On 4 February 2026, the Cayman Islands Government released three connected legislative proposals (together, the “Tokenized Funds Amendment Bills”) intended to establish a defined statutory and supervisory framework for investment funds that issue equity or investment interests through tokenization—without creating a separate virtual asset regime for those interests. The Bills formalise and expand the approach that the Cayman Islands Monetary Authority (CIMA) has been applying in practice.
This note outlines the main features of the proposed legislation, explains how it builds on the current regulatory position, and highlights practical compliance considerations for sponsors, managers and service providers.
1. Mutual Funds (Amendment) Bill, 2026 — Tokenized Mutual Funds (the “MF Bill”)
Digital Equity Tokens & Definitions
The MF Bill updates the Mutual Funds Act (2025 Revision) (the “MF Act”) to include a definition of a “digital equity token” as a digital form representing an investor’s full equity interest in a mutual fund.
Recordkeeping Obligations
Operators of tokenized mutual funds must maintain secure, up-to-date records covering the creation, issuance, sale, transfer and ownership of digital equity tokens and provide those records to CIMA upon request within prescribed timeframes.
Operator Confirmation
Each year, the fund operator must confirm to CIMA that token-related records have been properly maintained in accordance with the amended MF Act.
Transfer Controls
Transfers of tokenized equity interests require operator approval consistent with the offering document, ensuring that token movements remain subject to the same restrictions as traditional fund interests.
Offering Document Revisions
The amended MF Act mandates specific disclosure in the offering document addressing token-related risks—such as cybersecurity and transferability—and an explanation of the measures taken to manage those risks.
CIMA Powers
Under the proposed amendments, CIMA may:
- set limits on the features or characteristics of digital equity tokens; and
- require regular reporting on token issuance and transactions.
These powers sit within CIMA’s broader supervisory remit under the Mutual Funds Act.
2. Private Funds (Amendment) Bill, 2026 — Tokenized Private Funds (the “PF Bill”)
This Bill introduces parallel amendments to the Private Funds Act (2025 Revision) (the “PF Act”), defining a “digital investment token” as a digital representation of an investor’s full investment interest in a private fund.
The compliance framework for tokenized private funds mirrors that for mutual funds and includes:
- secure maintenance of token lifecycle records accessible to CIMA;
- annual operator confirmations;
- transfer restrictions requiring operator approval in line with the offering document;
- enhanced offering document disclosures of token-specific risks and mitigations; and
- CIMA’s authority to impose token feature restrictions and reporting requirements.
By embedding these obligations directly in the PF Act, the PF Bill confirms that tokenized private funds remain within the existing private funds regime, rather than being treated as a separate asset class.
3. Virtual Asset (Amendment) Bill, 2026 — Regulatory Perimeter Clarification (the “VASP Bill”)
The VASP Bill amends the Virtual Asset (Service Providers) Act (the “VASP Act”) to exclude the issuance of digital equity tokens or digital investment tokens by a regulated tokenized fund from the definition of “virtual asset issuance.”
Core Outcome
Where a tokenized fund issues digital tokens representing fund interests:
- that issuance is not treated as a virtual asset issuance under the Virtual Asset (Service Providers) Act; and
- the fund remains regulated solely under the amended Mutual Funds Act or Private Funds Act, depending on its structure.
- This codifies CIMA’s existing administrative approach and prevents duplication of registration or overlapping regimes.
Enhancing and Clarifying the Current Position
At present, Cayman Islands funds using tokenization operate under the Mutual Funds and Private Funds Acts respectively, supplemented by CIMA’s administrative conditions (for example, requirements for licensed administrators and reporting protocols).
The Tokenized Funds Amendment Bills elevate these conditions into statutory form, thereby:
- providing legal certainty on the regulation of tokenized interests;
- aligning token issuance with the established fund regulatory perimeter;
- granting CIMA explicit authority to oversee token functionality and technology risk management; and
- strengthening investor protection through enhanced disclosure obligations.
As with earlier amendments to the Virtual Asset (Service Providers) Act, the Tokenized Funds Amendment Bills ensure that tokenized funds are not inadvertently captured as separate virtual asset service providers merely because they issue tokenized interests.
Practical Points & Potential Compliance Checklist
Managers, sponsors and service providers currently offering or considering the formation, operation and/or promotion of tokenized funds in the Cayman Islands, should prepare to meet the following operational and compliance expectations once the Tokenized Funds Amendment Bills take effect:
- Token Lifecycle Controls: Ensure that systems and procedures generate complete, secure records of token creation, transfers and holdings, accessible to CIMA within required timeframes.
- Operator Approval Integration: Align smart contract logic, back-office processes and offering document terms so that token transfers comply with operator approval and investor eligibility requirements.
- Offering Document Drafting: Update offering documents to include token-specific disclosures covering cybersecurity, counterparty exposure, transfer limitations, token design constraints and any CIMA-mandated safeguards.
- Supervisory Preparedness: Be ready to engage with CIMA on the underlying distributed ledger technology, token design and related audit or reporting mechanisms.
Please note that the Tokenized Funds Amendment Bills have been introduced but are not yet in force. Further detailed references and implementation guidance will follow once the Tokenized Funds Amendment Bills progress through the legislative process in the Cayman Islands and Vale will continue to keep you updated on any material developments as they arise.
