Why choose the Cayman Islands for tokenised funds?
There are a number of reasons why the Cayman Islands is the ideal jurisdiction in which to establish your tokenised fund. The Cayman Islands' dominance and successful track record is unparalleled. With over 17,000 private funds and 12,000 mutual funds registered with the Cayman Islands Monetary Authority (CIMA) under the Private Funds Act (as amended) (the Private Funds Act) and the Mutual Funds Act (as amended) (the Mutual Funds Act) respectively, setting up your tokenised fund here taps into a proven regime built on credibility and investor confidence.
The benefits of establishing a tokenised fund in the Cayman Islands include:
- familiarity to managers and investors;
- a robust and flexible legal framework, in particular with respect to digital assets;
- a stable political climate;
- availability of high quality service providers;
- a proven record as a world leading financial centre;
- funds regulated under the Mutual Funds Act or the Private Funds Act do not need to be separately regulated under the Virtual Asset (Service Providers) Act (as amended) (the VASP Act) — a position now expressly confirmed by the VASP (Amendment) Act; and
- on-chain registers for fund interests are permitted under existing legislation, with further statutory support provided by the new definitions of "digital equity token" and "digital investment token" introduced by the Mutual Funds (Amendment) Act and Private Funds (Amendment) Act.
The enacted statutory framework for tokenised funds in the Cayman Islands
The Cayman Islands has maintained its position as a leading jurisdiction for investment funds whilst embracing developments in distributed ledger technology. Following successful rounds of consultation between industry and government, the Mutual Funds (Amendment) Act, the Private Funds (Amendment) Act and the VASP (Amendment) Act came into force on 24 March 2026, providing a comprehensive and coherent statutory framework for 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, these statutes provide a coherent regime that avoids regulatory overlap whilst ensuring appropriate oversight of tokenised fund structures.
The key provisions introduced by the enacted legislation include:
New definitions: The Mutual Funds (Amendment) 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). The Private Funds (Amendment) Act introduces parallel definitions for tokenised private funds.
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.
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.
Importantly, there is no separate independent audit requirement or custodian appointment obligation in respect of tokenised interests — the existing audit requirements applicable to traditional funds apply equally to tokenised funds.
Tokenised fund launches in the Cayman Islands to date
Cayman investment funds issuing tokenised interests represent a significant evolution in asset management, combining blockchain technology with traditional structures for enhanced efficiency and accessibility. For corporate funds, tokenised shares are digital representations of equity, recorded on a blockchain.
We have advised asset managers on the launch of their Cayman tokenised funds. There have been important lessons gleaned from this experience. Engagement with CIMA is critical to a successful launch as CIMA may attach conditions to the registration of a particular tokenised fund. Based on our interaction with CIMA it is clear they intend to facilitate innovation whilst ensuring compliance with the Cayman Islands' market leading regulatory framework.
The registered tokenised funds we have assisted so far have all maintained an off-chain register in addition to an on-chain register. Provided the relevant service providers are equipped to ensure adherence with the Cayman Islands' anti-money laundering (AML) framework, a tokenised fund can accept in-kind digital asset subscriptions and redemptions.
What's next for tokenisation and blockchain technology in the Cayman Islands?
The operational efficiencies that shares or LP interests in tokenised form solely on blockchain rails would bring have been widely recognised by industry. As the blockchain technology behind tokenisation rapidly adapts, regulators and legislators must keep pace by clarifying the existing legal framework to balance innovation with investor protection without stifling growth. Delaware law explicitly authorises companies to use blockchain technology for maintaining corporate records, including a company's register of members. Although the existing legislation in the Cayman Islands does not explicitly refer to on-chain registers, on-chain registers of shares or LP interests are permitted under existing legislation. The Mutual Funds (Amendment) Act and Private Funds (Amendment) Act now provide express statutory definitions for "digital equity token" and "digital investment token", offering further statutory support for on-chain records of fund interests.
Provided the blockchain technology can meet all the requirements of the Companies Act (as amended) or the Exempted Limited Partnership Act (as amended), as applicable, and the regulatory framework applicable to Cayman funds is complied with, there is nothing that should preclude a Cayman tokenised fund from utilising a purely on-chain register of members or LPs without the additional layer of an off-chain register.
Structures for tokenised funds in the Cayman Islands
The two common structures for tokenised funds in the Cayman Islands are open-ended Cayman Islands exempted companies and closed-ended Cayman Islands exempted limited partnerships.
The open-ended Cayman Islands exempted company structure is more common for those managers looking to pursue an investment strategy which focuses on trading in listed equities and/or cryptocurrencies. These strategies tend to be more liquid in nature and investors are able to redeem their investment at their own initiative. These structures are therefore open-ended and similar to a traditional hedge fund. They need to be registered with CIMA unless certain exemptions apply. This CIMA registration means that these funds will need to have at least two directors (who are themselves CIMA registered).
The closed-ended Cayman Islands exempted limited partnership structure is more common for those managers looking to pursue an investment strategy which focuses on long term investments. These strategies tend to be illiquid in nature and investors are unable to redeem their investment without the manager's consent. These types of funds are akin to a private equity or venture capital fund. Pursuant to the Private Funds Act, closed-ended funds will also need to be registered with CIMA unless certain exemptions apply.
Service providers for tokenised funds in the Cayman Islands
Once you have decided on the most appropriate structure for your tokenised fund it is important to consider the range of service providers with tokenisation expertise that your fund may need to engage. Some of the key service providers are:
Registered office provider in the Cayman Islands: It is a legal requirement for the tokenised fund to have a registered office (the RO) in the Cayman Islands. The RO will attend to a wide range of administrative matters on behalf of the fund.
Administrator: For tokenised funds it is common to appoint a third-party administrator with familiarity with blockchain technology who will be responsible for the accounting of investor subscriptions and redemptions and computing the net asset value of the fund. There is a convergence of fund administrators and tokenisation providers, including the acquisition of MG Stover by Securitize and the acquisition of Tokeny by Apex. Under the Mutual Funds (Amendment) Act, licensed mutual fund administrators now have express statutory obligations in relation to tokenised mutual funds, including the obligation to be satisfied that all records relating to digital equity tokens are securely maintained and available to CIMA.
Auditor: Both open-ended and closed-ended funds registered as mutual funds and private funds respectively will need to appoint a local auditor based in the Cayman Islands who will be responsible for signing off the fund's annual audit and who are comfortable in auditing funds with tokenised interests. All of the major accounting firms have branches in the Cayman Islands so it is relatively straightforward to find an auditor for CIMA registered funds.
Annual confirmation to CIMA: Under the Mutual Funds (Amendment) Act and Private Funds (Amendment) Act, the operator of a tokenised mutual fund is required to confirm annually to CIMA 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 of the applicable Act.
Independent directors: It is more common to see independent directors in open-ended structures. They are seen to act as "watchdogs" for investors over the investment manager and other service providers to the fund. However, tokenised funds do not typically have independent directors as this sector is relatively new and the sponsor tends to provide the directors to the funds. As the sector evolves and begins to attract more institutional investors, we expect independent directors to become more commonplace.
FATCA and AML: The fund will be required to comply with Cayman Islands laws relating to FATCA, the Common Reporting Standard and AML. It is common for funds to appoint specialist third-party providers to assist with this, especially for new funds who have limited experience with these regulatory regimes.
Blockchain provider: A tokenised fund will need a blockchain provider. As noted above, there appears to be a convergence of fund administrators with tokenisation providers. A third-party service provider could be engaged or, if the asset manager has the in-house development capability, funds may issue tokenised interests without engaging a separate third-party service provider.
About Walkers
Our Fintech and Funds team consists of experts familiar with all types of fund structures at all levels of complexity. Together with our professional services team we can offer everything from legal advice to regulatory, compliance, registered office and corporate services, making the firm your one-stop-shop for all your tokenised fund needs. We also work closely with a number of other service providers on a regular basis and can assist you in determining which service providers would be most appropriate for your fund structure.
We have 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.
