Background
The Cayman Islands has maintained its position as a leading jurisdiction for investment funds whilst embracing developments in distributed ledger technology. The Virtual Asset (Service Providers) (Amendment) Act, 2026 (the VASP (Amendment) Act) clarifies that tokenised private funds and mutual funds registered with CIMA are excluded from Virtual Asset (Service Providers) Act (as amended) (the VASP Act) regulation. The Mutual Funds (Amendment) Act and Private Funds (Amendment) Act build on this framework and provide comprehensive statutory frameworks specifically tailored to tokenised funds.
These three legislative instruments operate as a complementary regulatory framework. The VASP (Amendment) Act establishes the boundary between the virtual asset services regime and the funds regulatory regime, clarifying that tokenised funds registered with CIMA are not subject to the VASP Act unless the tokenised funds themselves are engaging in virtual asset services. The Mutual Funds (Amendment) Act and Private Funds (Amendment) Act then provide the substantive regulatory requirements applicable within that framework, setting out obligations for tokenised funds regarding record-keeping, disclosure, transfers of digital equity tokens and/or digital investment tokens and regulatory supervision. Together, the new statutes provide a coherent regime that avoids regulatory overlap whilst ensuring appropriate oversight of tokenised fund structures.
Key amendments: Mutual Funds (Amendment) Act
The Mutual Funds (Amendment) Act amends the Mutual Funds Act to introduce the following key provisions:
New definitions. The Act introduces definitions for 'digital equity token' (meaning a digital representation of the whole of an equity interest held by an investor in a mutual fund) and 'tokenised mutual fund' (meaning a mutual fund that has any of its equity interests represented by digital equity tokens).
Expanded scope of debt and equity interests. The definitions of 'debt' and 'equity interest' are amended to include LLC interests and partnership interests, ensuring the legislation accommodates the full range of fund structures.
Administrator obligations. Licensed mutual fund administrators must be satisfied that, in the case of a tokenised mutual fund: (i) all records relating to the issuance, creation, sale, transfer and ownership of digital equity tokens are securely maintained and available to CIMA within specified periods; and (ii) the tokenised mutual fund has complied with all applicable requirements.
Annual confirmation. An annual confirmation is required by the operator of the tokenised mutual fund that all records relating to the issuance, creation, sale, transfer and ownership of an equity interest that is represented by a digital equity token have been properly kept and maintained in compliance with the requirements set out in the legislation. We expect that such annual confirmation will be made via the fund annual return.
Transferability. Digital equity tokens are only transferable with the approval of the operator of a tokenised mutual fund in accordance with the offering document.
Risk disclosure. Tokenised mutual funds must disclose in the offering document any risks specific to digital equity tokens, including cybersecurity considerations and transferability, together with how such risks are addressed or mitigated for investors.
Supervisory powers. CIMA is granted express supervisory powers over tokenised mutual funds, including the ability to carry out inspections of the underlying technology and digital equity token transactions.
Key amendments: Private Funds (Amendment) Act
The Private Funds (Amendment) Act amends the Private Funds Act to introduce parallel provisions for tokenised private funds. Whilst the two regimes are substantively aligned, a key distinction is that the mutual funds framework imposes specific obligations on licensed administrators (where they provide services to a tokenised mutual fund) to verify record-keeping and compliance, whereas the private funds framework places these obligations directly on the fund at the point of registration.
Practical implications
The Acts do not create new categories of regulated funds. Rather, they confirm that mutual funds and private funds may utilise tokenisation technology within an enhanced regulatory framework that addresses the specific characteristics and risks of digital equity tokens and digital investment tokens.
Fund managers proposing to establish tokenised funds should ensure their offering and constitutional documents comprehensively address the required risk disclosures and transfer mechanics. Now that the Acts have been enacted, fund managers and service providers should take steps to ensure compliance with the new requirements.
Walkers has advised on a number of tokenised fund launches and maintains a dedicated team of specialists with extensive experience in this area, well placed to assist with all aspects of Cayman Islands tokenised fund structuring and registration.
