Cyprus, CySEC Crypto-Assets Service Providers

On the 10th of January 2020, the EU Directive 2018/843 came into force in Europe, and each member state had to transpose the Fifth Anti-Money Laundering (AML) legislation into a national law. On the 23rd of February 2021, Cyprus amended its Prevention and Suppression of Money Laundering and Terrorist Financing Law 188(I)/2007 and introduced the new AML Law N.13(I)/202, which brings changes to the national law accordingly. Among other changes, the new AML Law officially and for the first time, introduces Crypto-assets in the Cypriot regulatory system.

In this commentary, SALVUS summarizes the definitions of

  1. Crypto-assets,
  2. Crypto-asset Service Providers,
  3. respective Investment Services, and
  4. the CySEC register for Crypto-asset Service Providers.

Crypto-assets

are defined as a digital representation of value that

  • are not issued or guaranteed by a central bank or a public authority,
  • are not necessarily attached to a legally established currency, and
  • do not possess a legal status of currency or money, but
  • are accepted by persons as a means of exchange or investment and which can be transferred, stored, or traded electronically and that is not,
    • Fiat currency, or
    • Electronic money, or
    • Financial instruments as defined in Part III of the First Appendix of the Law on the Provision of Investment Services and Activities and Regulated Markets.

In other words, Crypto-assets are digital representations of values or rights, which can be transferred and stored electronically, using specific technology (known as distributed ledger technology – DLT). Crypto-assets are inextricably linked to blockchains, as they are the blocks that make up the chains themselves. Crypto-assets come in many forms and with varying rights and functions. A crypto-asset

  1. can serve as an access key to a service and these are often referred to as utility tokens,
  2. can be designed to facilitate payments and these are often referred to as payments tokens,
  3. can also be designed as a financial instrument, such as transferable securities under the Markets in Financial Instruments Directive (MiFID II).

Crypto-asset Service Provider

is defined as a person who provides or exercises, one or more, of the following services or activities to another person or on behalf of another person

  • The exchange between crypto-assets and fiat currencies
  • Exchange between crypto-assets
  • Management, transfer, holding, and/or safekeeping, including the custody of crypto-assets or cryptographic keys or means which allow the exercise of control on crypto-assets
  • Offering and/or sale of crypto-assets, including the initial offering; and
  • Participation and/or provision of financial services regarding the distribution, offer, and/or sale of crypto-assets, including the initial offering.

Financial Services

regarding the distribution, the offer, and/or the sale of crypto-assets are defined as the following investment services

  1. Reception and transmission of orders
  2. Execution of orders on behalf of clients
  3. Dealing on own account
  4. Portfolio management
  5. Provision of investment advice
  6. Underwriting and/or placing of crypto-assets on a firm commitment basis
  7. Placing of crypto-assets without a firm commitment basis
  8. Operation of a multilateral trading facility for buying and selling crypto-assets

It is worth noting that of these eight (8) investment services, all of them can be authorized under CySEC as defined by MiFID II, with a Cyprus Investment Firm (CIF) license. Full details of these investment services can be found in an article authored by our Licensing team at SALVUS.

The new AML law resemblance in the definition of investment services of crypto-assets to the MiFID II investment services, finally integrates these disruptive and innovative financial investment products into the traditional investment services environment.

CySEC register of Crypto-asset Service Providers

Under the new AML Law, the Cyprus Securities and Exchange Commission (CySEC) will be the responsible competent authority for the establishment of the register of the Crypto-asset Service Providers.

A Crypto-asset Service Provider, that provides or exercises services or activities on a professional basis in Cyprus, must be registered to the CySEC Register. The registration to the CySEC managed registry will be mandatory, regardless of the Crypto-Asset Service Provider being registered in another EU Member State.

It is anticipated in due course that CySEC will publish additional directives for the requirements for the application of the Crypto-asset Service Provider registration. Additionally, relevant directives shall logically follow, describing the organizational and functional requirements and any other obligations to ensure compliance of the Crypto-Asset Service Provider with all the relevant laws.

Conclusion

The new AML law introduces regulatory provisions and the official path for Cyprus to regulate crypto-assets and Crypto-asset Service Providers, while paving the way for a national law to follow on

These developments position Cyprus as a key-jurisdiction for crypto-assetsservices and the related technologies use within the financial and investment industries. These will add to the growth of the financial, technology, investment and payments sector in Cyprus’ already sizeable array of such ventures.

SALVUS has been advising investment firms and investment professionals on blockchain and crypto-currencies, crypto-assets for the past decade. We have trained personnel, and obtained licenses for our clients, associates, and partners in helping them achieve their crypto-compliance. Anti-money Laundering (AML) is a particularly important pain point for crypto related business model and such Directives and Regulations are our expertise.

SALVUS has been advising investment firms and investment professionals on blockchain and crypto-currencies, crypto-assets for the past decade. We have trained personnel, and obtained licenses for our clients, associates, and partners in helping them achieve their crypto-compliance. Anti-money Laundering (AML) is a particularly important pain point for crypto related business model and such Directives and Regulations are our expertise.

We remain at your disposal and should you have any questions, please contact us at [email protected].

We will be excited to discuss the new regulatory frameworks, our Anti-Money Laundering (AML) Service, how to get your staff successfully prepared for the CySEC AML Certification, or to hear about your vision on crypto-assets, asset tokenization, STO, and in becoming a registered Crypto-Asset service provider.

#StayAhead.

Should you be interested to read more about crypto-assets, blockchain, or Anti-Money Laundering, please visit the selected articles below:

The information provided in this article is for general information purposes only. You should always seek professional advice suitable to your needs.

Share this post