CIMA’s Expectations for Digital Asset Funds Under the Mutual Funds Act

At CV5 Capital, we help managers navigate this evolving regulatory landscape, ensuring that digital-asset funds meet institutional standards for governance, compliance, and investor protection.

1. Regulatory Context: The Mutual Funds Act and Digital Assets

Under the Mutual Funds Act, all open-ended funds operating in or from the Cayman Islands must either be registered or licensed with CIMA, or qualify for an exemption. This framework equally applies to digital-asset funds , whether their strategies involve direct trading of cryptocurrencies, participation in DeFi protocols, or tokenized fund units.

CIMA has made clear that digital-asset funds are not exempt from traditional regulatory obligations simply because they use blockchain technology or trade in new asset classes. The same standards of valuation, governance, audit, and AML/CTF oversight apply in full.

2. Governance and Oversight

CIMA expects that all digital-asset funds maintain robust governance frameworks, including:
• At least two natural-person directors, registered under the Directors Registration and Licensing Act (DRLA), with sufficient experience in both traditional funds and digital assets.
• A formally adopted valuation policy, describing how digital assets are priced (e.g., using independent data sources, oracles, or third-party pricing providers).
• Independent oversight by directors and service providers to ensure segregation of duties, particularly where the Investment Manager also controls custody or trading infrastructure.

CIMA emphasizes the importance of independence and competence in fund boards, particularly for strategies involving complex or illiquid on-chain assets.

3. Custody and Safekeeping of Digital Assets

The safekeeping of digital assets is a primary regulatory concern. CIMA expects that:
• Funds use regulated custodians (or at minimum, custodians with institutional-grade security controls, insurance coverage, and independent audits).
• Digital assets held in wallets are segregated from manager or related-party assets.
• Custody arrangements are clearly disclosed in the Offering Memorandum, including the use of multi-signature, MPC, or cold-storage solutions.
• Where the Investment Manager self-custodies, the Board must formally assess and document why such an arrangement remains appropriate and what compensating controls are in place.

Funds using providers such as Fireblocks, Copper, or Gemini typically satisfy institutional expectations when supported by clear governance policies and administrator reconciliation.

4. Valuation and NAV Verification

CIMA expects a consistent and transparent valuation framework for all assets, including digital tokens and on-chain positions.
• The valuation policy must identify reliable pricing sources and fallback mechanisms in case of market dislocation.
• Valuations should be independently verified by the fund administrator, not solely by the Investment Manager.
• Funds must disclose any limitations in valuation data, particularly for thinly traded or private tokens.

Administrators are increasingly using on-chain data feeds, oracles, and blockchain analytics tools to verify positions and reconcile holdings, a practice CIMA supports when well-documented.

5. Audit and Financial Reporting

All CIMA-registered mutual funds, including those investing in digital assets, must:
• Appoint a CIMA-approved auditor (e.g., MHA Cayman, KPMG, Deloitte, or PwC).
• Prepare and file audited financial statements annually, within six months of year-end.
• Ensure the audit covers both digital-asset holdings and valuation methodology, with clear reconciliation between on-chain records and accounting statements.

CIMA views the audit as a cornerstone of investor protection and transparency in this emerging asset class.

6. AML / CFT and Sanctions Compliance

Even though many digital assets operate on decentralized networks, CIMA expects full compliance with the Cayman Islands Anti-Money Laundering Regulations (Revision).
Funds must:
• Conduct investor due diligence (KYC) on all investors and related parties.
• Maintain procedures for transaction monitoring, including blockchain analysis where relevant.
• Appoint designated AML Compliance Officers, MLROs, and DMLROs approved by CIMA.
• Ensure sanctions screening extends to wallet addresses, counterparties, and exchanges used for trading.

CIMA increasingly expects AML frameworks to integrate blockchain analytics tools and risk-based controls for DeFi exposure.

7. Disclosure and Investor Protection

Offering documents must disclose, in clear terms:
• The nature and risks of digital-asset investments;
• How assets are valued and safeguarded;
• Any reliance on third-party service providers (e.g., custodians, staking platforms, or exchanges);
• Liquidity risks, counterparty risks, and potential technology failures.

CIMA expects that investors are provided with full transparency regarding both operational structure and underlying technology exposure.

8. The CV5 Capital Advantage

At CV5 Capital, we work with CIMA-registered funds across digital-asset, hedge, and hybrid strategies, ensuring that all regulatory expectations are met through:
• Independent governance under the CV5 Digital SPC platform;
• Tier-1 service providers for audit, administration, and custody;
• Comprehensive AML and compliance oversight; and
• Clear operational policies aligned with CIMA’s latest guidance.

Our platform enables managers to focus on performance and strategy, while we provide the regulatory, governance, and compliance infrastructure demanded by institutional investors and regulators alike.

Conclusion

CIMA’s message is clear: Digital-asset funds are welcome, but they must operate under the same standards of transparency, accountability, and investor protection that define the Cayman Islands as a world-class financial centre.

At CV5 Capital, we view this not as a regulatory burden, but as the foundation of credibility for the future of digital finance.
Regulation builds trust. Trust attracts capital.

About CV5 Capital
CV5 Capital is a Cayman Islands–based institutional fund platform and investment management firm, enabling hedge, venture, and digital-asset fund managers to launch regulated structures with full governance, compliance, and custody infrastructure. Through CV5 SPC and CV5 Digital SPC, we bridge traditional fund oversight with on-chain innovation, ensuring alignment with CIMA’s standards for regulated digital-asset funds.

www.cv5capital.io |  info@cv5capital.io

‍