Regulators love to say “we’re here to help,” and in Cayman Islands’ case—surprisingly—they might actually mean it.

Over the past few months, there’s been a noticeable shift in how the Cayman Islands Monetary Authority (CIMA) engages with Virtual Asset Service Providers (VASPs). Instead of wielding the regulatory hammer, CIMA has taken a more collaborative approach: meetings, roundtables, feedback loops, and an admirable effort to demystify what “good compliance” actually looks like.

Licensing: not just a checkbox

CIMA’s move from registration (Phase 1) to full licensing (Phase 2) has introduced a deeper supervisory lens—particularly for custodians and trading platforms. These entities are now being treated as critical infrastructure, reflecting their systemic importance.

Licensing isn’t just about submitting forms and hoping for the best. It’s a proving ground for internal controls, board oversight, data protection, and AML/CFT maturity. And yes, CIMA is reading the fine print.

One essential resource in this process is CIMA’s Regulatory Policy – Registration or Licensing of Virtual Asset Service Providers (effective 30 May 2025). If you’re applying for a VASP license in the Cayman Islands, this document is a must-read. It consolidates previous guidance, clarifies expectations, and gives applicants a clearer view of what’s required—not just to be approved, but to operate responsibly. It’s practical, well-structured, and frankly, one of the more digestible pieces of policy CIMA has published.

Also worth noting: CIMA is no longer satisfied with just an AMLCO, MLRO, and DMLRO on your org chart. They now expect a distinct Compliance Officer role—focused on broader regulatory obligations beyond financial crime. This shift reflects their intent to move VASPs closer to the level of oversight expected of traditional financial institutions.

AML/CFT: still the cornerstone

You’d be forgiven for thinking AML is yesterday’s news in the era of AI and automation. It’s not.

CIMA’s reviews consistently flagged weaknesses in:

• Risk-based approach
• KYC processes
• Transaction monitoring (manual ≠ effective)
• Travel Rule implementation
• Segregation of duties (too many hats, too few controls)
• Using reg tech solutions, without understanding them

CIMA expects VASPs to demonstrate that their programs aren’t just documented and designed – they must be effective. Tools like Sumsub, TRM, or Persona are helpful, but don’t replace sound judgment or regulatory awareness. Moreover, when using those solutions, you must follow CIMA’s Guidance Notes on the Prevention and Detection of Money Laundering and Terrorist Financing in the Cayman Islands. They provide a whole suite of requirements which must be met, when using e-KYC and reg tech solutions. These include (but are not limited to):

• Ensuring the technology used is reliable, risk-assessed, and provides a sufficient level of assurance, that it performs as intended;
• Having policies and procedures in place that clearly describe how the technology is used;
• Incorporating the technology into the entity’s AML Business-Wide Risk Assessment;
• Implementing supporting controls such as a business continuity plan in case of system failure, and ensuring record-keeping procedures are in place so that all data and outputs are available to both you and CIMA on request.

Governance: it’s not optional

Several firms have come under scrutiny for weak governance structures. Think of boards that meet once a year (and in a very informal manner), or directors who weren’t clear on their own conflicts of interest.

In one case, a director cheerfully declared, “we’re good at what we do and we like to focus on our strengths”— confidence is good, but you must make sure that you tick all regulatory boxes.

What’s expected?

• Documented conflicts of interest and mitigations
• Cayman-specific board training
• Evidence of active oversight (minutes, decisions, reviews)
• Directors who know what the company actually does

In here, again, CIMA themselves come to the rescue. With their Rules on Corporate Governance and on Internal Controls, which provides you with all guidance and tools required to incorporate effective and compliant governance framework.

Technology and cybersecurity: tools are not enough

Fireblocks, BitGo—there’s no shortage of sophisticated tools in this space. But CIMA is increasingly interested in the “how” behind the “what.” It’s one thing to say you use MPC; it’s another to explain your internal signing protocols, data localization, or how you respond to cybersecurity breaches.

Cayman-specific duties like reporting data breaches – often overlooked.

AML audits and Internal Audits: trust, but verify

If AML is the beating heart of a VASP’s compliance program, then internal audit is the cardiologist making sure it’s not about to seize up during a bull run.

For years now CIMA was making it clear: AML programs must not only exist on paper. That means having risk-based onboarding, transaction monitoring that goes beyond manual spreadsheets, real-world testing of Travel Rule compliance, and meaningful oversight of any outsourcing relationships. Using cool tools like TRM or Sumsub is great, but unless someone is reviewing outcomes and tuning controls, you’re basically just decorating your policy with logos.

CIMA’s newer inspections—and their comments during recent meetings—have shown a growing emphasis on independent testing of AML frameworks and governance systems. This doesn’t mean hiring a Big Four firm to parachute in with 600 questions. It means showing that someone objective has tested your procedures, flagged weaknesses, and that management did something about it.

A few firms have already started full-scope internal audits, including enterprise risk reviews, governance testing, and AML walkthroughs. CIMA seems pleased. Others are still treating audit as something you’ll get to… eventually. That might work in Phase 1, but Phase 2 comes with adult supervision.

CIMA is also paying attention to the independence of the auditors. The AML audit should be independent, which means it cannot be done by the person who designed your AML framework.

Policy shifts and sandbox signals

The Ministry’s Phase 3 rollout will target:

• Public token issuance (ICO-style launches)
• The fintech sandbox (including AI-driven products and DAOs)

The sandbox, in particular, is shaping up to be Cayman’s answer to regulatory innovation. Imagine a safe space to experiment with tokenized real estate or even autonomous financial agents (yes, the Ministry mentioned “agentic AI”). It’s ambitious—but signals a growing maturity and openness.

Final thought

CIMA is still in its “engaged regulator” era. But don’t mistake friendliness for laxity.

Their inspection model is hybrid—desk-based reviews, on-site visits, thematic investigations—and all of it feeds into updated guidance and, where needed, enforcement.

Running a VASP (not only in Cayman) feels a bit like flying a plane while building it. The rules are still evolving, but regulators are (mostly) giving you the runway to take off. Just make sure you’ve actually read the flight manual—and that it’s tailored to Cayman airspace.