Nexo Sues Cayman Island Regulator Over VASP Rejection

Table of Contents

• CIMA’s Concerns Over Nexo

Cryptocurrency lending platform Nexo has filed suit against the regulator in the Cayman Islands which rejected the firm’s application for a virtual asset service provider (VASP) license.

Nexo, a crypto lender, has sued the Cayman Islands Monetary Authority (CIMA) for denying it registration as a VASP according to reports by The Block and Cointelegraph citing a lawsuit filed on January 12. The lender claims that the regulator had placed “too much weight” on regulators’ enforcement actions in its decision to reject Nexo’s registration. Nexo has requested that the court overrule CIMA’s decision as it is “suitable” to provide residents of the Cayman Islands with crypto services. CIMA rejected Nexo’s application on December 20, saying that the firm’s business model did not meet the required risk profile:

Nexo posed a risk to market confidence, consumer protection and the reputation of the Islands as a financial centre.

CIMA’s Concerns Over Nexo

Nexo is currently under the crosshairs of a large-scale investigation in Bulgaria which saw its offices raided by 300 police officers last week. Bulgarian authorities are probing into allegations of money laundering, computer fraud, tax offenses, and various other crimes. The crypto lender has also received multiple cease and desist orders from various U.S. regulators, but asserts in its lawsuit that this does not mean the lender acted improperly:

[Nexo] had diligently cooperated with all US states and federal regulatory inquiries and has been proactive in maintaining dialogue with the respective regulators [...] There have been some regulatory ambiguities with respect to the laws and regulations applicable to digital assets in the US such that the fact of the regulatory enforcement itself does not connote any improper behaviour.

In December, Nexo announced that it planned to gradually cease operations in the U.S. “over the coming months,” citing a lack of regulatory clarity.

According to the lawsuit, CIMA claimed Nexo directors and shareholders failed to disclose to it potential regulatory enforcement matters in the U.S. and proceedings in English courts. Nexo’s legal representatives argue that CIMA’s decision was procedurally unfair. Furthermore, it claims the regulator breached its constitutional and statutory duties by not providing Nexo a detailed reason for the VASP license rejection. Nexo however says that it had addressed CIMA’s concerns during the application process.

In its filing, Nexo dismissed CIMA’s concerns over litigation in the U.K., saying that it is merely an action brought by crypto exchange BitMEX against Nexo and one of its former employees over the ownership of a BitMEX account.

In its relief sought, Nexo not only wants the CIMA decision to be overturned but further wants the court to rule that Nexo is competent to be registered to offer crypto services. It finally wants CIMA ordered to award it with a VASP registration.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.