The Cayman Islands and Europe: Partners in Scaling the Onchain Economy | EBC12

Good day everyone. My name is Gaiman Rankin. I am an associate director at Cayman Finance. We are a non-profit association in the Cayman Islands, funded by the government and our members. Our members make up the financial industry.

I mean the entire financial industry: from funds, capital markets, VASP organizations, audit and law firms. With me today are two of our members: Richard from Carey Olsen and Dr. Suzanne from Luca. Today we are here to talk about the relationship between the Cayman Islands and Europe, and how Cayman structures effectively help European companies go global. This will be the main topic of our conversation today.

But before introducing both panelists, I would like to provide some statistics so that you have a little more context on this relationship and how Europe uses the Cayman Islands. So, there are currently over 31,000 regulated funds registered in the Cayman Islands. According to a study by PwC and AIMA, over 58% of the world's crypto hedge funds are actually based in the Caymans, while 55% of in the Caymans, while 55% of traditional hedge traditional hedge funds have a stake in crypto assets. Why is this important? I think this is important for obvious reasons.

We have over 31,000 funds, and many of them—over 50%—are actively working with digital assets. So, I would say that this is something worth paying attention to. In addition, in March of this year, we amended three of our laws, allowing for the tokenization of these funds in a very simplified manner. Previously, before these changes, every fund that wanted to create a tokenized product had to register as a VASP. But as of March this year, this is no longer a requirement, and I'll leave the most important details for Richard to fill in .

Of course, funds are the mainstay of our islands' economy. Tokenized funds are the new big trend, but I also want to draw your attention to attention to foundation companies. There are now over 1,600 fund companies based in the Cayman Islands, and I would say there is an 80% chance that all the big players you can think of are based there. So, fund companies and tokenized funds tokenized funds are really two of the main products that main products that we have seen European entities use to scale and go global from the Cayman Islands. Actually, that's what our conversation today will be about, and I'm happy to welcome Richard from Carey Olsen and Dr.

Suzanne. So without further ado, I'll start by introducing Richard. Richard is a partner at the firm Carey Olsen. He works in the corporate finance team and advises Web3 advises Web3 projects, exchanges, custodians and RWA custodians and RWA projects on structuring, regulation, and also works extensively with tokenized debt issuances and credit lines secured by digital assets. Can we give Richard a round of applause, please applause, please ?

And to Richard's left is Dr. Suzanne. She is the CFO and global head of accounting and tax solutions at Lukka. Lukka is a software and data development company serving institutions and governments working with crypto assets. She has over 25 years of experience in accounting, financial analysis, regulation and academia, including working at Morgan Stanley, JP Morgan, Ernst&Young and the IFRS Foundation.

Can we give Dr. Suzanne a round of applause? So, Richard, let's start with you. You've worked with everything from Web3 foundations to exchanges, custodians, and complex financial structures. When a client chooses a jurisdiction, what exactly is he trying to achieve by transferring part of his structure to the Cayman Islands?

Yes, congratulations. I am first and foremost a Caymanian patriot. It's nice to be here. Excellent question. I will approach this question from several angles.

I mean, you mentioned the breadth and scale of our work in this sector, it's really a large volume. So jurisdiction offers different benefits for different clients, right? I think one of the key drivers we have seen over the past 6 years since the introduction of the DASP Act is legal certainty legal certainty . Yes. So, clients come and register in our jurisdiction to be sure that their platform is operating legally and that there are no issues with its supervision.

So, for example its supervision. So, for example , we don't have a problem determining whether virtual assets are commodities, securities, or whether they fall under the jurisdiction of the CFTC? Are they subject to SEC regulation? No, our jurisdiction has adopted a special legislative regime for digital assets. These are virtual assets.

We regulate you as virtual assets, using the same protection mechanisms as for other regulated industries. Therefore, there is complete legal certainty. And one more point I would like to mention— I would like to mention— you have already partially touched on it. Mhm. Some structures and legal entities that exist within our legal framework are very attractive for blockchain projects.

And you already mentioned one of them—a fund company. Yes. The trust company has been introduced in the Cayman Islands over the past decade. You can create a stock company, which is a legal entity without the need to have a shareholder. So, this is completely in line with the philosophy of decentralization.

Mhm. I'll stop there. I mean, we could discuss a lot more, but those are probably the two most interesting points. Well , thank you very much for that, Richard. So, choosing a structure is one decision, but being able to lead an organization is a completely different matter, right?

This is a different line of thought. So, Susanna, Dr. Susanna, for you, institutional implementation looks exciting on the surface, but the real test is whether finance, risk, and audit can support it. As an institution moves from experimenting with digital assets to working at scale, what needs to change behind the scenes, doctor? First of all, thank you again for inviting us and me personally.

And just call me Suzanne, because I'll tell you the truth: if you have a PhD in accounting and tax, and you're on a plane and you're asked to help because someone is having trouble breathing, that's a disaster unless I ask, " unless I ask, " Is the breathing problem caused by the tax return?" Then I can help. Otherwise, I'm not the one you need. So, by all means , just call me Susan. Um, this is very important, and I'm very happy to share this stage with Richard, because I love it when lawyers, us and people like lawyers, us and people like me, can communicate and have a dialogue on an equal footing with those who understand regulation.

One of the things you often hear in the digital asset industry digital asset industry is the fear of arbitration, jurisdictional arbitration. I came to the digital asset industry from insurance, and I think: we are constantly dealing with jurisdictional arbitration, because some jurisdictions do have regulation and legal certainty legal certainty that others may not have . And there's a lot to be said about lot to be said about what's happening in the Cayman Islands, and I would highly advise everyone: "Don't be afraid of jurisdictional arbitration." I'm not giving you tax or accounting advice accounting advice , but don't be afraid of that , but don't be afraid of that . So, back to your question: what you should be concerned about if you are planning to enter this area and it is new to you , especially if you are from the traditional financial sector, is jurisdiction, regulatory clarity, and legal clarity.

But you also need to think about internal processes, and many traditional financial institutions already have this in place: prepared compliance, ready-made data infrastructure data infrastructure , as well as tax and accounting reporting. You need experts from the world of digital assets, you need what is called two-way expertise. You need the traditional world and the digital asset world to be able to talk to each other, to have those experts, because when you get regulatory or legal clarity— legal clarity— I'll quote my CEO here—it doesn't solve your data and compliance problems. This exposes them. It's great that you're getting that first, but then you need to think about whether you have everything ready internally for compliance, reporting, and data management.

We can get back to talking about data, because for me, it's the data that tells the real story after regulatory and legal clarity emerges. And we can, of course, come back to this. Yes, definitely. Thank you for that answer. So, Richard, it's your turn now, okay?

Um, the issue of readiness applies to regulator doors as well , of course, right? So Carey Olsen advised on the first VASP license issued by a local regulator in Cayman called CIMA, the Cayman Islands Monetary Authority, right? From your experience obtaining your client’s first VASP license, what distinguishes an applicant who is truly ready for regulation from one regulation from one who is likely to who is likely to struggle? Yes, that's a good question. So you're kind of looking at it through the lens of a VASP license.

I mean, what's worth noting to the audience is that the VASP licensing regime came into effect last year, but before that we had 5 years of a registration system under the VASP Act. So, you know, we have 6 years of experience working with applicants who get approved by CIMA. Having gone through this process several times, we always tell the client: the higher the quality of your submitted documentation regarding business plan, policies, compliance procedures, etc., the better. If the information you provide to the regulator is not of this quality, you will not pass this stage, you will not receive registration or a license, and the regulator will come back with a huge number of questions, expecting much more elaboration where they feel the application is lacking something.

So I would say this: we immediately see an organized, experienced client experienced client who comes and already has the necessary materials, information, and a formed team; such a client already looks prepared for the type of regulation that will come once they are licensed and up and running. You know, CIMA oversight explicitly states that they expect experienced professionals with the appropriate qualifications to manage the platform, and of course they expect all the other important things that the regulator looks for, such as AML compliance and all the related issues. So be prepared, have a good team around you, and understand that this is not a " understand that this is not a " soft" regulation. We would call this appropriate level regulation, and it is very similar to what CIMA does in other regulated sectors, including funds, insurance, etc. Also for the audience's information, the licensing regime was open to custodians as well as exchanges.

So if anyone in the audience is planning to get a license overseas, particularly in the Cayman Islands, please contact Richard after you finish. He will definitely be able to help you with this . So, back to you, Susanna, not the doctor. As institutions move from liquid cryptocurrency to tokenized funds tokenized funds , private lending, and other real assets, valuation becomes a bit more complicated. How do you get a valuation that an administrator, auditor, or institutional investor can truly rely on?

After all, Lukka provides a full range of services, including valuation, right? That's a great question. This is where my PhD in accounting comes into play, I'm a real fan when it comes to valuation. I love it. It's strange to love it.

It's strange to love something like this, but I do . So, I think the main thing is to rely on existing accounting and reporting standards that have been around for decades. So, the International Accounting Standards Board, the IFRS Foundation, which I worked for, the Financial Accounting Standards Board ( if you use US GAAP), or your jurisdiction's standards— your jurisdiction's standards— I'm discussing this now with respect to UK GAAP— respect to UK GAAP— you have to follow the original standards because they will help you pass the audit. Those who review your books and how you arrived at this grade: if you come in with a spreadsheet like this or advice from social media— advice from social media— because I've seen and heard that many times— that many times— that's just wrong. You should go back to basics, to tried and tested standards.

And that's exactly what Lukka does, for example, if we talk about us, as we've done from the very beginning. We have an advisor—the former chairman of the U.S. Accounting Standards Board. We have scientists, we have auditors.

They are all reviewing our valuation methodology and we literally use these standards and this is extremely important, they work for all types of assets. And one of the misconceptions that exists: people say, "There's no accounting for crypto. There's no taxes for crypto." And in fact they are. There are original standards that sometimes convey economic meaning well, and sometimes they need to be improved.

And it's up to all of us all of us to continue the dialogue with standards developers to help them improve them. But I would say that assessment say that assessment is something that works great within the existing standards. So make sure you work with a service provider who walks you through this process and doesn't just say, "Oh, you can just take the average." You know what? Averages aren't "I'm just going to go to all the markets and take the average."

The worst mistake you can make. Or just, you know, it's not the same as comparing properties, where you can go out and see what's going on in the market and come up with an average. There is actually a very carefully crafted guide that will literally help you get there completely reliably. Ideally. Thank you for that.

I am mindful of time. We have 3 minutes left. So I'll give each of you 1 minute, okay? So, in a year okay? So, in a year , what will the market be doing on blockchain in a normal way, which today seems somewhat experimental?

I suspect a year is too short a time frame for this, but I expect, or would like to see, corporations raise funding through blockchain. You know, it's just kind of a variation of the tokenization talk. But I think that's exactly what we're heading towards . I don't know if it will fit into a 12- if it will fit into a 12- month schedule. It would be great if we could do it faster.

I'm not sure it will work. But yes, I'm leaning towards that. What do you think they'll call it? Maybe ITO? Or It's entirely possible, just don't call it an ICO.

Yes, that will work. Susanna? My option is a bit boring and not financial, but I like the answer . I think more accounts will move to blockchain. The ways of keeping basic books and records will be unchanged, more secure, and more accessible to many people.

So, I think it's pretty boring. It is important to add boring. It is important to add that caution is needed, as some tokenization of real- world assets actually only captures a record of ownership, not creating a new asset. Therefore, you must be extremely careful. This is where you really need lawyers to help you understand the facts, circumstances, conditions, and what's going on "under the hood" before deciding, "Oh, this is this asset, and this is this asset, and this is that."

Make sure you consult with all sorts of Richards about Well, that's great. To my left is a salesman, as well as a doctor. Well , time is up. Thank you very much everyone. Before you go, I want to let you know that we are now starting happy hour at our booth for the next hour or two.

So, please come and enjoy the hospitality of the Cayman Islands. We have rum and great people to talk to. So thank you all very much for your time.