Cryptoasset service providers – registration with CySEC

Cryptoasset service providers – registration with CySEC

What does the term “cryptoasset” mean?

“Cryptoassets” represent digital value and have the following attributes:

• Not issued or guaranteed by the central bank.
• Not necessarily tied to a legally established currency.
• They do not have the legal status of currency or money, but are accepted by individuals or legal entities as a medium of exchange and can be transferred, stored and sold electronically.
• They do not qualify as a fiat currency, nor as any of the instruments called Financial Instrument Tokens (FIT), which qualify as financial instruments under the Investment Services and Activities and Regulated Markets Act implementing MiFID II, nor electronic money tokens (EMT ), which qualify as electronic money under the Electronic Money Law introducing EMD.

What is CySEC?

CySEC (Cyprus Securities and Exchange Commission) is the Cyprus Securities and Exchange Commission, which acts as the government regulator in Cyprus. The main purpose of the Commission is to control the activities of financial and foreign exchange companies located in the Republic. Since Cyprus is a full member of the European Union, CySEC has the same powers as all European financial supervisory authorities, for example the FSA – the British Financial Conduct Authority.

Who should register with CySEC?

A cryptoasset service provider (CASP) established in the European Economic Area and registered with one or more national competent authorities of the EEA for the purpose of the Law on the Prevention and Suppression of Money Laundering and Terrorist Financing (AML / CFT Law) that provides services in Cyprus must formally register at the Cyprus Securities and Exchange Commission (CySEC).

In case the activity or services are not subject to AML / CFT regulation, it is necessary to apply for registration as a CASP with CySEC.

It is worth noting that CySEC’s policy is also an attempt to qualify cryptocurrencies (but only they are regulated). Crypto-assets (depending on the corporate structure) qualify as financial instruments under the Law on Investment Services, Activities and Regulated Markets or as electronic money under electronic money.

Businesses that carry out material activities with crypto assets were required to complete an application by the end of October 2021 in order to comply with the AML / CFT Law and Directives issued under the AML / CFT Law.

New companies must register with CySEC before starting their business in or from Cyprus.

CASP registration covers the following crypto business models:

• Cryptocurrency exchange: These are online platforms where the purchase of cryptoassets can take place either in the form of exchanging cryptocurrency for cryptocurrency, or in the form of exchanging fiat currency for cryptocurrency.
• Crypto Wallet enterprises and everyone who provides management, administration, transfer, storage of cryptoassets or cryptographic keys, as well as tools that allow you to control cryptoassets.
• All initial coin offerings (ICO, STO, IEO, IDO), placement and / or sale of cryptoassets.
  Participation in and / or provision of financial services related to the distribution, offer and / or sale of cryptoassets.

What does the legal framework for CySEC include?

The current legislative framework consists of:

• CySEC Directive on the Prevention and Suppression of Money Laundering and Terrorist Financing.
• CySEC directive on the register of cryptoasset service providers.
• CFT / AML Law.

The legislative framework contains provisions such as:

• Operational and organizational requirements.
• The efficiency and integrity of the CASP beneficiaries and those in leadership positions.
• A sketch of the economic profile of clients.
• Implementation of KYC events and other due diligence measures.
• Control of customer transactions.
• Conditions related to the registration of CASP subjects.
• Identifying the source of clients’ funds.
• Reporting and identifying suspicious transactions.
• Conducting a comprehensive risk assessment in relation to customer actions and taking proportionate measures in relation to each customer, business and cryptocurrency.

The above is for informative purposes only.  Further professional advice should be sought for each particular case. Our firm does not accept any responsibility for any loss or damage occurring by acting on the basis of this information.