Cayman Islands
The Cayman Islands Government, along with the Cayman Islands Monetary Authority (CIMA) and industry organizations like Cayman Finance and the Cayman Islands Blockchain Foundation, all recognize the significance of attracting fintech and digital asset businesses to their jurisdiction while upholding the highest standards of financial integrity and transparency.
In line with the international standards established by the Financial Action Task Force, the Cayman Islands introduced the Virtual Asset (Service Providers) Act, 2020 (VASP Act) in May 2020. The VASP Act plays a vital role in the Cayman Islands by providing legal recognition to digital assets and cryptocurrencies, as well as regulating businesses involved in offering services related to virtual assets. It is important to note that virtual assets themselves, as well as individuals or entities dealing with virtual assets for their own purposes, are generally not subject to specific regulation within the Cayman Islands. However, the VASP Act establishes a framework for overseeing and supervising virtual asset service providers (VASPs) to ensure compliance with anti-money laundering (AML) regulations and maintain the integrity of the financial system.
This legislation, currently being implemented in two phases, focuses on anti-money laundering (AML) regulations and registration requirements for virtual asset service providers (VASPs) in the first phase, with licensing and other matters addressed in the second phase. Although the specific date for phase two implementation has yet to be announced, it is anticipated to occur in the near future. Overall, this new framework maintains the Cayman Islands' appeal as a favorable jurisdiction for virtual asset services businesses by offering a flexible regulatory foundation that ensures operational certainty and aligns with international standards.
Several other regulations are relevant to VASPs operating in the KY:
(a) Mutual Funds Act/Private Funds Act, open-ended fund issuers must follow Mutual Funds Act; closed-ended fund issuers must comply with Private Funds Act.
(b) Securities Investment Business Act (SIBA), Cayman-based entities dealing in digital asset acquisition/disposal, if classified as "securities," may need SIBA registration from CIMA.
(c) Companies Act, unlisted Cayman companies can't offer securities to the local public.
(d) Limited Liability Companies Act, unlisted Cayman LLCs also can't offer securities to the local public.
(e) Anti-Money Laundering (AML) Laws, VASPs must adhere to AML regulations.
(f) Money Services Act, money services businesses require CIMA license; non-compliance is a criminal offense.
- Virtual Asset (VA): VASP ACT refers to a virtual asset as a digital representation of value that can be digitally traded or transferred and is utilized for payment or investment purposes. However, it explicitly excludes digital representations of fiat currencies.
- Virtual Asset Service (VAS): Issuance of virtual assets or the provision of specific services or operations on behalf of another person or entity. These services include: exchange between virtual assets and fiat currencies, exchange between one or more other forms of convertible virtual assets, transfer of virtual assets, virtual asset custody service, which involves the safekeeping or administration of virtual assets or the instruments that enable control over them, participation in and provision of financial services related to the issuance or sale of a virtual asset.
It's important to note that cryptocurrency and other digital asset businesses that don't fall under the categories mentioned above may still be subject to regulations in the Cayman Islands. These regulations may include the Securities Investment Business Act (SIBA), the Money Services Act, and anti-money laundering (AML) regulations. These broader regulatory frameworks apply to various financial activities and may encompass digital asset businesses as well.
- Virtual Asset Service Provider (VASP): The person or entity must provide virtual asset services as a business or in the course of business in or from within the Cayman Islands. They should be registered or licensed in accordance with the VASP Act. Alternatively, existing licensees may be granted a waiver by the Cayman Islands Monetary Authority (Authority).
It's important to note that for the purposes of the VASP Act, virtual service tokens are not considered virtual assets. Therefore, persons or legal arrangements that provide services exclusively involving virtual service tokens are not required to hold a license or registration under the VASP Act.
VASPs must register via the online REEFS platform, adhering to AML/CFT requirements. Registration covers new entities, existing service providers, and authorized firms aiming to provide virtual asset services.
Certain VASPs providing custodial services or operating trading platforms may require a virtual asset service license. Some entities need to comply with existing regulatory laws and obtain waivers from CIMA.
Assessment and application fees are payable during the process of KYD 1,000.00. This fee can be paid through the REEFS portal at the time of submitting the application.
Tokens and stablecoins are excluded from the VASP Act's definition of virtual assets. Services solely involving these tokens are exempt from Act regulations.
Mining and advanced technology services are not explicitly regulated or prohibited by the VASP Act. Import duties and electricity costs may deter significant mining operations.
The Cayman Islands does not levy income tax, capital gains tax, corporate tax, or similar taxes on digital assets. Tax exemption certificates offer benefits for entities for a specified duration.
Singapore
The Monetary Authority of Singapore (MAS), the central bank and financial regulatory authority of Singapore, has been proactive in promoting financial innovation while ensuring the stability of the financial system. It has undertaken several initiatives in the realm of financial technology, including:
- "Project Ubin": This initiative explores the use of blockchain and distributed ledger technology for streamlining payment and securities settlement.
- "Project Dunbar": A collaborative effort involving MAS, the Bank for International Settlements Innovation Hub, and other central banks. The project demonstrated the feasibility of using central bank digital currencies (CBDCs) for direct transactions between financial institutions.
- "Project Orchid": This initiative aims to develop the technical infrastructure for a retail central bank digital currency system. However, MAS prioritizes wholesale CBDCs over retail CBDCs due to the absence of immediate financial inclusion needs.
- "Project Guardian": Focusing on decentralized finance and asset tokenization, while managing risks to financial market stability and integrity, particularly for retail investors.
In Singapore, there is no specific legislation pertaining to Virtual Asset Service Providers (VASPs) or Cryptocurrency Asset Service Providers (CASPs). Instead, the main legislation focuses on defining rules for payment services and classifies them into two primary categories: e-money and digital payment tokens.
- E-money: Electronically stored monetary value used for payment transactions, with specific criteria and regulations for e-money issuance.
- Digital Payment Tokens (DPTs): Digital representations of value intended for exchange, transfer, or trade electronically.
Dealing in DPTs refers to buying or selling DPTs in exchange for money or other DPTs, excluding facilitating the exchange of DPTs and accepting or using DPTs as a means of payment for goods or services.
Facilitating the exchange of DPTs involves establishing or operating a digital payment token exchange where the operator, in the context of an offer or invitation to buy or sell DPTs for money or other DPTs, comes into possession of money or DPTs.
Certain cryptocurrencies that fall within the definition of limited-purpose DPTs would not be regulated under the Payment Services Act (PSA) that outlines licensing requirements for various payment services, including e-money issuance, cross-border money transfer, and dealing in DPTs. Licensing criteria include capital requirements, directorship rules, business presence, and security amounts.
According to the Payment Services Act (PSA) in Singapore, any person engaged in the business of providing a payment service is required to obtain a payment license. The PSA defines seven payment services that require licensing, including:
- Account Issuance Service: Providing and maintaining payment accounts used for the execution of payment transactions.
- E-Money Issuance Service: Issuing and maintaining e-money, which is electronically stored monetary value for making payment transactions. Additionally:
- A person who is engaged in an e-money issuance service and falls under specific criteria would need to obtain a Major Payment Institution license.
Singapore classifies digital tokens based on their characteristics into regulated or unregulated categories: digital payment tokens, e-money, capital markets products, asset-backed tokens, and utility tokens, where:
- Tokens with regulated features must comply with financial advisory and securities laws.
- Tokens lacking regulated characteristics might be assessed under the Payment Services Act (PSA) as limited purpose digital payment tokens or deemed unregulated, while adhering to general laws and AML/CFT provisions.
Understanding the regulatory landscape surrounding digital tokens is crucial for both issuers and participants in the vibrant cryptocurrency ecosystem of Singapore:
- Asset-backed tokens, such as commodity-backed or real estate-backed tokens, have regulatory requirements based on the underlying assets and associated rights.
- Utility tokens, offering access to blockchain-based services, are unregulated but must not resemble regulated capital markets products.
- Token issuers involved in "dealing in digital payment tokens" and operating exchanges or services require a payment institution license from MAS.
The Singapore High Court has recognized NFTs as valuable assets eligible for proprietary injunctions, indicating the evolving legal perspective on digital assets.
The Monetary Authority of Singapore (MAS) has unveiled the characteristics of a novel regulatory structure that aims to ensure a strong degree of value constancy for stablecoins subjected to regulation in Singapore. The regulatory outline takes into consideration the feedback received subsequent to a public consultation held in October 2022.
What are stablecoins?
Stablecoins are digital tokens intended for payments, crafted to sustain a consistent value relative to one or more designated fiat currencies. When effectively overseen to uphold this stability in value, stablecoins can function as a reliable medium of exchange, fostering innovation, including the on-chain trading of digital assets. MAS' regulatory framework for stablecoins will be applicable to single-currency stablecoins (SCS) anchored to the Singapore Dollar or any of the G10 currencies, provided they are issued within Singapore. Entities issuing such SCS will be required to meet essential conditions pertaining to:
Value consistency: SCS reserve assets will be subjected to criteria related to their composition, assessment, safekeeping, and auditing, designed to provide a robust level of assurance regarding value stability.
Capital: Issuers must uphold a minimum foundational capital and fluid assets to mitigate the risk of insolvency and facilitate an orderly cessation of operations if needed.
Par value redemption: Issuers are obligated to reimburse SCS holders with the par value within five business days of a redemption request.
Disclosure: Issuers are obligated to provide appropriate disclosures to users, including details about the mechanism employed to stabilize the value of SCS, the entitlements of SCS holders, and the audit findings of reserve assets.
Only stablecoin issuers meeting prerequisites can request MAS for "MAS-regulated stablecoins," distinguishing them from other tokens outside MAS' framework. Incorrectly claiming this status may lead to penalties and listing on MAS' Investor Alert List. Users should be cautious with stablecoins not regulated by MAS.
Singapore currently lacks specific regulations for mining digital tokens. Depending on operations' nature and scale, potential licensing or regulations might apply. Collective mining pools distributing returns could face regulatory scrutiny under the Securities and Futures Act (SFA) and Commodity Trading Act (CTA).
Monetary Authority of Singapore (MAS) guidelines ensure ethical practices in the digital payment token (DPT) industry. These guidelines restrict DPT service providers from public marketing, including public transport, websites, social media, broadcast, print media, and physical ATMs. Providers can promote on their websites, apps, and official social media. Third-party involvement, like social media influencers, is prohibited. These guidelines aim to maintain ethical promotion and protect the public.
Cryptocurrencies are treated as property for tax purposes in Singapore. The sale of cryptocurrencies is generally not subject to Goods and Services Tax (GST), while profits from trading may be subject to income tax. In Singapore, personal income tax rates range from 0% to 22% depending on income level and tax residency status.
Conclusion
Overall, the British Virgin Islands, Cayman Islands, and Singapore each offer unique advantages and considerations for the crypto industry.
The BVI's favorable business environment and government support make it attractive for crypto activities, while the Cayman Islands' regulatory framework aligns with international standards.
Singapore's balanced legislative approach, legal recognition of cryptocurrencies and oversight by the MAS position it as a leading jurisdiction. However, clarity, ongoing monitoring, and updates to regulations will be important for maintaining confidence and attracting investment in these jurisdictions.
