The Cyprus government is taking steps to bring some clarity to the vague legal framework of the crypto-assets sector. The regulatory incentives, in line with favourable corporate income tax rate (12.5%) seem to attract more investment into virtual assets business. With this in mind, it is worth discussing if recent developments are enough to meet emerging industry standards.
Country’s primary financial regulator is the Central Bank of Cyprus (hereinafter referred as:-“CBC”) that supervises and issues licenses for setting up and operation of fintech businesses, including payment and electronic money institutions.
The Cyprus Securities and Exchange Commission (hereinafter referred as:-“CySEC”) administers operations and assures compliance with financial regulations and with the European MiFID financial harmonised law.
The Cyprus government has amended main statutory legislation in the industry – Electronic Money Law (2012) and 2018 consistent with the following EU directives:
Accordingly, the electronic money services can only be carried out with the authorisation of the Central Bank of Cyprus or by remaining EU member states’ competent authorities.
The main requirement that has to be met to be granted an authorisation is that an e-money entity must be a legal person incorporated and registered in the Republic of Cyprus with a head office and must conduct part of its e-money service activity and/or provide payment services which are not associated with issuance of electronic money.
As per subsections (3) to (8) of section 5 of The Payment Services and Access to Payment Systems Laws of 2018 and 2019 the following documents are needed to apply:
Once the application is filed it takes up to 4 months to receive a decision from CBC.
Meanwhile, the type entities listed below are exempt from applying to authorization by CBC to carry out electronic money business:
Above mentioned entities have a right to establish or to conduct cross-border e-money business activities on condition that the relevant bodies of their home member state send a notification to the CBC.
Multiple competent authorities supervise activities related to the money laundering and terrorist financing, such as:
Pursuant to section 59(1)(a) of Prevention and Suppression of Money Laundering Activities Laws of 2007 and 2019 (hereinafter:- “AML law”) the electronic money, payment and currency exchange operators fall under the supervision of the CBC.
AML law is the only legal framework which recognizes crypto-assets. pursuant to the law, crypto-assets is ‘a digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and which can be transferred, stored and traded electronically and is not:
Under 61E(1) of the AML Law, on September 13, 2021, CySEC issued Directive 269/2021 which amended earlier ‘Directive for the Prevention and Suppression of Money Laundering and Terrorist Financing (Register of Crypto Asset Service Providers)’ from 25th of June 2021.
According to the directive, CySEC establishes statutory requirements for Crypto and Virtual Asset Service Providers (hereinafter referred as:-“CASPs or VASPs”) to comply and to be featured in the register which maintains in its website. The register is open to public and includes the following data of members:
The registration is mandatory for the following entities:
So, cryptocurrency service providers who are planning to offer any of the above listed activities must register with CySEC for the purposes of anti money laundering and combating terrorist financing.
Application for registration should also contain the following information:
The official fee for reviewing applications and registration by CySec is €10,000. Upon successful registration, the first annual fee payment will be waived and subsequent yearly fee in the amount of €5,000 applies henceforth. In addition, the fee amount ranging from €1,000 – €5,000 applies to request changes to existing registration, depending on the nature of notification inquired.
Moreover, article 14 of the directive mandates CASPs to regularly maintain a minimum equity capital as following:
3.CASP that provides investment advice as per Category 1 or 2 and / or any of the below mentioned services – €150.000:
However, at the time of writing, CySECs Registry website has not yet been launched and does not seem to be fully operational.
All things considered, Crypto-assets have not yet developed into a distinct identity in the eyes of the law to be regulated as a separate type of economic activity. In the short run, it might not be possible to watch the impact of recent directives on economic activity in the internal market, thanks to the entry restrictions which might restrict new applicants. However, there is a hope that the recently proposed Markets in Crypto Assets Directive is believed to establish a universal framework across the EU and as time passes normalizes the widespread adoption of cryptocurrency across the member states.
The content of this article is intended to provide a general guide to the subject matter, not be considered as a legal consultation.