The Regulation of Cayman Islands Tokenised Funds – Clear Rules Now in Place
On 5 March 2026 the Virtual Asset (Service Providers) (Amendment Bill), 2026, the Mutual Funds (Amendment) Bill, 2026 and the Private Funds (Amendment) Bill, 2026 were passed by the Parliament of the Cayman Islands with unanimous support, providing welcome clarity that Cayman Islands tokenised funds are regulated within Cayman’s existing Mutual Funds Act (MFA) and Private Funds Act (PFA) framework and do not fall within the scope of the Virtual Asset (Service Providers) Act (VASPA).
Tokenisation refers in this context to the digital representation of an investor’s equity or investment interest in a fund using blockchain or similar technology, offering potential operational efficiencies while leaving legal ownership and investor rights unchanged. The past few years have seen investment interests pertaining to all manner of underlying asset classes such as real estate, private credit, private equity and infrastructure projects issued by Cayman Islands fund vehicles in tokenised form. Pending the above legislative confirmations however, there had been some uncertainty regarding the regulation of such funds by the Cayman Islands Monetary Authority (CIMA).
Further to a collaborative consultation process between industry groups, CIMA and Government, the final form MFA, PFA and VASPA amendments, which were published in the Gazette on 24 March 2026, clarify that tokenised funds are to be regulated in a transparent manner, strengthening investor confidence in the relevant structures and enhancing Cayman’s continued competitiveness in the investment funds sector.
The following key new requirements set out under the MFA, applicable in respect of mutual fund equity interests, are mirrored in new requirements under the PFA, and are applicable in respect of private fund investment interests:
- Annual confirmation by the relevant operator that all records relating to the issuance, creation, sale, transfer and ownership of a relevant interest represented by a digital token have been properly kept and maintained in compliance with the requirements of the relevant Act.
- Interests represented by a digital token are only transferrable with the approval of the operator of the relevant fund in accordance with the fund’s offering document.
- Disclosure of identified risks specific to the digital token are to be provided in a fund’s offering document including consideration regarding cybersecurity and transferability.
- A fund’s offering document must set out how the risks identified are addressed or mitigated for investors.
- CIMA may impose specific restrictions on the characteristics of a digital token and in such cases, the relevant fund must ensure that the token is in compliance with those requirements.
- Any periodic reporting requirement specified by CIMA must be complied with.
- CIMA may request additional information in order to approve an application in respect of a tokenised fund and will monitor the on-going compliance of such tokenised fund with the requirements of the MFA or PFA (as applicable).
The MFA and PFA amendments also provide for CIMA to exercise supervisory powers over tokenised funds to ensure regulatory compliance and protect investor interests including carrying out inspections of the underlying technology utilized and digital equity/ investment token transactions effected as applicable.
The VASPA amendments complement the MFA and PFA amendments and clearly carve the issuance of digital investment tokens by a tokenized mutual fund in accordance with the MFA and digital investment tokens by a tokenized private fund in accordance with the PFA out from the VASPA definitions for “issuance of virtual assets” and “virtual asset issuance”.
For further information, please reach out to a member of our Regulatory, Technology & Innovation, and Funds & Investment Services Team listed below.
