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Home  Featured  Sean Inggs on Director Liability in Tokenized Fund Structures: What Cayman’s New Inspection Powers Mean for Personal Exposure

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Sean Inggs on Director Liability in Tokenized Fund Structures: What Cayman’s New Inspection Powers Mean for Personal Exposure

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by Declan Yin 15 May 2026 Recent Posts Kalshi New York Lawsuit Moves to Federal Court as CEO Invokes Nasdaq SpaceX Q2 Earnings Beat Clears the LockUp Test, but SPCX Trails IPO Price BMNR ETH Accumulation Strategy Fails to Halt Stock Slide Toward $17 London Crypto Kidnapping Convictions Reach Five After 52-Hour Ordeal Smarter Web Company Bitcoin Stack Hits

On 29 April 2026, Cayman Finance confirmed that nine tokenised investment funds had been conditionally registered with the Cayman Islands Monetary Authority under the jurisdiction’s new statutory framework. The funds were not named, the asset classes were not disclosed, and the count is expected to grow. Eight weeks earlier, on 24 March, the Mutual Funds (Amendment) Act, the Private Funds (Amendment) Act, and the Virtual Asset (Service Providers) (Amendment) Act came into force, completing a regulatory framework that had been the subject of consultation and refinement for more than a year. The framework is no longer a forthcoming development. It is operational. And the boards of those nine funds, along with the dozens that will follow, are now operating under a standard that did not exist eight weeks ago. Most fund directors carry a folder somewhere that contains their letter of appointment, an indemnification agreement, and a certificate of insurance. For decades, that folder has represented something close to peace of mind. The legal architecture protecting independent directors in offshore jurisdictions has been refined over three decades, tested in litigation, and largely held up. The technology has now changed. The folder, in most cases, has not. As an Independent Director at Leeward Management in the Cayman Islands, I have spent the past several years watching this gap widen, and I am increasingly persuaded that directors who do not address it now are accepting personal exposure they would not knowingly accept in any other context. The Problem With Indemnification Drafted Before Tokenization The standard indemnification clause sitting in most fund constitutional documents was written to address conduct that a director can reasonably control. Acting in good faith. Avoiding self-dealing. Exercising the care of an ordinarily prudent person. Those obligations made sense in a world where the fund’s operational infrastructure consisted of an administrator, a custodian, an auditor, and a registrar, each operating within mature professional frameworks.

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Tokenization does not fit cleanly into that template. A director sitting on a tokenized fund board may now be considered to have oversight responsibility for systems that did not exist five years ago, run by service providers who do not carry the same professional indemnity coverage as a traditional administrator, executing transactions through code that the board did not write and likely cannot read line by line. If a smart contract executes a transfer in violation of a transfer restriction documented in the offering memorandum, where does the liability sit? If a wallet key is compromised and investor assets are lost, was the board’s oversight of key management adequate? If on-chain records and off-chain administrator records diverge and the discrepancy goes unresolved for two reporting cycles, who answers for that? These are not hypothetical questions. They are the questions that will be asked the first time a registered tokenized fund in a recognized jurisdiction experiences a material operational failure. And the indemnification language drafted in 2019 was not written with those questions in mind. What CIMA’s New Inspection Power Actually Means Under the amended Acts, CIMA’s supervisory reach now expressly extends beyond traditional books and records to inspections of the fund’s underlying tokenisation technology and digital token transactions. In practice, that may include relevant blockchain infrastructure, smart-contract functionality, and associated transaction records. Fund operators are required to maintain records covering issuance, creation, sale, transfer, and ownership of digital tokens, and to confirm annually to CIMA that those records have been properly maintained. Offering documents must now disclose token-specific risks, including cybersecurity and transferability risks. Each of those obligations creates a documentary record that did not exist eight weeks ago. Each one is something a regulator can request, an investor can subpoena, and a court can review. The personal calculus for directors changes in three concrete ways. First, the documentary record a director might rely on to demonstrate adequate oversight has expanded significantly. It is no longer enough to show that the board reviewed quarterly administrator reports and signed off on annual audited accounts. A regulator examining a tokenized fund will reasonably expect to see board-level engagement with the technology layer. Smart contract audit reports. Reconciliation procedures between on-chain and off-chain records. Documented review of the tokenization platform agent’s controls. If those documents do not exist, the director cannot point to them. Second, the standard of care a court might apply in a director liability case has likely shifted, even if no case has yet tested it. The reasonable director standard is, by definition, contextual. What a reasonable director of a tokenized fund should have understood about the technology in 2024 is different from what should be understood in 2026, after the regulatory framework has been formalized and industry guidance has matured. Directors who continue operating in 2026 with 2024 levels of technical literacy are accumulating exposure that did not exist when they joined the board. Third, the universe of potential plaintiffs has grown. Tokenized fund interests can move faster, reach broader investor bases, and create more granular records of every transaction than traditional fund structures. Each of those characteristics expands the pool of investors who might bring a claim, and the documentary evidence available to support one. The D&O Coverage Conversation Most Boards Have Not Had

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Directors and officers liability coverage in the offshore funds space is generally written on a claims-made basis, with policy language that has evolved to address traditional governance failures. What that language does not always address is whether claims arising from technology layer failures fall within coverage, exclusion, or some unmapped middle ground. A board member should be asking three questions of their broker before the next renewal cycle. Does the policy define covered conduct in a way that contemplates oversight of digital asset infrastructure? Are there technology-specific exclusions, particularly around cryptocurrency, blockchain, or distributed ledger systems, that could be read to exclude exactly the claims most likely to arise? And does the indemnification provided by the fund itself align with the policy structure, or are there gaps where the fund cannot indemnify and the policy will not respond? The honest answer for many policies sold before 2024 is that the language was not written with these scenarios in mind. That is not necessarily a coverage failure. It is a drafting gap. Insurers and brokers are working through it now, and directors who raise the question early will find more responsive markets than those who raise it after a claim. Practical Steps Before the Next Board Meeting There is no realistic path to eliminating personal exposure for directors of tokenized funds. The technology carries operational risk that traditional structures do not, and that risk will not disappear because the indemnification clause is updated. What is achievable is a defensible posture: a documented record showing that the director understood the obligations, asked the right questions, received reasonable answers, and acted on the information available. Three steps move toward that posture immediately. Review the indemnification language in the fund’s constitutional documents and the director’s appointment letter. Identify whether the language contemplates technology layer oversight. If it does not, raise the question with fund counsel. The conversation may result in updated language, a side letter, or a documented record of why the existing language is considered adequate. Any of those outcomes is better than the current default, which is silence. Request the D&O policy from the fund manager and read it. Not the certificate of insurance. The actual policy wording. Identify any cryptocurrency, blockchain, or technology-specific exclusions, and ask the broker to walk through how the policy would respond to a claim arising from a smart contract failure, a wallet compromise, or a reconciliation breakdown. Document the answers. Establish a technology layer oversight cadence at the board level. Smart contract audit reports reviewed annually at minimum. Reconciliation reports between onchain and off-chain records reviewed quarterly. Tokenization platform agent SOC reports requested and reviewed. Each of these creates a documentary record that did not exist before, and each one is something a regulator or a court can point to when assessing whether the board fulfilled its oversight role. The Standard Is Rising. The Cost of Lagging Is Not Theoretical. Independent directors in the Cayman Islands and other recognized offshore jurisdictions have built reputations over three decades on the principle that meaningful oversight produces better outcomes for investors, managers, and the jurisdictions themselves. The introduction of tokenized fund structures does not change that principle. It changes the substance of what oversight requires. Nine funds are already registered. The framework is in force. The inspection powers are operational. The expectations from institutional allocators are continuing to

climb. The folder containing the appointment letter, the indemnification agreement, and the certificate of insurance is still important. It just is not enough on its own anymore. The work of bringing it up to date is straightforward, and the cost of doing it is a fraction of the cost of finding out, after a claim, that it never was. ABOUT THE AUTHOR

Sean Inggs is an Independent Director at Leeward Management Ltd in the Cayman Islands and a qualified attorney with more than two decades of international legal and governance experience. He serves on the boards of hedge funds, private equity funds, family office structures, and blockchain companies, advising on governance, regulatory alignment, and structural integrity across traditional and digital asset markets. Sean is a Registered Professional Director under the Cayman Islands Directors Registration and Licensing Act. He began his legal career in 2005 at Fasken Martineau in Johannesburg and has held senior advisory roles across the Cayman Islands, Jersey, and South Africa.Connect with Sean: Sean Inggs on LinkedIn | Leeward Management profile by Declan Yin Published May 15, 2026

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