Cayman Islands Moves to Codify Tokenised Mutual Funds

The Cayman Islands has taken a decisive and globally significant step in the evolution of regulated digital finance. The Mutual Funds (Amendment) Bill, 2026, recently gazetted for public consultation, proposes to formally introduce a statutory framework for tokenised mutual funds under the Mutual Funds Act.

This development reinforces Cayman’s position as the leading offshore jurisdiction for institutional-grade fund innovation, particularly at the intersection of traditional fund structures and blockchain-based issuance, transfer, and recordkeeping.

At CV5 Capital, we view this amendment as a long-anticipated and pragmatic response to how funds are already being structured and operated by sophisticated managers and platforms.

What is a “Tokenised Mutual Fund”?

Under the proposed amendments, a tokenised mutual fund is a regulated mutual fund whose equity interests are represented by digital equity tokens rather than (or alongside) traditional share register entries.

Crucially, the Bill does not create a parallel or lighter-touch regime. Instead, tokenised mutual funds remain fully subject to the Mutual Funds Act, with additional, targeted requirements designed to address token-specific risks, governance, and investor protection.

Section 22I: New Statutory Requirements Explained

The proposed new section 22I sets out a clear and structured compliance framework for tokenised mutual funds.

1. Additional Layer of Regulation — Not a Separate Regime

The Bill makes explicit that the tokenised mutual fund requirements are in addition to, not in substitution for, existing obligations under the Act. This ensures regulatory parity between traditional and tokenised funds while recognising the unique characteristics of digital equity tokens.

Key takeaway: Tokenisation does not reduce regulatory standards, it enhances them.

2. Annual Confirmation of Token Records

The operator of a tokenised mutual fund must confirm annually to the Authority that all records relating to:

• issuance
• creation
• sale
• transfer
• ownership
  

of digital equity tokens have been properly maintained in accordance with the Act.

This aligns blockchain-based recordkeeping with Cayman’s long-standing emphasis on auditability, governance, and regulatory visibility.

Practical implication: Tokenisation platforms must be institutionally robust, with reconciliation between on-chain records and off-chain fund administration.

3. Controlled Transferability — Operator Approval Required

A digital equity token representing an equity interest in a mutual fund is only transferable with the approval of the fund operator, in accordance with the offering document.

This is a critical provision. It ensures that tokenisation does not undermine:

• AML / KYC controls
• investor eligibility requirements
• sanctions compliance
• regulatory selling restrictions
  

In effect: tokenised fund interests are not freely transferable bearer instruments, they remain regulated securities.

4. Mandatory Token-Specific Risk Disclosure

Tokenised mutual funds must explicitly disclose, in their offering documents, risks specific to digital equity tokens, including (but not limited to):

• cybersecurity risks
• transferability constraints
• technology and protocol risks
• any additional risks identified by the Authority
  

This codifies what institutional allocators already expect: clear, plain-English articulation of how tokenisation changes the risk profile of a fund interest.

5. Required Disclosure of Risk Mitigation Measures

Importantly, disclosure alone is not sufficient.

The offering document must also explain how those token-specific risks are addressed or mitigated, such as through:

• custody and wallet controls
• transfer whitelisting
• multi-signature governance
• administrator and registrar oversight
• off-chain failover records
  

This moves Cayman regulation beyond theoretical disclosure and into operational substance.

6. Power for CIMA to Impose Token Design Restrictions

The Authority is expressly empowered to impose specific restrictions on the characteristics of digital equity tokens, and tokenised mutual funds must ensure compliance with any such restrictions.

This gives regulators flexibility to respond to market developments without constant legislative amendments—while keeping token design aligned with investor protection.

7. Periodic Reporting Requirements

Tokenised mutual funds must comply with any periodic reporting requirements specified by the Authority, reinforcing ongoing supervisory oversight rather than one-time approval.

8. Enhanced Supervisory Powers

Finally, the Bill confirms that the Authority:

• may request additional information to assess applications involving tokenised mutual funds; and
• will monitor ongoing compliance with the Act.

This underscores that tokenised funds will be supervised with the same seriousness as traditional funds, if not more.

Why This Matters Globally

This amendment is notable not just for what it permits, but for how it permits it.

Rather than attempting to force tokenised funds into outdated frameworks or creating regulatory arbitrage, Cayman is:

• acknowledging tokenisation as a legitimate fund issuance mechanism;
• embedding it within an established, institutionally trusted regime; and
• giving regulators clear authority without stifling innovation.
  

Few jurisdictions have achieved this balance.

CV5 Capital’s Perspective

At CV5 Capital, we have long structured funds on the basis that tokenisation must enhance, not weaken, governance, compliance, and investor protections.

The Mutual Funds (Amendment) Bill, 2026 largely reflects best practices already adopted by institutional tokenised fund platforms, including:

• operator-controlled transfer approvals
• administrator-led NAV and register oversight
• comprehensive offering document disclosures
• regulator-ready reporting and audit trails
  

We expect this amendment to accelerate institutional adoption of tokenised fund interests, particularly among managers and allocators seeking on-chain efficiency with off-chain regulatory certainty.

Looking Ahead

As the Bill proceeds through consultation and eventual enactment, tokenised mutual funds are poised to become a mainstream, regulated fund structure rather than an experimental edge case.

Cayman’s message is clear: tokenisation is welcome, but only when done properly.

For managers, platforms, and investors alike, that is exactly the kind of clarity the market has been waiting for.

For more information on structuring and operating regulated tokenised mutual funds in the Cayman Islands, contact CV5 Capital.

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