CARF compliance: what Cayman Islands investment funds need to know

The Cayman Islands’ regime on international tax compliance has changed significantly as of 1 January 2026 with the implementation of the Tax Information Authority (International Tax Compliance) (Crypto-Asset Reporting Framework) Regulations, 2025).

These regulations (referred to in the rest of this article as the CARF Regulations) bring the Cayman Islands into alignment with the Organisation for Economic Co-operation and Development's (OECD) new Crypto-Asset Reporting Framework (CARF) and introduce additional reporting obligations for entities dealing with crypto-assets on behalf of customers, with particular focus on those providing exchange services or trading platforms.

The central question for fund managers is whether investment funds with crypto-related features or exposure – such as investment funds that invest in crypto-assets, funds that accept subscriptions in crypto-assets, and tokenised funds – fall within the definition of a “Reporting Crypto-Asset Service Provider” (Reporting CASP) under the CARF Regulations.

CARF: what are the key concepts?  

The CARF Regulations define a Reporting CASP broadly as any individual or entity that, as a business, provides a service effectuating Exchange Transactions for or on behalf of customers, including by acting as a counterparty or intermediary to such transactions, or by making a trading platform available.

Exchange Transactions are defined as: exchanges between Relevant Crypto-Assets and fiat currencies or exchanges between one or more forms of Relevant Crypto-Assets

Relevant Crypto-Assets and fiat currencies are defined terms under the CARF Regulations and, while broadly consistent with ordinary usage, have notable features:

Relevant Crypto-Asset

Any crypto-asset (a digital representation of value that relies on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions) except:

• central bank digital currencies (CBDCs)
• specified electronic money products
• crypto-assets that the Reporting CASP has determined cannot be used for payment or investment purposes

Fiat currency 

The official currency of a jurisdiction, including physical notes and coins, as well as digital forms such as bank reserves, CBDCs (including blockchain-issued official currencies), commercial bank money and electronic money products.

Investment funds and CASPs 

The CARF Regulations primarily target entities providing exchange services or operating trading platforms for customers.

For investment funds with crypto-related features or exposure, the key consideration is whether their activities – such as investing in crypto-assets, accepting subscriptions or redemptions in crypto, or issuing tokenised interests – could be viewed as offering such services.

This section provides a high-level overview of how these structures are generally viewed against the Reporting CASP definition under CARF.

Funds investing in crypto-assets

Where a fund is itself buying, selling or otherwise managing crypto-assets as part of its investment strategy (without providing exchange services to third parties), it is generally viewed that this would not, by itself, bring the fund within the definition of a Reporting CASP. Investment activity alone is generally considered distinct from the provision of services effectuating Exchange Transactions.

In some jurisdictions, the CARF framework requires investment funds (or their investors) to undertake direct reporting or registration obligations. This can occur even when funds or investors are merely investing in crypto-assets or transacting through service providers that are located outside the jurisdiction in which it is resident or established. However, under the Cayman Islands CARF Regulations, such obligations apply exclusively to entities that meet the definition of a Reporting CASP - entities that, as a business, provide a service effectuating Exchange Transactions for or on behalf of customers, or make a trading platform available. Funds engaged solely in investment management do not have a direct reporting obligation under CARF in the Cayman Islands.

Funds accepting subscriptions / redemptions in crypto-assets

Initial industry commentary indicates that, even where a fund accepts subscriptions or processes redemptions in crypto-assets, it would not typically be treated as a Reporting CASP – provided it does not operate as an exchange, intermediary or trading platform for third parties (such as facilitating Exchange Transactions for customers). The key distinction is between accepting crypto as a means of investment and offering exchange services.

As a matter of best practice, funds that accept subscriptions in a particular crypto-asset often also process redemptions in the same crypto-asset to maintain a clear operational distinction from an exchange or swapping service. Where a fund accepts crypto for subscriptions and converts it into fiat solely for its own investment purposes, this conversion is generally regarded as incidental and not as providing an Exchange Transaction for customers.

Conversely, if a fund accepts subscriptions in crypto and permits redemptions in fiat or another crypto-asset, care should be taken to avoid creating an operational equivalence to a crypto-asset exchange. Frequent, unrestricted redemptions – especially where there are no lock-ups or gates and the fund follows a low-risk strategy investing in instruments such as government securities, high-grade commercial paper and other money market instruments – could be perceived as similar to a virtual asset service provider (VASP) and potentially bring the fund within scope as a Reporting CASP.

Funds should avoid operating models that resemble, or could be interpreted as, exchange platforms for customer-to-customer transactions.

Tokenised funds

Issuing tokenised interests (shares, units) representing participation in the fund does not, by itself, generally result in classification as a Reporting CASP, provided the fund does not offer any service or platform that facilitates Exchange Transactions for customers.

Purposive interpretation of CARF Regulations 

A purposive reading of the CARF Regulations supports the distinction outlined above. The definition of a “Reporting Crypto-Asset Service Provider” is aimed at entities effectuating Exchange Transactions for or on behalf of customers or making a trading platform available.

By contrast, the Schedule to the CARF Regulations clarifies that “otherwise investing, administering, or managing Financial Assets, money, or Relevant Crypto-Assets on behalf of other persons” is not treated as the provision of exchange services. This language is intended to be read consistently with similar terminology used in international standards, including the Common Reporting Standard (CRS), reinforcing the separation between investment activity and customer-facing intermediary or exchange services.

Conclusion 

Under the CARF Regulations, investment funds are generally not treated as Reporting CASPs if they do not provide exchange services or operate trading platforms. Activities such as investing in crypto-assets, accepting subscriptions / redemptions in the same crypto-asset, or issuing tokenised interests typically fall outside scope. However, operational models that resemble exchange services – such as permitting conversions between crypto and fiat or multiple crypto-assets – may trigger Reporting CASP classification, so careful structuring is essential.

How Ogier can help

Ogier can assist with regulatory compliance and classification advice under CARF, as well as fund formation involving crypto-related features or exposure.

With our dedicated Technology and Web3 team, we bring deep experience in digital asset strategies and tokenised interests, alongside our broader fund and regulatory specialists across multiple jurisdictions. For more information, contact your usual Ogier attorney.

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Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

Regulatory information can be found under Legal Notice