Cyprus: regulation of cryptoassets

Cyprus: regulation of cryptoassets

Services related to cryptoassets have grown significantly over the past few years. The Cyprus Securities and Exchange Commission (CySEC) concluded that money laundering is one of the most significant risks identified in the sector. CySEC, like ESMA, believes that all crypto assets and related activities should be subject to anti-money laundering regulations. The Financial Action Task Force (FATF) has also concluded that distributed ledger technology (including blockchain) provides criminals and terrorists with new opportunities to launder money or finance illegal activities.

On June 19, 2018, the European Parliament announced the adoption of the Fifth Anti-Money Laundering Directive 2018/843 (“AMLD5 Directive”).

In an effort to prevent the use of platforms offering virtual currencies for money laundering and terrorist financing purposes, the AMLD5 Directive expands the scope of the previous directives. Virtual currencies are now defined by law, and providers of exchange between virtual and fiat currencies, as well as providers of custodian wallets are now subject to the AMLD5 Directive. The virtual marketplace is now forced to implement adequate money laundering controls and meet the standards set for the rest of the market. The anonymity offered through virtual currency networks is becoming limited and the use of such networks is closely monitored.

Following the ESMA and FATF recommendations mentioned above, a number of European member states have decided to extend the scope of their AML laws beyond the provisions of the AMLD5 Directive to also include in the scope of AML / CFT obligations such activities as exchanges between cryptoassets, transfer of virtual assets and participation and / or the provision of financial services related to the distribution, offer and sale of cryptoassets.

On 23 February 2021 in the Official Gazette of the Government of Cyprus was published
L.13 (I) / 2021, which revises the Cyprus AML law, bringing it in line with the EU Anti-Money Laundering Directive (AMLD5).

With regard to cryptoasset service providers, the activities covered by the revised Cyprus AML Law cover the following:

• Cryptocurrency exchanges (cryptocurrencies for cryptocurrencies and fiat for cryptocurrencies and vice versa).
• Management, administration, transfer, storage of cryptoassets or cryptographic keys or funds that allow control over cryptoassets.
• Offer and / or sale of cryptoassets, including initial public offering.
• Participation in and / or provision of financial services related to the distribution, offer and / or sale of cryptoassets, including the initial offer.

“Financial services related to the distribution, offer and / or sale of cryptoassets” includes the following services and activities:

• Reception and transmission of orders.
• Execution of orders on behalf of clients.
• Work at your own expense.
• Portfolio management.
• Investment advice.
• Underwriting and / or placement of cryptoassets based on firm commitments.

The operation of a multilateral system in which several third-party traders involved in the purchase and sale of cryptoassets can interact in the system in such a way that results in a transaction.
In Cyprus, the CySEC is the body authorized to regulate the providers of services related to cryptoassets, as well as maintain a register of such providers.

The CYWORLD WEALTH team will help you with the following:

• Consulting support on the form of the group’s presence in Cyprus and in the rest of the EU;
• Consulting support for the authorization and registration of an EU financial institution (including suppliers of cryptoassets);
• Preparation of an application file in accordance with applicable regulatory requirements, etc.

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.