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Cayman Islands Bolsters Virtual Asset Laws to Secure Top FATF Standing

fatf cayman islands comlpiance virtual assets

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Cayman’s determined push to tighten its virtual asset regime has come into sharp focus as the jurisdiction readies for the upcoming Financial Action Task Force (FATF) mutual evaluation. The government’s latest legislative reforms, including the Virtual Asset (Service Providers) (Amendment) Bill 2025 and the Churches Incorporation (Amendment) Bill 2025, target both the evolving landscape of digital finance and long-standing compliance issues within non-profit governance.

Officials and industry stakeholders see these developments as critical steps to align Cayman’s anti-money laundering (AML), counter-terrorist financing (CFT), and counter-proliferation financing (CPF) controls with global benchmarks, while maintaining the islands’ appeal as a hub for financial innovation.

Legislative modernization in the Cayman Islands is moving at a rapid pace as the country prepares for the FATF’s 5th Round Mutual Evaluation, currently expected in 2027. The evaluation represents a high-stakes assessment of how effectively jurisdictions are addressing money laundering and terrorism financing risks, based on real-world implementation of FATF’s 40 Recommendations and relevant interpretative notes.

In response, Cayman’s Ministry of Financial Services and Commerce has fast-tracked two important bills:

Virtual Asset (Service Providers) (Amendment) Bill, 2025
Churches Incorporation (Amendment) Bill, 2025

These reforms reflect a broader agenda of regulatory alignment and proactive risk mitigation, with the aim of demonstrating to international observers that Cayman is both responsive and resilient. The Virtual Asset (Service Providers) (VASPs) Bill in particular addresses regulatory clarity for tokenised investment funds—investment vehicles that represent ownership or equity interests on a blockchain, a growing trend in international finance.

According to the latest public statements, Premier André Ebanks emphasized, “This government is taking focused, decisive action to safeguard Cayman’s global standing and prepare rigorously for the 5th Round FATF assessment in 2027.” This approach reflects not only a defensive compliance posture but also an embrace of emerging technology in the financial sector.

Legislative Details:
The VASPs regime, introduced under the Virtual Asset (Service Providers) Act (2020 Revision), was originally designed to meet the FATF’s updated standards for regulating virtual asset activities, including service providers handling exchange, transfer, custody, and administration of digital assets. The 2025 amendments clarify and expand the coverage of the regime, most notably for tokenised funds—ensuring that these products fall within Cayman’s robust regulatory perimeter. The amendments also refine definitions, update reporting obligations, and enhance the oversight of providers, all in line with international expectations.

Strengthening Non-Profit Oversight to Reduce Financial Crime Risk

Cayman’s commitment to holistic AML/CFT/CPF oversight extends to the non-profit sector. The Churches Incorporation (Amendment) Bill 2025 directly responds to previous findings and recommendations from FATF and the Caribbean Financial Action Task Force (CFATF), both of which highlighted gaps in oversight for non-profit organizations (NPOs) that could be abused for terrorist financing or other illicit purposes.

The new bill requires churches, when acting as non-profit organizations, to adhere to the Non-Profit Organisations Act (2020 Revision), bringing them in line with all other entities that solicit funds for charitable purposes. This regulatory alignment ensures:

Enhanced transparency in the operation and financial records of churches.
Consistent governance standards across all non-profit entities.
Reduced risk of financial misuse or abuse for money laundering and terrorism financing.

Officials have underlined that this legislation was crafted after significant consultation with local religious leaders, seeking to strike a balance between proportional compliance requirements and the legitimate autonomy of faith-based organizations.

A government release noted, “The bill introduces modernised governance provisions that reflect current realities and support good stewardship.” The amendments further signal Cayman’s commitment to both global compliance and respect for community stakeholders.

Preparing for the FATF Mutual Evaluation: A National Effort

With the FATF’s next mutual evaluation looming, Cayman is mobilizing across the government, regulatory bodies, and the private sector to ensure all identified gaps are addressed well before 2027. The FATF mutual evaluation process is a comprehensive peer review assessing technical compliance (the extent to which laws and regulations meet FATF standards) and effectiveness (how well these measures work in practice).

For jurisdictions with large financial sectors and sophisticated cross-border flows, such as the Cayman Islands, key FATF priorities include:

Effective monitoring of virtual asset service providers and investment vehicles.
Strong due diligence for high-risk sectors, including non-profits and designated non-financial businesses and professions (DNFBPs).
Coordinated intelligence sharing between regulators, law enforcement, and the financial sector.
Regular risk assessments and regulatory updates to respond to new threats, such as ransomware and proliferation financing.

The Ministry of Financial Services has indicated that 2025’s reforms are just the first of a planned series of legislative updates, all designed to reinforce the Cayman Islands’ compliance framework ahead of the assessment. Additional focus areas for the coming year include:

Enhanced beneficial ownership transparency.
Improved enforcement powers for the Cayman Islands Monetary Authority (CIMA).
Updated guidance for the application of targeted financial sanctions.
Streamlined procedures for information sharing with foreign counterparts.

As Cayman positions itself as a forward-thinking international financial center, these reforms are seen as critical to maintaining the country’s reputation and avoiding the risk of FATF grey listing—a status that can trigger costly de-risking by global banks and counterparties.

Cayman’s Balancing Act: Innovation and Compliance in the Financial Sector

The virtual asset sector represents both an opportunity and a risk for financial centers like Cayman. On one hand, embracing blockchain and tokenised products positions the jurisdiction at the cutting edge of global finance. On the other, it introduces complex new money laundering typologies, requiring regulators and firms to continually adapt.

Premier André Ebanks has publicly stated that the reforms are designed not only to “safeguard Cayman’s global standing” but also to “attract innovation and investment in our financial services industry.” The approach reflects a growing recognition that robust compliance and business development are not mutually exclusive but are, in fact, mutually reinforcing.

According to FATF’s 2023 guidance on virtual assets and VASPs, countries must implement licensing and supervision requirements, conduct ongoing monitoring, and apply effective, proportionate, and dissuasive sanctions for non-compliance. Cayman’s legislative trajectory closely follows these principles, including the requirement for VASPs to maintain accurate records, perform customer due diligence, and report suspicious activities under the Proceeds of Crime Act (2020 Revision) and Anti-Money Laundering Regulations (2023 Revision).

Key points of the 2025 legislative changes include:

Clarity that tokenised investment funds fall within the VASP regulatory perimeter.
New powers for CIMA to inspect, sanction, and, if necessary, de-register non-compliant providers.
Explicit obligations for NPOs, including churches, to register and report under the Non-Profit Organisations Act.

Conclusion: Cayman’s Path Forward in AML and FATF Compliance

Cayman’s latest legislative reforms signal a strong commitment to remaining at the forefront of global financial compliance. By closing regulatory gaps in the virtual asset sector and strengthening oversight of non-profit organizations, the jurisdiction is preparing for rigorous international scrutiny while maintaining its allure for financial innovation and investment.

As the 2027 FATF mutual evaluation approaches, Cayman’s ability to demonstrate effective, risk-based controls across its financial system will be pivotal—not only for avoiding the reputational and commercial damage of grey listing but also for building long-term resilience in a rapidly evolving sector. The reforms introduced in 2025, and those planned for the near future, position the Cayman Islands as both a secure and forward-looking financial center, capable of meeting the challenges of the next generation of AML/CFT compliance.