Cayman Islands Update – Q2 2025

The Cayman Islands Monetary Authority (“CIMA”) has published the investment fund statistics for Q4 2024. Numbers indicate continued growth in CIMA registered funds with more significant growth observed in the private funds space.

With 2025 now underway, CIMA’s corporate governance framework continues to shape the regulatory landscape for investment funds. The rules and guidance, which became effective in October 2023, have now been in place for over a year and remain an area of focus that underscores CIMA’s commitment to fostering a sound and stable financial environment by ensuring that entities adhere to high standards of corporate governance. These corporate governance standards aim to promote accountability, transparency and integrity within corporate entities, particularly in the investment funds sector.

Corporate Governance Requirements

Below is a table summarising the primary corporate governance requirements and the value they add to a regulated entity’s governance framework:

The Role of Independent Directors

Independent directors bring a wealth of experience and an unbiased perspective to the board. Their role is crucial in upholding corporate governance standards, offering unbiased perspectives and contributing to decision-making processes that protect the interests of both the fund and its investors. This independence strengthens the integrity and credibility of the board.

Forming Specialised Advisory Committees

Forming advisory committees tailored to provide specialised oversight and counsel can be highly beneficial for the members of the General Partner of limited partnerships. These committees can assist in areas such as investment strategy, risk management or regulatory compliance. Involving independent professionals ensures that these advisory roles are filled with experts who can offer diverse insights, without conflicts of interest, enhancing the fund’s overall corporate governance.

Board Meeting Requirements

The Statement of Guidance requires the fund operators to conduct at least one board meeting per year. Well-organised and efficient board meetings are crucial for effective governance. Consider organizing and facilitating meetings to ensure that directors/members and any relevant stakeholders, including key service providers, have the necessary materials in advance. Maintaining accurate and thorough records of discussions via minutes helps ensure that the board’s fiduciary duties are met in a transparent and compliant manner.

Independent Directors on Funds and General Partner Boards

Waystone has extensive experience in supporting investment advisers and their funds by providing independent oversight through a team of highly-skilled independent directors, board support professionals, AML officers and FATCA & CRS specialists. Our team partners with a diverse range of successful hedge funds, private equity, venture capital and real estate funds.

Eligibility Criteria for Extension Requests

Funds that qualify for multiple extensions may submit the same using form FXT-162-22-03. Existing eligibility criteria remains the same as follows:

• the fund must have no prior outstanding audited financial statements
• the fund must submit the relevant supporting documentation – i.e. letter from the fund’s auditor explaining the reason for the delay
• the fund must submit the relevant application fee of KYD $625 per month.

All new fund extension applications from 6 May 2025 onwards must be submitted using the form FXT-162-22-03 via the REEFs portal.

Transition Period for In-Progress Applications

Applications that are In-Progress as of 6 May 2025 can still be submitted using the existing FXT-162-22-02 form but must be submitted before 5:00pm on 11 May 2025, after which the application must be resubmitted using FXT-162-22-03. Any application that is In-Progress as of 12 May 2025 will be considered as invalid and no longer available.

CIMA issued a Supervisory Information Circular dated 8 May 2025, outlining key findings from onsite inspections of Registered Persons. Registered Persons (“RPs”) are defined under Schedule 4 and Section 5(4) of the Securities Investment Business Act (“SIBA”). RPs carry out securities investment business in or from the Cayman Islands, including dealing in securities, arranging deals, investment management, and providing investment advice. The SIBA provides for the regulation of the RPs engaged in these activities in or from the Cayman Islands, including market makers, broker-dealers, securities arrangers, securities advisors, and securities managers.

Key Findings from Onsite Inspections

The CIMA report outlines key findings from onsite inspections of RPs.

The report states that CIMA has observed an improvement in compliance by RPs since January 2022 and acknowledges the progress that RPs have made in implementing their AML/CFT policies, procedures, systems, and controls. CIMA notes the following areas of improvement: employee training and awareness programmes; oversight of AML/CFT compliance function; outsourced AML/CFT compliance functions; assessing risks and application of a Risk-Based Approach (“RBA”); record keeping; and internal reporting around maintaining logs regarding the reporting of suspicion and declined business. CIMA highlights some areas that remain to see some improvements, such as: Customer Due Diligence (“CDD”) and ongoing monitoring documentation; as well as independent AML/CFT Audit Function.

Compliance and Enforcement Reminder

RPs are reminded that any breach of a law, regulation or rule or non-compliance with a statement of guidance may result in an enforcement action. This may also include, or be in addition to, the imposition of an administrative fine for any breach of the AMLRs.

Waystone’s solutions are customised to meet each client’s unique needs, ensuring compliance with regulatory obligations while supporting your business goals. Please contact us to find out how we can further assist you.

CIMA conducted 65 AML/CFT Onsite Inspections (“OSIs”) of regulated entities. Per CIMA’s AML/CFT Activity Report 2023, CIMA carried out the following actions:

• issued five (5) letters of no findings
• issued 454 requirements, 446 being ‘matters requiring immediate attention’ (“MRIAs”)
• conducted five (5) follow-up inspections, of which four (4) had repeat findings or further deficiencies identified through their follow-up OSI
• cancelled the registration of one (1) Securities Registered Person for breaches of the AMLRs and investigated two (2) licensees for breaches of the AMLRs
• collected and analysed AML Surveys, VASP Travel Rule Returns and Banking Cash Flows Returns, using Strix, a SupTech tool for data collection and processing entity risk assessments.

Entities and Categories with AML/CFT Deficiencies

The below table shows the number of entities identified/categories having AML/CFT deficiencies based on 2023 OSIs:

Ongoing CIMA Oversight and Enforcement Commitment

CIMA will continue its oversight of AML/CFT obligations to promote and safeguard the integrity of the Cayman Islands financial services industry. CIMA will also continue its work on tracking deficiencies, requirements and remediation to assess entity compliance with CIMA’s findings and ensure prompt and consistent escalation to enforcement where required.

Waystone’s solutions are customised to meet each client’s unique needs, ensuring compliance with regulatory obligations while supporting your business goals. Please contact us to find out how we can further assist you.

The Cayman Islands VASP Licensing Regime is now in effect. Per the Virtual Asset (Service Providers) Act (Commencement) Order, 2025 (the Commencement Order), the provisions of the Virtual Asset (Service Providers) (Amendment) Act,2024 came into force on 1st April, 2025. The Commencement Order has now activated the requirement for certain virtual asset services, including custody services and the operation of a virtual asset trading platform, to be conducted under a full licence issued by CIMA.

With the Commencement Order now in effect, entities providing custody services or operating a virtual asset trading platform must obtain a licence from CIMA to continue operating lawfully in the Cayman Islands.

Transition from Registration to Full Licensing for Active VASPs

Active VASPs previously operating under a registration with CIMA are now classified as licensable and are required to transition to a full licence. This means that all such businesses must submit applications for licensing and satisfy the relevant requirements under the VASP Act. VASPs are expected to ensure that their policies and procedures align with CIMA’s expectations to facilitate a smooth transition from registration to licensing.

Key Clarifications Introduced by the VASP Amendment Act

The VASP Amendment Act has further clarified various provisions of the VASP regime by:

• updating the definition of ‘Operator’ to better establish who exerts control and should be licensed under the VASP Act
• adding a requirement for a VASP to have at least three directors – one of whom must be independent
• clarifying waiver provisions that allow a supervised person to apply for a waiver from registration or licence where the entity meets the waiver requirements
• introducing a potential audit requirement for entities registered under the VASP Act, depending on the complexity and the size of the virtual asset services provided.

The CIMA Supervisory Information circular can be found here.

Following the Beneficial Ownership Transparency (Access Restriction) Regulations, 2024 (the “AR Regulations”) which came into force on 9 December 2024, the Beneficial Ownership Transparency (Legitimate Interest Access) Regulations, 2024 (the “LIA Regulations”) came into force on 28 February 2025. These LIA Regulations will allow members of the public, who can evidence a legitimate interest, to access certain beneficial ownership information of legal persons where evidence is provided that the legal person is linked to money laundering or terrorist financing.

Who Can Access the Information?

Access may be given to:

• journalists or academic researchers
• members of civil society groups fighting financial crime
• people with a genuine business relationship or transaction with the company.

Application Process and Fees

To apply, individuals must use the official online portal and prove their identity and credentials as well as explain why the information is needed for anti-money laundering or counter-terrorism purposes. The application fee for one company is US$37, and US$122 for multiple companies. Applicants will be notified of the decision within 7 days, along with the information or the reason for refusal.

On 5 December 2024, the Department for International Tax Cooperation (“DITC”) presented at the annual Cayman Islands Directors Association (“CIDA”) Educational Day. Two areas of focus they are seeing in particular are:

• Misclassification of Relevant Activities on Economic Substance Notifications (“ESN”) which often results in failure to submit an Economic Substance Return (“ESR”)
• Management accounts submitted by Relevant Entities along with their ESRs were prepared at consolidated/group level when they should be specific to the Relevant Entities only (i.e. standalone management accounts).

DITC Reminder on Accurate Classification and Submission

The DITC reminds all Relevant Entities to ensure that their Relevant Activities are classified accurately on the ESNs and that all management accounts submitted as part of their ESRs filings are specific to the Relevant Entities rather than at a consolidated/group level.

ESR Filing Deadline

A Relevant Entity that is carrying on a Relevant Activity shall submit its ESR no later than twelve months after the last day of the end of its financial year. For such Relevant Entities with financial year end date of 30 June 2024, they should file their ESRs to the DITC no later than 30 June 2025.

Cayman Islands

For the Cayman Islands, the FATCA and CRS filing deadline for the 2024 reporting period is 31 July 2025. The deadline for the CRS Compliance is 15 September 2025. Late submissions will incur penalties.

British Virgin Islands (BVI)

The BVI Financial Account Reporting System (“BVIFARS”) officially announced that payments are going live. Each enrolled entity is required to pay an annual fee of US$185, and payment must be completed by 1 June each year. After the deadline, late fees and enforcement actions will be applied. Please note that the payment can only be completed by the primary user via credit card.

The FATCA and CRS filing deadline for the 2024 reporting period is 31 May 2025.

Additionally, BVIFARS has launched a new CRS Additional Information Form, which is applicable to financial institutions with obligations under the Common Reporting Standard. The filing deadline is nine months from the end of each financial period, and any late submissions will incur penalties.

Waystone’s independent directors attended the 2025 AIMA Digital Assets Conference hosted in New York, which was well attended by the digital asset industry’s top managers, investors, and experts. The conference showcased the significant progress digital assets have made toward mainstream adoption while also highlighting the challenges ahead.

Topics ranged from the tokenisation of private markets to institutional investment, blockchain governance, counterparty risks, and evolving regulation. Overall, there is strong momentum behind tokenisation, Bitcoin ETFs, and DeFi innovation. However, operational risk, liquidity management, and regulatory clarity remain critical areas of focus.

For more information, visit the AIMA website and see Digital Asset event details .

Waystone is a leading global provider of institutional governance, administration, risk and compliance services to the asset management industry. With a team of over 1,700 professionals across more than 20 offices worldwide, Waystone combines deep local expertise with a truly global reach.

Compliance Support Across the Globe

Our Global Compliance Solutions team, comprising over 100 dedicated professionals across Asia, Europe, the Middle East and North America, ensures your operations stay aligned with local, regional and international regulations. In Hong Kong, we provide expert guidance to help you navigate a dynamic regulatory environment, enabling you to focus on your core business priorities. From licensing and registration, to compliance programme integration, we offer comprehensive solutions tailored for hedge funds, private equity, venture capital firms, banks and brokers.

Our Hong Kong Compliance Solutions

Our Hong Kong Compliance Solutions include:

• licensing
• ongoing compliance support
• mock inspections and internal audits
• drafting of policies and procedures
• compliance training
• regulatory research and advisory
• AML and KYC services.

Why Choose Waystone

Waystone solutions are customised to meet each client’s unique needs, ensuring compliance with regulatory obligations while supporting your business goals. When you partner with Waystone, you benefit from:

• increased efficiency
• reduced risk
• tailored support
• expert guidance and oversight.

The Hong Kong SFC plays a pivotal role in regulating and supervising the financial markets. In line with its regulatory duties, the SFC periodically issues circulars to provide licensed entities with key updates and expectations surrounding their conduct and operations.

Takeaways from the October 2024 SFC Circular

The recent circular issued by the SFC in October 2024 highlights the main deficiencies identified in its supervision of asset managers of private funds and discretionary accounts (Type 9). It provides guidance and sets out clear expectations for licensed corporations operating within the asset management business. Its purpose is twofold; first, to reinforce the SFC’s existing regulatory framework, and second, to address new risks and challenges that have emerged as the industry evolves. The main deficiencies highlighted the following key areas:

• conflicts of interests and fiduciary duties
• risk management framework
• disclosures to investors
• valuation methodologies.

SFC Enforcement and Disciplinary Measures

To address asset management misconduct, the SFC has expressed its intention to conduct thematic on-site inspections of asset managers to detect material breaches. Disciplinary actions against the licensed asset managers and their senior management, including Managers-In-Charge and Responsible Officers, shall be taken for any misconduct and failure to fulfil their supervisory responsibilities.

How Waystone Can Help

At Waystone, our team of experienced compliance professionals are specialised in navigating regulatory complexities and can assist you with addressing the challenges highlighted in the SFC’s thematic review as follows:

• performing gap analysis and reviewing existing policies and procedures against the circular requirements
• drafting of policies and procedures to ensure that your firm meets the regulatory requirements
• conducting mock inspections to identify any potential gaps in internal processes and controls.

The Hong Kong SFC has published the Hong Kong Market Sounding Guidelines (the “Guidelines”), which took effect on 2 May 2025.

These Guidelines establish regulatory standards for SFC-licensed and registered intermediaries conducting market soundings. To ensure compliance, intermediaries must review and update their internal policies, procedures and systems before the effective date.

The SFC has also published a set of Frequently Asked Questions (“FAQs”) to provide practical guidance and examples. These Guidelines apply to all SFC-licensed and registered intermediaries engaged in disclosing or receiving confidential information in relation to possible transactions.

Core Principles of the Guidelines

As per the Guidelines, market sounding intermediaries must adhere to four core principles: confidentiality, i.e. safeguarding sensitive information and preventing misuse or leakage; governance i.e. robust oversight by senior management; policies and procedures i.e. documented processes, staff trainings and compliance measures; and review and monitoring i.e. controls to detect and address suspicious or non-compliant activities.

Compliance Support Services

To ensure ongoing compliance, Waystone can assist Hong Kong asset managers with taking the following steps:

• updating internal policies and procedures to reflect the latest regulatory guidelines
• enhancing existing MNPI controls and insider trading safeguards
• conducting training for employees
• aligning the compliance framework with evolving global regulatory standards.

On 28 August 2024, the Financial Crimes Enforcement Network (“FinCEN”) issued a final rule expanding the definition of “financial institution” under the Bank Secrecy Act (“BSA”) to include certain investment advisers. Effective 1 January 2026, investment advisers registered with the Securities and Exchange Commission, and exempt reporting advisers will become subject to the BSA for the first time.

This marks a significant shift in the anti-money laundering (“AML”) regulatory landscape, requiring advisers to implement formal AML and counter-financing of terrorism (“CFT”) programmes that will be subject to SEC (Securities and Exchange Commission) oversight.

New AML/CFT Requirements for RIAs and ERAs

RIAs and ERAs will be required to establish and maintain a written, risk-based AML/CFT programme that includes elements outside of current industry practices as follows:

Risk-based programme design

Advisers must adopt an AML/CFT programme tailored to the specific risks associated with a firm’s clients, strategies, products, services and geographic exposure.

Designation of a Compliance Officer

Advisers must appoint a qualified individual to oversee day-to-day AML/CFT compliance.

Employee AML/CFT training

A training programme must be created and specifically tailored to highlight employee responsibilities under the new AML/CFT programme.

Independent testing

Advisers must conduct periodic testing of the AML programme by an independent party (internal audit or external consultant).

Suspicious Activity Reporting (“SARs”) tiling obligations

Advisers will be required to file SARs when appropriate, in accordance with the Financial Crimes Enforcement Network (“FinCEN”) requirements.

Compliance with the Travel Rule and information sharing obligations.

Advisers must implement controls to ensure compliance with the Travel Rule and the USA PATRIOT Act’s Section 314 information-sharing provisions.

Meeting the Rule’s new requirements will require careful planning and execution. Advisers should begin developing their AML/CFT programmes no later than summer 2025 to allow sufficient time for:

• conducting a risk assessment, which is expected to be a central focus during SEC examinations
• designing and documenting policies and procedures
• developing training materials
• vetting independent testing vendors or internal resources
• implementing tracking mechanisms for SARs and Travel Rule compliance.

AML Solutions from Waystone

At Waystone, we recognise that there is no ‘one-size-fits-all’ approach to compliance. Different investment advisers have varying requirements, fund structures, and areas of focus. Our dedicated team of compliance specialists has extensive experience assisting firms in meeting their FinCEN obligations and implementing tailored AML programmes. Waystone offers a range of AML solutions designed to support investment advisers, regulated funds, and unregulated funds in fulfilling their regulatory obligations, including:

• initial AML risk assessment/gap analysis
• staff training
• assistance with implementation of AML programme and related policies
• AML audit programme – an independent party that is not the AML Compliance Officer must regularly check that the AML programme is effective
• AML delegate service – this will be particularly relevant for firms that are self-administered.

For implementation guidance or assistance with developing your AML programme, please reach out to your usual Waystone representative.

Treasury Issues Final Rule Restricting Investments in Chinese Tech Sectors

On 2 January 2025, the Treasury Department issued a final rule (the “Final Rule”) that broadly limits investments into Chinese-located or -controlled companies engaged in the semiconductor and microelectronic, quantum information technology, and artificial intelligence sectors. The Final Rule implements the directives of Executive Order 14105, issued by then-President Biden on 9 August 2023, and is intended to prevent US investments from accelerating or enhancing the military, intelligence, surveillance, or cyber-enabled capabilities of China. The Final Rule imposes investment restrictions on US citizens (wherever residing), US lawful permanent residents, persons located in the US, US-organised or -domiciled entities, and “controlled foreign entities” of which any of the foregoing is a “parent.”

Restricted Industries Under the Final Rule

Currently, the three industries into which investment is restricted under the Final Rule are:

• semiconductors and microelectronics, including supercomputers, certain software and equipment, and the design or fabrication of certain integrated circuits
• quantum information technologies, such as quantum computer technology
• AI systems designed for or intended to be used for military, government intelligence, or mass-surveillance end uses or that is trained using a specified quantity of computing power.

What are Covered Transactions?

The Final Rule applies to “Covered Transactions,” which includes:

• acquiring equity interests, options, warrants, convertible debt or debt providing equity-like rights
• entering a joint venture
• acquiring a “limited partner or equivalent” interest in a non-US investment vehicle if the investor knows at the time of the investment that the vehicle “likely will invest in” a Chinese entity in a restricted industry.

The Final Rule also restricts the investment of a US person limited partner (or equivalent) into a US or non-US private fund that invests in a Chinese or Chinese-controlled entity active in one of the specified industries if the limited partner knows at the time of the investment that the fund will “likely” make such an investment.

Safe Harbors and Exemptions for Limited Partners

The Treasury Department will assess such limited partner’s knowledge by evaluating whether the limited partner undertook a reasonable and diligent inquiry before making any investment. The Final Rule provides two safe harbors for limited partners:

• the limited partner can limit its total investment in a fund to $2 million
• the limited partner can enter into a binding contractual commitment with the fund that the limited partner’s capital will not be used in the problematic investments.

In addition to the two safe harbors, investments made prior to the Final Rule’s effective date or satisfying a binding capital commitment entered into prior to the effective date are exempt.