Tokenisation of Cayman Islands mutual funds: key CIMA conditions and legislative developments

We have seen the Cayman Islands Monetary Authority consistently impose a standard set of additional conditions on all mutual funds seeking to implement tokenisation.

These conditions first appeared for some of our clients back in April 2025, and we're seeing that they apply to all mutual funds introducing tokenisation features, regardless of the particular structure adopted.

These conditions apply no matter the method of tokenisation – either native tokens with intrinsic value (representing direct holdings in the fund) or tokens issued as digital share certificates (where the underlying investment interest remains a traditional share or unit).

Summary of key conditions for tokenised funds

The Cayman islands Monetary Authority's (CIMA) additional requirements are broadly grouped into three categories: 

• those with material operational or compliance impact
• requirements directly applicable to fund operators
• additional ancillary / procedural requirements

Material operational and compliance requirements

Principal office

The fund must appoint a CIMA-licensed mutual fund administrator to act as its principal office, which will serve as the main point of contact in the Cayman Islands, ensure compliance with local regulatory obligations, facilitate communication with CIMA, and is subject to ongoing duties under the Mutual Funds Act, including reporting to CIMA if it believes the fund is in breach of the Act, may be insolvent, or is acting in a manner prejudicial to creditors or investors.

Integrated financial and blockchain audit

Tokens issued and underlying assets must be audited by an independent third-party auditor at least annually. The audit scope includes token issuance processes and controls, smart contract code, blockchain record verification and reconciliation with tokenholder assets, IT security protocols, including management of cryptographic keys. Auditors must confirm all issued tokens are backed by actual assets and that no fraudulent transactions have occurred. The audit must be conducted either by the fund’s auditor approved by CIMA or by an independent auditor specialising in the audit of the tokenised investments / funds.

Annual confirmation to CIMA

Within six months of the financial year end, the fund is required to submit an annual confirmation letter to CIMA including the auditor’s opinion referred to above, a summary of token issuances and redemptions, confirmation of the value of underlying assets, compliance statement covering custody, cybersecurity, and risk management and any other submission required by CIMA.

Secure custody of assets and tokens

Assets which underlie tokens must be held in secure custody, with custodians subject to all relevant regulatory obligations for virtual assets and traditional assets. Disclosure in the offering document is required where token holders hold custody themselves, which must include clear delineation of fund and investor responsibilities.

Record keeping

All records relating to token issuance and transfers must be securely maintained and auditable on the blockchain or on a secure digital ledger.

Detailed offering document disclosure

The offering document must clearly describe terms for issuance, redemption, and transfer of tokens, and set out distribution/realisation arrangements if the issuer or custodian ceases business. Detailed disclosure of key risks including cybersecurity and token liquidity is also required.

Token custodian standards

Custodians must have policies, processes and controls consistent with the Virtual Asset (Service Providers) Act. All tokens must be held in segregated accounts.

Asset ring-fencing and lending

Assets must be ring-fenced and not used for lending or other income-generating activity unless specifically disclosed and approved.

Requirements on fund operators

In this context, “operator” refers to the person responsible for the governance and oversight of the fund, specifically: the directors, where the fund is incorporated as a company; the general partner, where the fund is structured as a partnership; or the trustee, where the fund is constituted as a unit trust.

Skills, knowledge and experience

Operators must ensure the fund and its service providers have the personnel, systems, and capital appropriate to the fund’s tokenised structure and risk profile.

Cybersecurity and investor asset protection

Operators are responsible for maintaining robust cybersecurity measures and safeguarding investor assets and personal data.

Accurate token processes and communications

Operators must ensure lawful and accurate issuance, transfer, and redemption of tokens. They must provide accurate communications to token holders and CIMA, including prompt notification of defaults, delays in redemption, or other concerns.

Operator expertise

At least one operator must have demonstrable expertise in tokenised funds.

Other requirements and general powers

CIMA powers and oversight

CIMA reserves the right to supervise, inspect, and investigate funds, including inspection of the blockchain, token transactions, and asset valuations. The fund must bear the cost of any inspection.

Rights of token holders

Rights of token holders must match the rights conferred by the underlying investment interest, except for pro-rata adjustments.

Token type restrictions

CIMA may restrict the types of tokens issued, to prevent non-compliant or illegal assets.

Sanctions for non-compliance and misrepresentation

CIMA may impose penalties, suspend token issuance, remove operators, or take other remedial action in case of non-compliance or misrepresentation about terms, asset value, token utility, or risks.

Future requirements

The fund must comply with any future regulatory requirements applicable to tokenisation under Cayman law.

Legislative developments

In August 2025, the Ministry of Financial Services and Commerce of the Cayman Islands published a consultation seeking feedback on proposed legislative changes to the Mutual Funds Act, Private Funds Act and Virtual Asset (Service Providers) Act. The consultation introduces draft amendments aimed at providing a more detailed regulatory framework for tokenised fund structures, clarifying the application of existing regimes to funds issuing digital equity or investment interests and ensuring that CIMA has sufficient powers to supervise such vehicles.

The draft Mutual Funds (Amendment) Bill, 2025 and Private Funds (Amendment) Bill, 2025 circulated with the said consultation sought to codify many of the conditions currently imposed by CIMA, but with some important differences (see below*). The consultation closed in September 2025 and these bills are not yet in force.

In the meantime, managers, sponsors and founders of projects who intend to use Cayman fund structures with tokenised elements should anticipate compliance with the current administrative conditions imposed by CIMA as summarised above when establishing and operating tokenised funds.

How Ogier can help

Ogier provides integrated fund formation and regulatory support to clients seeking to launch tokenised funds in the Cayman Islands. Ogier Global holds a mutual fund administrator licence and, subject to appropriate client due diligence and risk assessment, is able to act as principal office for tokenised Cayman Islands mutual funds.

We have a track record of assisting clients in the launch and ongoing compliance of tokenised funds, drawing on the expertise of our dedicated Technology and Web3 team, together with fund and regulatory specialists across multiple jurisdictions. Our experience spans structuring tokenised fund vehicles, addressing governance, risk management, and navigating the regulatory requirements imposed by CIMA. For more information, contact your usual Ogier attorney.

*The Bills are arguably more stringent and prescriptive than current conditions imposed by CIMA, both in terms of operational requirements and the level of detail for compliance, with key changes including for example:

1. Principal office: The Bills seek to require each tokenised fund to appoint a fund administrator to act as its principal office. On a strict interpretation, this could limit the ability of other service providers – such as registered office service providers (or their affiliates) that hold a CIMA mutual fund administrator licence but do not act as the fund’s administrator – to provide principal office services for tokenised funds
2. Token transfer restrictions: The Bills seek to narrow token transferability. Although the drafting is not entirely clear, they appear to require manager approval for all transfers among existing token holders, which may restrict secondary market or open trading arrangements for digital tokens

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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