you know, in other words,

the guidance notes they set out

165

00:09:51,857 --> 00:09:55,695

CIMA’s examples

and description of good industry practice.

166

00:09:55,962 --> 00:10:00,032

But the only real enforceable breaches

were not of the guidance itself,

167

00:10:00,032 --> 00:10:03,035

but rather only of the underlying

AML regs.

168

00:10:03,135 --> 00:10:07,139

And, you know,

reflecting the AML guidance in new rules.

169

00:10:07,139 --> 00:10:11,711

What that do what that would do

is allow CIMA to address that criticism

170

00:10:11,711 --> 00:10:17,283

by potentially finding and enforcing,

including by way of Ministry of Fines,

171

00:10:17,350 --> 00:10:20,620

breaches of those new rules, as well as,

172

00:10:20,853 --> 00:10:23,789

you know, of the underlying

AML regs themselves.

173

00:10:23,789 --> 00:10:28,294

So from a sort of CFATF, FATF

40 compliance perspective

174

00:10:28,361 --> 00:10:33,132

that would allow Cayman to show

to see CFATF at the mutual evaluation,

175

00:10:33,399 --> 00:10:35,401

you know, that

they're paying more attention or at least,

176

00:10:35,401 --> 00:10:37,937

you know, getting up to grips

with effectiveness, i.e.

177

00:10:37,937 --> 00:10:41,474

the evidence of an enforcement route

and program

178

00:10:41,474 --> 00:10:44,577

rather than just the technical compliance

179

00:10:44,577 --> 00:10:49,148

which which is having the

the rules and the statutes on the books.

180

00:10:49,181 --> 00:10:53,352

Now, industry consultation ends this month

or during this month.

181

00:10:53,386 --> 00:10:55,655

There have been some recent extensions,

I understand,

182

00:10:55,655 --> 00:11:00,693

so nothing has yet been finalized,

and we expect that some of those industry

183

00:11:00,693 --> 00:11:04,697

comments will likely be trying

to highlight to CIMA, where perhaps

184

00:11:04,697 --> 00:11:08,868

the current drafting of the rules

may go further or not accurately reflect

185

00:11:08,868 --> 00:11:12,038

what's currently within the AML regs

and the guidance notes.

186

00:11:12,038 --> 00:11:15,441

So certainly a topic to watch

and one for our listeners to,

187

00:11:15,441 --> 00:11:18,411

to pay attention to in future podcasts.

188

00:11:18,577 --> 00:11:19,011

Yeah.

189

00:11:19,011 --> 00:11:21,414

And we've been looking

at that pretty extensively

190

00:11:21,414 --> 00:11:24,784

and we've shared some comments

with industry associations.

191

00:11:24,784 --> 00:11:27,453

The deadline I think is next Friday.

192

00:11:27,453 --> 00:11:30,923

So 20th of March.

So do have a look at that.

193

00:11:30,923 --> 00:11:32,958

If you can get access to it.

194

00:11:32,958 --> 00:11:34,393

There's going to be some comments to it.

195

00:11:34,393 --> 00:11:37,396

But importantly

it does extend to investment funds.

196

00:11:37,396 --> 00:11:40,599

So this is going to have wide audience

197

00:11:40,599 --> 00:11:44,336

of vehicles that we captured by it

if it comes in in full form.

198

00:11:44,336 --> 00:11:48,474

So definitely important item okay Adam.

199

00:11:48,474 --> 00:11:51,277

Effectiveness

still the key enforcement manual.

200

00:11:51,277 --> 00:11:52,745

Any updates there.

201

00:11:52,745 --> 00:11:56,415

Yeah I'm I'm very interested in this one

and I think it's very helpful.

202

00:11:56,415 --> 00:12:00,219

So earlier

this month CIMA published an updated

203

00:12:00,219 --> 00:12:03,656

general enforcement manual,

which is now available on its website.

204

00:12:03,656 --> 00:12:09,028

And the main change here

is the addition of a new discretionary

205

00:12:09,028 --> 00:12:13,265

publication section

and in particular a new section on.

206

00:12:13,299 --> 00:12:16,802

And I'm quoting here the procedure

for discretionary publication

207

00:12:16,802 --> 00:12:19,772

of enforcement actions and administrative

fines.

208

00:12:20,072 --> 00:12:24,376

Now, in the context

of any enforcement action by CIMA,

209

00:12:24,410 --> 00:12:28,948

one of the key considerations

for anyone affected and particularly

210

00:12:28,948 --> 00:12:31,984

our clients, is often

whether the process and ultimate

211

00:12:31,984 --> 00:12:34,987

finding by CIMA is going to be made public

in any way.

212

00:12:35,454 --> 00:12:39,692

And there have been multiple examples

as as many of our listeners

213

00:12:39,692 --> 00:12:43,963

will know where CIMA has publicised

its enforcement successes.

214

00:12:44,196 --> 00:12:48,467

And in that regard, the new section

in the enforcement manual,

215

00:12:48,467 --> 00:12:53,072

I think is quite helpful

because it clearly sets out in one place.

216

00:12:53,105 --> 00:12:56,642

Firstly,

which of the enforcement actions and types

217

00:12:56,642 --> 00:13:00,913

are required by statute to be made public,

because quite often that's unknown.

218

00:13:00,913 --> 00:13:04,150

So suspensions

and revocations of licenses.

219

00:13:04,150 --> 00:13:08,454

For example, the statute requires

publication as opposed

220

00:13:08,454 --> 00:13:12,258

to the other types of enforcement actions,

including administrative

221

00:13:12,258 --> 00:13:16,962

fines, where CIMA has the discretion

whether or not to make them public.

222

00:13:17,663 --> 00:13:22,868

Secondly, the section sets out the process

that CIMA has to undertake

223

00:13:22,902 --> 00:13:26,071

and the issues it ought to consider before

224

00:13:26,705 --> 00:13:31,110

exercising its discretion to publicize

the fine or the enforcement action.

225

00:13:31,110 --> 00:13:34,713

It also sets out what information,

what type of information

226

00:13:34,713 --> 00:13:39,185

can actually be made public, and generally

what would be about the fine

227

00:13:39,185 --> 00:13:43,255

when and where that information

can be made public as well.

228

00:13:43,255 --> 00:13:47,593

So again, you know, really quite helpful,

I think, just to be open about that

229

00:13:47,593 --> 00:13:51,463

so that everyone knows the process

and the position that CIMA has

230

00:13:51,463 --> 00:13:55,234

with respect to potential publication

of these types of enforcement actions

231

00:13:55,234 --> 00:13:56,001

and fines.

232

00:13:56,001 --> 00:13:59,872

Hand over to to Dan now

to to talk about relevant

233

00:13:59,905 --> 00:14:03,108

updates in the virtual asset and crypto

space.

234

00:14:04,043 --> 00:14:04,343

Great.

235

00:14:04,343 --> 00:14:07,313

Thank you very much, Adam. Yeah.

236

00:14:07,313 --> 00:14:08,814

The FATF has been busy

237

00:14:08,814 --> 00:14:13,252

in the virtual asset space

and has just released its March 2026

238

00:14:13,252 --> 00:14:17,957

report on offshore virtual asset

service providers or offshore VASPs.

239

00:14:17,957 --> 00:14:21,894

And obviously, Cayman Islands

being an offshore jurisdiction in which

240

00:14:21,894 --> 00:14:25,097

we have a number of operating VASPs,

241

00:14:25,831 --> 00:14:28,834

there are some important

compliance lessons for that sector.

242

00:14:28,834 --> 00:14:32,738

And I think it's mandatory reading

for anyone operating in that space.

243

00:14:32,738 --> 00:14:36,976

So to briefly touch on some of them,

the report is clear

244

00:14:36,976 --> 00:14:40,579

that regulators are increasingly

looking for compliance officers

245

00:14:40,579 --> 00:14:44,316

who are based in jurisdiction,

who have unrestricted access

246

00:14:44,316 --> 00:14:48,320

to customer information,

and who actually hold significant,

247

00:14:48,454 --> 00:14:51,857

sufficient rather ,seniority

to take independent decisions.

248

00:14:51,991 --> 00:14:53,359

Now, I point out that that's

249

00:14:53,359 --> 00:14:56,695

actually something that's required

by the Cayman VASP framework anyway.

250

00:14:57,096 --> 00:15:00,266

And travel rule

implementation is another area.

251

00:15:00,833 --> 00:15:05,337

There's been identified

as an uneven rollout of the travel

252

00:15:05,337 --> 00:15:08,507

rule globally, and that's creating

some monitoring blind spots

253

00:15:08,507 --> 00:15:11,510

that give rise to risks for VASPs

particularly offshore VASPs.

254

00:15:11,543 --> 00:15:15,881

And it's noted that VASP

proactively implemented implement

255

00:15:15,915 --> 00:15:19,551

travel rule compliance,

and that once they can have

256

00:15:19,551 --> 00:15:22,321

all that originator

and beneficiary information,

257

00:15:22,321 --> 00:15:25,291

they'll be better position

for cross-border compliance.

258

00:15:25,958 --> 00:15:28,360

Additionally,

it says that VASPs should apply risk

259

00:15:28,360 --> 00:15:32,064

based controls quite similar

to those for correspondent banking.

260

00:15:32,064 --> 00:15:34,700

So it's an area where,

261

00:15:34,700 --> 00:15:37,937

you know, virtual assets

can learn from tread fire in that respect.

262

00:15:37,937 --> 00:15:42,541

And that means gathering sufficient

information about your counterparty VASPs,

263

00:15:42,574 --> 00:15:44,143

assessing their AML controls,

264

00:15:44,143 --> 00:15:48,013

and obtaining senior management approval

before establishing new relationships.

265

00:15:48,013 --> 00:15:49,081

Because obviously

266

00:15:49,081 --> 00:15:52,785

there is a large amount of vast

to vast interface in the crypto world,

267

00:15:52,818 --> 00:15:54,520

and that gives rise to its own risks.

268

00:15:54,520 --> 00:15:57,856

So it is incumbent on regulated operators

to assess

269

00:15:57,890 --> 00:16:00,893

not only themselves,

but their counterparties as well.

270

00:16:00,893 --> 00:16:04,496

Additionally,

regulators are scrutinizing situations

271

00:16:04,496 --> 00:16:08,434

where customers are serviced through

pooled or group level arrangements, rather

272

00:16:08,434 --> 00:16:11,670

than being clearly assigned

to the locally supervised entities.

273

00:16:11,670 --> 00:16:15,274

And we're we're aware of this

when we're putting in VASP applications.

274

00:16:15,274 --> 00:16:19,578

The regulators are quite focused

on group level controls and outsourcing.

275

00:16:19,578 --> 00:16:23,082

And then finally, for Vast

that are operating across

276

00:16:23,082 --> 00:16:26,185

multiple markets,

which most offshore asks, do you need

277

00:16:26,218 --> 00:16:29,788

group wide AML controls

that in every jurisdiction are in line

278

00:16:29,788 --> 00:16:34,293

with the FATF requirements

specifically for Cayman Islands.

279

00:16:34,293 --> 00:16:35,661

Our regulator, CIMA, featured

280

00:16:35,661 --> 00:16:39,898

in a case study on cross-border

supervisory cooperation with the Abu Dhabi

281

00:16:39,932 --> 00:16:43,502

global market, and that investigation

uncovered some governance

282

00:16:43,502 --> 00:16:47,272

failures and unlicensed activities

with respect to a particular VASP.

283

00:16:47,272 --> 00:16:49,441

And that resulted in that vast

284

00:16:49,441 --> 00:16:53,212

cancellation of registration

and some significant penalties.

285

00:16:53,345 --> 00:16:57,149

So that indicates how robust

cross-border enforcement is now

286

00:16:57,149 --> 00:17:00,352

part of the landscape in the sector

and will be going forward.

287

00:17:01,353 --> 00:17:02,821

The second

288

00:17:02,821 --> 00:17:06,892

aspect of FATF in the virtual assets

world was earlier this month as well.

289

00:17:07,026 --> 00:17:12,264

They published a targeted report

on stablecoins and on hosted wallets,

290

00:17:12,498 --> 00:17:15,834

specifically as they relate

to peer to peer transactions.

291

00:17:15,834 --> 00:17:19,772

So just to give some context, peer

to peer transactions

292

00:17:20,039 --> 00:17:21,573

on hosted wallets, what does that mean?

293

00:17:21,573 --> 00:17:26,879

Well, we're talking about direct transfers

of crypto, in this case stablecoins

294

00:17:26,879 --> 00:17:30,682

between two parties without any

regulated intermediary in between.

295

00:17:30,682 --> 00:17:34,953

So that's not a whole lot different to,

you know, one individual to another

296

00:17:34,987 --> 00:17:38,090

doing a cash to cash transaction,

which happens every day.

297

00:17:38,157 --> 00:17:41,160

However, the bigger risk is because

VASPS are global,

298

00:17:41,260 --> 00:17:46,432

it's just as easy for stablecoins

and value to to move globally as it be

299

00:17:46,498 --> 00:17:51,003

unhosted wallets as it is for individuals

to exchange cash among themselves.

300

00:17:51,003 --> 00:17:55,474

But it's got a much broader

geographical reach, so unhosted wallets

301

00:17:55,474 --> 00:17:56,675

include things like your hardware

302

00:17:56,675 --> 00:17:59,812

wallets, your ledger,

your Trezor, and also certain software

303

00:17:59,812 --> 00:18:01,914

wallets

that you can install and manage yourself.

304

00:18:01,914 --> 00:18:05,784

And there is some evidence

to back up these concerns, because

305

00:18:05,818 --> 00:18:10,656

Chainalysis indicated,

actually that stablecoins as a product

306

00:18:10,722 --> 00:18:15,961

accounted for 84% of a listed

virtual asset transaction volume in 2025.

307

00:18:16,061 --> 00:18:19,431

And the reason for that is stablecoins

have a lot of attractive features

308

00:18:19,431 --> 00:18:20,432

for legitimate use.

309

00:18:20,432 --> 00:18:23,735

So they're stable

because they're pegged to a fiat currency,

310

00:18:23,869 --> 00:18:27,773

they're liquid and they're interoperable

sometimes between different coins.

311

00:18:27,773 --> 00:18:29,074

But these features also

312

00:18:29,074 --> 00:18:32,377

make them really attractive

for for criminals and for misuse.

313

00:18:32,377 --> 00:18:38,417

So the again, the report is recommended

reading for anyone in the sector.

314

00:18:38,450 --> 00:18:41,987

They do talk about some controls

that might be put in place in the future.

315

00:18:41,987 --> 00:18:45,824

One that's particularly interesting

is an idea that stablecoin

316

00:18:45,824 --> 00:18:50,095

issuers themselves could have risk

based controls, like the ability to freeze

317

00:18:50,095 --> 00:18:54,066

or burn or withdrawal stablecoins

if there's any suggestion of illicit use.

318

00:18:54,099 --> 00:18:58,904

Also, for operators in the crypto

sector via smart contracts,

319

00:18:59,138 --> 00:19:02,708

there's also an opportunity

to put some controls in place there, like

320

00:19:02,741 --> 00:19:04,776

allow listing, deny listing and so on.

321

00:19:04,776 --> 00:19:09,515

So again,

certainly an example of the FATF

322

00:19:09,515 --> 00:19:12,518

zeroing in on what they consider

to be high risk sectors.

323

00:19:12,551 --> 00:19:15,354

And again, recommended

reading for anyone in this space.

324

00:19:15,354 --> 00:19:17,656

So I think that closes us out.

325

00:19:17,656 --> 00:19:20,659

I'm going to hand back to Chris

maybe to to take us.

326

00:19:20,792 --> 00:19:22,094

Yeah. Thanks, Dan.

327

00:19:22,094 --> 00:19:22,961

Very interesting.

328

00:19:22,961 --> 00:19:27,199

You obviously got a passion for that

and lots of movement in that area as well.

329

00:19:27,199 --> 00:19:29,935

So interesting to see where that goes.

330

00:19:29,935 --> 00:19:34,640

Adam, thank you for your insights to just

before we do close, I did want to mention

331

00:19:34,640 --> 00:19:38,677

remind everyone on CRS,

which is the common reporting standard.

332

00:19:38,677 --> 00:19:42,114

To the extent you haven't already looked

at appointing your principal

333

00:19:42,147 --> 00:19:46,418

point of contact in the Cayman Islands,

please do connect with us

334

00:19:46,451 --> 00:19:48,053

or your other service providers.

335

00:19:48,053 --> 00:19:50,522

We're seeing a tremendous

amount of interest

336

00:19:50,522 --> 00:19:54,693

in that with clients who do have focus on

common reporting standard,

337

00:19:54,693 --> 00:19:59,865

and we're seeing a lot of inquiries from

the tax authority here relating to CRS.

338

00:19:59,932 --> 00:20:03,502

And with that,

thanks for listening, everyone.

339

00:20:03,702 --> 00:20:06,338

Special thanks, Dan joining us.

340

00:20:06,338 --> 00:20:07,372

Good to see you here.

341

00:20:07,372 --> 00:20:10,342

And thanks as always Adam. Thanks a lot.