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How intelligent regulation fuels the virtual asset economy

Photographic portrait of LaNishka Farrington McSweeney
LaNishka Farrington McSweeney

Partner at EY Bahamas Ltd.; Regional Banking & Capital Markets Leader and Regional Anti-Money Laundering and FinCrime Solutions Leader, EY Region of The Bahamas, Bermuda, British Virgin Islands and Cayman Islands

5 minute read 25 Jun 2025
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EY Region of The Bahamas, Bermuda, British Virgin Islands and Cayman Islands

Discover how evolving regulations are reshaping the virtual assets landscape, fostering innovation and enhancing investor confidence.

In brief

  • As virtual assets become an integral part of the global financial landscape, the need for effective regulatory frameworks is more critical than ever.
  • The Bahamas, Bermuda, BVI, and Cayman Islands are taking proactive measures in response to the crypto winter challenges to enhance stability and protect investors.
  • As the digital economy evolves, regulators must stay agile, balancing oversight with the need to foster innovation and growth in this dynamic sector.

At the time of writing, the global virtual assets landscape is evolving rapidly. Notably, the United States government is acting to ease regulations on the virtual assets industry and further integrate cryptocurrencies into the broader financial system, signaling a significant policy shift.

The lowering of barriers to the crypto industry is evident in governmental actions, including the disbandment of the National Cryptocurrency Enforcement Team at the Department of Justice, and new guidance from the Federal Deposit Insurance Corporation (FDIC) allowing regulated financial institutions to engage in crypto-related activities without prior approval.

Such moves may encourage investment and broader participation in the virtual assets industry, with potential to promote global growth. In recent years, virtual asset business owners have tended to seek out clear, supportive regulatory frameworks that foster innovation and growth, while also building the critical element of public trust through strong protections for customers and investors. In this regard, The Bahamas, Bermuda, British Virgin Islands (BVI) and Cayman Islands, among the earliest adopters of virtual asset regulations, are playing an important role in the industry’s expansion and credibility. 

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The resurgence of the virtual assets sector following the crypto winter

 

The virtual assets sector is experiencing a robust recovery following the significant downturn known as the “crypto winter” of late 2022. This resurgence is driven by a renewed influx of both institutional and retail investors, signaling a growing confidence in the market. Regulatory bodies in key jurisdictions, including The Bahamas, Bermuda, BVI and Cayman Islands, are supporting this revival by refining their registration and licensing frameworks to enhance governance and investor protection.

 

Overview of the recovery

 

The virtual assets landscape has seen a remarkable rebound since the downturn, which was marked by high-profile bankruptcies and a dramatic decline in cryptocurrency valuations.

 

The proactive regulatory measures adopted by early movers in this space have been instrumental in fostering a supportive environment for innovation and growth. As these jurisdictions update their regulatory frameworks, they aim to provide clarity and stability, which are essential for entrepreneurs looking to establish and expand their businesses.

 

Regulatory developments

 

The Bahamas, Bermuda, BVI and Cayman Islands have long been recognized as leaders in virtual asset regulation. Their frameworks are designed to balance the need for oversight with the encouragement of innovation, attracting a diverse range of entrepreneurs and investors. The recent challenges posed by the crypto winter have prompted these jurisdictions to strengthen their regulatory regimes, confirming they are equipped to handle future market fluctuations.

 

For instance, The Bahamas was one of the first countries to implement comprehensive legislation governing digital assets through the Digital Assets and Registered Exchanges (DARE) Act, 2020. In November 2022, following the collapse of Bahamas-domiciled FTX Group, the Securities Commission of The Bahamas (SCB) acted swiftly to freeze the cryptocurrency exchange’s assets and appoint provisional liquidators.

 

The SCB’s rapid response played an important role in enabling several successful fraud prosecutions and a US court-ordered reorganization that recovered the majority of creditors’ funds. The Bahamas financial regulator’s actions not only safeguarded creditors but also underscored the importance of robust regulatory frameworks in mitigating risks associated with the virtual assets sector.

 

Lessons learned from the crypto winter

 

The events of the crypto winter served as a critical stress test for the regulatory frameworks in these jurisdictions. The fallout from the FTX collapse highlighted the necessity for sound governance, transparency and strong internal controls. In response, regulators have taken significant steps to enhance their frameworks, focusing on areas such as liquidity management and the safeguarding of customer funds.

 

As a result, confidence in the virtual asset industries of The Bahamas, Bermuda, BVI and Cayman Islands has rebounded, with increased investment and innovation. The global consensus on the need for regulation is growing. Respondents in the EY-Parthenon/Coinbase 2025 Institutional Investor Digital Assets Survey rank regulatory uncertainty as their greatest concern when investing in virtual assets, while they see greater regulatory clarity as the most important catalyst for industry growth.

How EY can help

Evolving regulatory frameworks

 

The regulatory landscape is continuously evolving, with jurisdictions striving to maintain their competitive edge, promote good governance and consumer protections, deter bad actors, and protect their reputations as well-regulated international financial centers.

 

The Bahamas has introduced the DARE Act, 2024, which expands the scope of regulation to include a wider range of digital activities and enhances corporate governance requirements. Similarly, Bermuda has updated its Digital Asset Business Act (DABA) to streamline licensing processes and clarify the activities that require regulation.

 

The BVI has established its first regulatory framework for virtual assets through the Virtual Assets Service Providers Act, 2022, while the Cayman Islands has upgraded its virtual asset service provider (VASP) regime to introduce licensing requirements for trading platforms and custodians. These developments reflect a commitment to foster a secure and innovative environment for virtual asset businesses.

 

As regulation evolves, compliance is a new challenge for many in a hitherto largely unregulated sector. EY regulatory advisors in the region and integrated around the globe can help crypto businesses assess what information regulators need. Eligible crypto businesses can also draw on support from EY consulting, data and analytics, technology, regulatory compliance, audit and tax teams.

 

The role of innovation

 

The digital economy is steadily growing across these jurisdictions, supported by regulatory sandboxes that allow for the testing of new ideas in a controlled environment. This has led to the establishment of various ventures, including crypto exchanges, payment service providers and tokenized funds. The strong financial services infrastructure in these regions further enhances their appeal as hubs for virtual asset innovation.

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Summary

As virtual assets become an integral part of the global financial landscape, the need for effective regulatory frameworks is more critical than ever. The proactive measures taken by The Bahamas, Bermuda, BVI and Cayman Islands in response to the challenges of the crypto winter demonstrate their commitment to enhance financial stability and protect investors. As the digital economy continues to evolve, regulators must remain agile, balancing oversight with the need to foster innovation and growth in this dynamic sector.

About this article

Photographic portrait of LaNishka Farrington McSweeney
LaNishka Farrington McSweeney
Partner at EY Bahamas Ltd.; Regional Banking & Capital Markets Leader and Regional Anti-Money Laundering and FinCrime Solutions Leader, EY Region of The Bahamas, Bermuda, British Virgin Islands and Cayman Islands
An anti-money laundering professional with extensive experience in assessing compliance of financial institutions. Passionate about leading diverse teams to help clients solve their complex issues.
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EY Region of The Bahamas, Bermuda, British Virgin Islands and Cayman Islands

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