The Cayman Islands has approved targeted amendments to the Mutual Funds Act, Private Funds Act and the Virtual Asset (Service Providers) Act to create a clear regulatory framework for investment funds that use blockchain-based tokenisation to represent investor interests. The amendments, which become effective on 24 March 2026, are designed to provide legal certainty for managers and operators and maintain robust investor protection standards.
Overview
The new framework confirms that both mutual funds and private funds may issue digital tokens representing fund interests, without falling within the virtual asset issuance regime under the Virtual Asset (Service Providers) Act (as revised) (the “VASP Act”). Instead, tokenised funds will continue to be regulated under the Cayman Islands funds legislation, subject to additional obligations tailored to the characteristics of digitally represented interests.
Key Features of the Amendments
- Tokenised funds defined within existing fund categories: Tokenisation is treated as a technological overlay rather than a new category of regulated fund. Tokenised mutual funds and private funds remain subject to the same regulatory regime as traditional funds, with the legal register of interests continuing to constitute the final record of ownership.
- Clarified relationship with the VASP Act: The issuance, transfer or redemption of tokenised fund interests by regulated funds will not constitute a virtual asset issuance under the VASP Act. This removes prior uncertainty and ensures tokenised funds are not subject to duplicative regulation.
- Recordkeeping and annual operator confirmation: Tokenised funds must obtain and securely maintain all records of the issuance, creation, sale, transfer and ownership of tokenised interests (including any additional data the Cayman Islands Monetary Authority (“CIMA”) may require), and make them available within periods specified by CIMA. Operators must also provide an annual confirmation that such records have been properly kept and maintained.
- Transfer approvals: Tokenised interests may only be transferred with operator approval in accordance with the fund’s offering document. In practice, most tokenised funds adopt a whitelist of pre-approved investors who have satisfied all KYC and investor suitability requirements.
- Additional disclosure and risk management: Offering documents must describe any token-specific risks associated with digital tokens, such as cybersecurity, transferability and operational risks, and explain how these risks are addressed or mitigated for investors.
- CIMA power to set token characteristics: CIMA may impose specific restrictions on the characteristics of the tokenised interests, and the fund must ensure compliance with any such restrictions.
- Periodic reporting: Tokenised funds must comply with any periodic reporting requirements that CIMA specifies under the applicable Act.
- CIMA’s supervisory powers extended: CIMA’s supervision is expressly extended to inspections of the underlying technology and token transactions for tokenised funds, in addition to its existing powers.
Practical Considerations for Managers
Managers considering establishing or transitioning to a tokenised fund structure should ensure:
- operational controls over token issuance and transfers are robust;
- offering documents include appropriate disclosures and explanations;
- KYC/AML processes are fully maintained despite any efficiency gains from tokenisation; and
- systems are in place to respond promptly to CIMA requests for token-related information.
Practical Considerations for Investors
Investors should note that:
- legal ownership continues to be recorded on the fund’s official register;
- transfers require operator consent and are not unrestricted; and
- technology-related risks may apply depending on the distributed-ledger infrastructure used.
Conclusion
The introduction of the tokenised fund amendments reinforces the Cayman Islands’ commitment to innovation while maintaining its established regulatory standards for investment funds. The updated framework provides long-awaited clarity for managers, service providers and investors seeking to utilise tokenisation within a regulated, institutional-grade environment.
For guidance on establishing a tokenised fund or converting an existing structure, please contact a member of our Investment Funds team or your usual Campbells contact.
