Cayman Tightens Virtual Asset Rules and Non-Profit Oversight Ahead of FATF Review

The Cayman Islands is intensifying its regulatory push to tighten oversight of virtual assets and non-profit organizations as it prepares for the Financial Action Task Force’s (FATF) 5th Round Mutual Evaluation, expected in 2027. In a determined effort to align with global standards and safeguard the jurisdiction’s international financial standing, the government has introduced two key legislative reforms: the Virtual Asset (Service Providers) (Amendment) Bill, 2025 and the Churches Incorporation (Amendment) Bill, 2025. These updates reflect Cayman’s dual commitment to combatting financial crime and embracing innovation in the digital finance space.

Officials have underscored that the latest reforms are part of a broader strategy to strengthen anti-money laundering (AML), counter-terrorist financing (CFT), and counter-proliferation financing (CPF) frameworks. In particular, the Virtual Asset (Service Providers) (VASPs) Bill enhances regulatory clarity for tokenised investment funds—financial vehicles that represent equity or ownership through blockchain-based tokens, an increasingly prevalent model in global finance. The 2025 amendments are designed to expand the coverage of the existing VASPs regime, ensuring these emerging structures are firmly within the jurisdiction’s regulatory perimeter.

Premier André Ebanks has publicly backed the legislative agenda, stating, “This government is taking focused, decisive action to safeguard Cayman’s global standing and prepare rigorously for the 5th Round FATF assessment in 2027.” The statement signals a proactive stance by the Cayman government, which aims not only to comply with international standards but also to capitalize on the financial opportunities presented by virtual assets.

Originally implemented under the Virtual Asset (Service Providers) Act (2020 Revision), the regime was established to bring the Cayman Islands in line with FATF’s updated recommendations for virtual assets and their service providers. The 2025 bill refines existing definitions, enhances reporting requirements, and strengthens oversight mechanisms, particularly in the context of service providers engaged in exchange, transfer, custody, or administration of digital assets. Notably, it includes new provisions that allow the Cayman Islands Monetary Authority (CIMA) to inspect, sanction, and, if necessary, de-register non-compliant providers.

Parallel to its efforts in the digital finance sector, the Cayman Islands is also tightening its regulation of non-profit organizations. The Churches Incorporation (Amendment) Bill, 2025 aims to address historic weaknesses in the oversight of faith-based groups, which FATF and the Caribbean Financial Action Task Force (CFATF) have previously identified as potential vulnerabilities in the fight against terrorism financing. The bill mandates that churches operating as non-profit entities must comply with the Non-Profit Organisations Act (2020 Revision), thereby aligning them with the same rules that govern all other charitable fundraisers.

The government has emphasized that the new legislation was developed in consultation with religious leaders to ensure a balanced approach. A statement released by the government noted, “The bill introduces modernised governance provisions that reflect current realities and support good stewardship.” These changes are expected to improve transparency, establish consistent governance practices, and reduce the risk of misuse of funds by requiring churches and other religious groups to maintain proper records and report their activities in line with national compliance expectations.

As Cayman readies itself for FATF’s comprehensive mutual evaluation—a peer-reviewed process examining both the technical and practical effectiveness of a jurisdiction’s AML/CFT/CPF framework—authorities are accelerating legislative updates to close existing gaps. These efforts include not just the 2025 bills but a suite of planned reforms focused on strengthening beneficial ownership transparency, enhancing the enforcement capabilities of CIMA, updating guidance for applying targeted financial sanctions, and streamlining procedures for cross-border information sharing.

For jurisdictions like the Cayman Islands, which have sophisticated financial services sectors and extensive international financial flows, FATF’s focus extends to ensuring effective supervision of virtual asset service providers, rigorous due diligence practices in high-risk sectors, and robust intelligence-sharing networks between regulators, law enforcement, and private industry. The Ministry of Financial Services has made it clear that this year’s amendments represent just the beginning of a multi-year legislative roadmap leading up to 2027.

Premier Ebanks has reiterated that Cayman’s approach is not simply reactive but forward-looking, aiming to foster innovation while mitigating new risks. “These reforms are designed not only to safeguard Cayman’s global standing,” he said, “but also to attract innovation and investment in our financial services industry.” This reflects a growing recognition that strong compliance frameworks and economic development are not contradictory, but in fact, mutually supportive.

Cayman’s legislative reforms follow closely the FATF’s 2023 guidance on virtual assets and service providers, which urges jurisdictions to implement rigorous licensing, monitoring, and enforcement systems. The guidance stresses the need for effective, proportionate, and dissuasive sanctions, ongoing supervision, and clear requirements for record-keeping, customer due diligence, and the reporting of suspicious transactions. Cayman’s updated regulatory regime now incorporates these elements, applying the Proceeds of Crime Act (2020 Revision) and Anti-Money Laundering Regulations (2023 Revision) as the foundation for compliance in both virtual asset and non-profit sectors.

The key changes introduced in the 2025 legislative package include the formal inclusion of tokenised investment funds within the scope of VASP regulation, enhanced enforcement powers for CIMA, and explicit obligations for churches and other NPOs to register and report under existing non-profit laws. Together, these changes mark a significant step toward a more comprehensive and internationally credible regulatory environment.

As the FATF mutual evaluation looms on the horizon, the Cayman Islands is making a concerted national effort to demonstrate that it can effectively identify, assess, and mitigate financial crime risks. The stakes are high: failure to meet global standards could lead to grey listing by FATF, a move that often prompts global banks to reassess their relationships with non-compliant jurisdictions. By addressing key vulnerabilities now, Cayman is aiming to avoid such consequences and cement its reputation as a trusted, modern, and innovative financial center.

By fLEXI tEAM