CIG preparing governance framework for cryptocurrencies

| 30/04/2018 | 34 Comments

cryptocurrencies(CNS): The Cayman Islands Government is working on a framework of governance for cryptocurrencies and digital coin projects taking place in the jurisdiction while it considers how to implement a legislative framework for the sector, which has grown to over $400 billion in a few short years. Responding to questions from CNS, the Ministry of Financial Services said it was “working to ensure that Cayman’s framework is in place as soon as possible, in order to maintain and enhance our reputation as a jurisdiction that attracts sound business. We want to make sure that any new business meets global regulatory standards, including AML/CFT standards, as does business that already exists here.”

The statement from the ministry comes just under a week after the Cayman Islands Monetary Authority (CIMA) moved to warn the public of the potential risks in investing in cryptocurrencies like Bitcoin or initial coin offering (ICO) projects, representing its first meaningful comments on the industry, which has grown dramatically in the Cayman Islands in the past six months.

CIMA said in its statement that investors should thoroughly research any investment in virtual currencies, digital coins or tokens and the companies behind them to “separate fact from fiction”.

First quarter ICO funding globally has already reached $6.3 billion, surpassing the total for 2017, according to figures from industry publication Coin Desk. A great number of these ICOs are taking place in Cayman as digital entrepreneurs take advantage of Cayman’s flexible corporate framework and zero tax model.

The concern in the financial sector is that while this new type of business has presented a new revenue stream for financial services providers in Cayman, it can be extremely difficult for investors to understand if they are putting their funds into a legitimate project. Furthermore, many ICOs have not yet launched products and investors are essentially betting on a future outcome which may or may not materialise, which has created a grey area of the law amidst the rapid industry growth.

“In most cases, including outside of financial services, new products are created before the regulatory structure,” the Ministry of Financial Services told CNS. “In relation to fintech, government is analysing available data and perspectives, both commercial and regulatory, and subsequently determining the best legislative framework for our jurisdiction.

“The Ministry of Financial Services is therefore now considering the recommendations of a CIMA-convened working group regarding standards for the governance of the operations of digital assets that are marketed, traded, sold or otherwise transferred in or from the Cayman Islands.”

The price of Bitcoin returned some 1,500% in 2017 alone, a performance which has spawned a whole new industry of virtual coins and digital tokens, tempting investors with an era of new found riches, but CIMA is urging that investors should look beyond the hype and think carefully about the risks of investing in this nascent technology.

“High reward investment scenarios have high potential for financial loss and fraud,” CIMA’s statement said “Potential investors can be easily lured with the promise of high returns in a new investment and may be less skeptical when assessing the risks. The blockchain technology associated with ICOs and virtual currencies may create a false sense of security for the investor and obscure the true risks associated with the individual instruments.”

Joss Morris, a partner with law firm Collas Crill’s Cryptocurrency and Fintech Team, based in Cayman, commented, “The public advisory represents a welcome initial measured statement on cryptocurrencies and ICOs from CIMA, focusing on investor awareness and we would anticipate a development in CIMA’s increasing engagement with the cryptocurrency space.”

While Bitcoin and a select number of cryptocurrencies, like Ethereum and Ripple, dominated the headlines last year with meteoric price rises, experts in the sector believe that the Blockchain technology, which records information transparently on an immutable network of computers and underpins the digital asset world, is the real future growth story.

Projects aiming to disrupt traditional industries have conducted major fundraisings in such diverse activities as insurance, instant messaging, genomics, leasing and artificial intelligence by issuing tokens through an ICO, which operates like an online crowdsale and can sell out in a matter of hours.

In its statement, CIMA said that investors should be aware that the typical ICOs do not give any ownership rights in the company, nor is it an investor loan to the issuer. Additionally, ICOs are often unregulated and involve new technologies and products that are highly technical and complex.

Of particular note was the comment that if a regulatory body in the country where the ICO is based deems the token to be issued in breach of securities laws, it could have a significant negative impact on the company and the token’s value or usability. “As a result, investors can lose some or all of the money they invest,” CIMA said.

While US regulators have effectively put ICO issuers on notice that the tokens issued through these projects will be treated as securities and therefore subject to securities regulations, ICOs in Cayman are generally accepted as not being captured by Securities Law because they are not frequently traded instruments under Cayman’s narrower legal definition.

Industry participants will now be keenly awaiting the detail of the proposed governance standards and any new regulatory framework from the Cayman government to see if that will change. Bermuda recently said it intends to establish itself as a centre of excellence for ICOs and cryptocurrency projects, with a detailed legislative framework for these products.

For now, reputable companies operating in the crypto sector will continue to rely on advice from local legal and tax advisors to bring their projects to market and ensure they are in full compliance with Cayman’s Anti Money Laundering Regulators and other relevant legislation.

The danger for many market participants is that an ICO or cryptocurrency exchange registered in Cayman will either be uncovered as a fraud and the founders disappear with the proceeds or it is linked to money laundering, inflicting significant damage on Cayman’s reputation as a first class international financial centre.

In its advisory note, CIMA outlined various risks and signs for investors to be wary of when considering investing in an ICO or cryptocurrency, including exaggerated investment returns and a high degree of technical knowledge needed to understand the investment.

Other red flags include rapidly changing prices and the potential for not being able to resell the virtual currency. Additionally, CIMA warn of the possibility that investments made could be lost to hackers and an absence of regulatory protection for investors.

In a situation where often little or incomplete information can be ascertained on the people behind such projects, CIMA’s guidance is certainly seen as welcome, where investors have little else to go on than the company’s marketing materials and the promise of a future business outcome. With its focus on investor awareness, CIMA’s statement is not likely to have significant impact on the plans of ICO issuers that are taking legal advice to understand their compliance obligations and now will await further information on the proposed governance standards and impending regulatory framework.

Related article: ICO phenomenon demands regulatory attention

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  1. Anonymous says:

    CIMA can make all the statements they want, while some local attorney is advising already to not allow Cayman residents the right to participate in Cayman registered ICO’s, that is what need to be investigated.

    So it looks like the locals are already been setup to not benefit from this opportunity.

  2. Anonymous says:

    Your comments speak volumes about……you.

  3. Anonymous says:

    Crypto has been deceptively described as a technique to cut out the middle man and speed up transaction time without excessive regulation.
    Oh you poor lemmings. Crypto is the last currency you will ever know as you line up to get your chip in your right hand or in your forehead.
    The tragic thing is that you have been warned about this in the Bible, you know, the uncool book that you ridiculed and laughed at as you pompously declared your arrogant atheism and new age philosophy built on sand and fantasy, mirrors and mirage.

    Well laugh a little more when you get your crypto-chip.

    This is not a game, people. Do not be so blind. Think for yourselves for once in your lives and don’t laugh at people that prod you in your cosseted, molly-coddled comfort zones of ignorance.

    Think for yourselves! Weigh facts, study, question and evaluate. Take a scientific approach. Science is based on fact, not opinion.
    Failing that, you can just hit reply and get all ad hominem on me.

    ‘ Don’t care.

  4. Anonymous says:

    I have spoken to the Cayman money people many times over the years and I have never had a straight answer as to where our currency is secured.

    Apparently, it is secured by nothing, like all of the other fiat and crypto.

    Please people, let the world slumber and sleep, but not us, not here.

  5. Anonymous says:

    ALL currency is built on Babylonian money magic. You know, the money the bank never had when it loaned you for your house and then had the cheek to charge you interest on something that did not even exist in the first place.

    It is exactly that, Babylonian money magic, the tool of Lucifer himself.
    Some of you are his slaves and the rest of us are your slaves.

    Oh poor people, so asleep, when will you wake up to the truth?
    Don’t you know who you really are?
    Eternal, powerful, righteous, good and clean.
    To hell with the Babylonian money magic.

    People, do not EVER get a loan from the bank. You will crush your spirit and not be able to sleep at night.

    Pay as you go.

  6. Stockbroker says:

    The Emperor’s New Clothes………..!

  7. Anonymous says:

    Just as the photo suggest bitcoin is the shader hacker currency.

  8. Anonymous says:

    You haven’t missed the boat. The market is still very small in terms of real money investment. You most likely missed the most profitable Bitcoin run but that is like missing the first investment round of the internet age. There will still be money to me made and it will come from newer coins that are solving the problems discovered in the bigger legacy coins. That being said there will be lots of coins that go absolutely nowhere because they have no real use besides make the founders money.

    Looking at coins with low market caps is the best bet for big gains because they have more room to grow with smaller investments needed. The problem is you have to wade through the copy and paste coins and the novel coins that serve no real function. When your looking at coins ask yourself do you see regular people interacting with the coin somehow, is the coin actually needed for what ever the organization is doing and is it doing something either brand new or in a better way then the competition. If you find a coin that answers those questions pretty well then you should have a good chance of making the right pick.

    Right now we are in a decent correction that has brought the price of many good coins down a bit.

  9. Anonymous says:

    Too little, too late. The horse is already out of the gate.

  10. Anonymous says:

    Spread love not FUD! We going to da moon!!

  11. David Churchill says:

    Bitcoins are the biggest scam to come along in my lifetime, and I’ve lived a long time! The actual value of bitcoins are whatever you can get for them. They have NO backing! They are not guaranteed or backed by any precious metal or anything else! It’s a gigantic Ponzi scheme…….. You buy them and hope there will be bigger suckers who will offer more for them. So far it’s working very well for the scammers, but in the end your real money will be gone!

    • Anonymous says:

      David, if you have lived for as long as you’re making it seem you have. There is a great chance that you will always think that way and an even greater chance that you probably do not understand that the true driver behind Bitcoin is the block-chain technology. There is no other investment that has the potential to give the returns crypto does. Even Goldman Sachs is getting into it.

    • Anonymous says:

      what is fiat? What is cayman money backed by? Gold? no…the US dollar. And what is the US dollar backed by…absolutely nothing. So.Bit coin, USD. Same exact worth.

      Difference is, technology always wins.

    • Anonymous says:

      The USD also has no backing and is an even bigger scam! At least bitcoin is built on very useful technology!

  12. Natural selection says:

    Always putting their dirty paws into everything like a begging puppy.

  13. Anonymous says:

    Don’t be ignorant. Google mining botnet.

  14. Anonymous says:

    CIG spewing negative propaganda again, your risk is your own as is with any type of investing. There’s nothing to stop would be crypto investors or miners. CIG’s risk is that Crypto$ might just disrupt international banking and finance which may just cook Cayman’s golden egg.

  15. Patricia Bryan says:

    “Mainwhile in the Legislative Assembly and society of the Cayman Islands, matters pertaining to societal and family issues go unattended to/unaddressed”.????????.

  16. Anonymous says:

    Let us not forget that there is questionable security risks also involved with cryptocurrency. In technology, nothing is truly secure. Is it worth the risk, maybe, maybe not.

    Do not forget that there is always potential security issues that come with mining. Some examples can be the possibility of Malware theft, Ransomware, and even unauthorized mining.

    Take these factors into consideration, as they might just be the tip of the iceberg.

    • Anonymous says:

      Unauthorized mining…… hahahahahaaaa

    • Anonymous says:

      I don’t think anyone will seriously consider mining cryptos here unless they can get much cheaper electricity. Good luck with that.

    • Anonymous says:

      you do not know what your talking about. The simple fact that mining, you are usually mining with others on a block chain. which means. you only data crunch or verifty a small portion of the block. There is no security risk. Because the amount that your mining crunches is so small, that malware or theft is not even a consideration. if you try to mine the coin yourself, your going to be there for a very very very long time. Even with the most speedy asic miner.

      And as usual. Cayman a day late again. And yes, you are right about unauthorized mining. The person laughing at you below does not know what they are talking about, either. Pirate bay uses a java applet hijack to turn your PC computing power into a miner. For as long as your on pirate bay. At first it was an opt in, now it just runs automatically.

      There are other phone apps that do the same, but you must opt in (agree to it)

      So the real risks are from coin exchanges. And I have already seen a few coin exchanges in cayman take people’s coins or money and run.

    • Anonymous says:

      Like the mining of beach rock from next to the kimpton!


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