A very significant step has been taken by the Cyprus Securities and Exchange Commission (“CySEC”) to regulate certain activities concerning crypto assets as a result of the transposition of the 5th Anti – Money Laundering Directive (the ‘’AML Directive’’) into the national legislation.

The applicable regulatory framework comprises of the following:

• The Prevention and Suppression of Money Laundering and Terrorist Financing Law (N. 188(I)/2017), as amended (the “AML Law’’);
• The CySEC Directive for the register of crypto asset services providers (“CASPs”);
• The CySEC directive for the prevention and suppression of money laundering and terrorist financing (the “CySec AML Directive”); and
• A policy statement on the registration and operation of Crypto-Assets Service Providers (“Policy Statement”).

Through the creation of a register and a strict application process with multiple requirements vis a vis anti-money laundering regulation, risk management mechanisms and governance procedures, Cyprus can now offer a light regulatory framework for crypto-assets activities as described in detail below.

Crypto-Assets & Provision of Services by Crypto-Assets Service Providers

The AML Law defines a crypto-asset as “a digital representation of value that is neither issued nor guaranteed by a central bank or a public authority, it 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 a) fiat currency; or b) electronic money; or c) financial instruments as defined in the Investment Services Law.”

Pursuant to the AML Law, Crypto-assets service providers are defined as persons providing to another person or on behalf of another person the below services or exercising one or more of the below activities:

• exchange between crypto-assets and fiat currencies;
• exchange between crypto-assets;
• management, transferring and/or safekeeping, including custodianship of crypto assets or cryptographic keys or means enabling control over crypto-assets; offering and/or selling crypto-assets, including initial public offering;
• participation and/or provision of financial services related to the distribution, offering and/or sale of crypto-assets, including the initial public offering.

The Policy Statement defines that ‘’Financial Services relating to the distribution, the offer and/or the sale of crypto assets’’ comprise of the following services associated to crypto assets:

• Reception and transmission of orders;
• Advice on investment and executing orders on behalf of the clients;
• Dealing on own account;
• Portfolio management;
• Provision of investment advice;
• Underwriting and/or placing crypto assets with or without a firm commitment basis;
• Operation of a multilateral trading facility for buying and selling crypto assets.

CASPs Requirements

To be formally recognised as a CASP, a Cyprus legal entity must register with the CySEC before commencing operations. The registration is effected through the submission of a duly completed application form indicating the name, business name, legal form and legal entity identifier of the CASP, its physical address, the services to be provided by the CASP, the website of the CASP as well as completing detailed questionnaires relating to the ultimate shareholders and proposed management of the CASP.

The CySEC AML Directive provides for the registration procedure of CASPs, the requirements of which oblige a CASP to adopt sound risk management mechanisms ensuring risk minimisation and provide evidence of effective governance procedures. As such, a CASP will need to prepare and submit its internal operations manual, business plan and AML manual which must adhere to the strict and detailed requirements set out in the applicable laws outlined above.

The initial capital requirement of a CASP ranges between EUR 50.000 to EUR 150.000, depending on the type of the crypto-asset activity and on how the CASP will be classified in accordance with the three classes that exist as per TABLE below.

TABLE A – CRYPTO – asset activities and initial capital

CASP	Type of crypto-asset activity	Initial Capital
Class 1	CASPs that provide investment advice	Euro 50.000
Class 2	CASPs providing the service referred to in Class 1 and/or any of the following services: Reception and transmission of client orders Execution of orders on behalf of clients Exchange between crypto-assets and fiat currency Exchange between crypto-assets Participation and/or provision of financial services related to the distribution, offering and/or sale of crypto-assets, including the initial offering Placement of crypto-assets without firm commitment Portfolio management	Euro 125.000
Class 3	CASPs that provide any of the services referred to in Class 1 or 2 and/or: Administration, transfer of ownership, transfer of site, holding, and/or safekeeping, including custody, of crypto-assets or cryptographic keys or means enabling control over crypto-assets Underwriting and/or placement of crypto-assets with firm commitment Operation of a multilateral system, which brings together multiple third-party buying and selling interests in crypto-assets in a way that results in a transaction	Euro 150.000

There are several other conditions that have to be fulfilled, namely the disclosure of all the legal and beneficial holdings in the CASP structure, the suitable board of directions and shareholders, experience of the management, effectiveness of the compliance and risk management tools and requirements for local offices and personnel. It is worth noting that the members of the Board of the CASP need to be at least two persons who are at all times of sufficiently good reputation and possess sufficient knowledge of the subject and matter. There are limits on the number of directorships the directors can hold and other conditions which the directors of the CASP will need to satisfy (i.e., adequate training, adequate skills). In relation to the staff employed in Cyprus, this will be determined by the activities, structure, projected turnover of the company as well as the head offices of a CASP have to be in Cyprus.

Upon the successful registration of the CASP, the register which will be available to the public via CySEC’s website will state the following information for each registered CASP:

• The name, business name, legal form and legal entity identifier of the CASP;
• Registered address;
• The services provided or intended to be provided by the CASP; and
• The CASPs website.

Needless to say, that the implementation of the register represents an important milestone and major development, which will trigger economic activity and interest.

How can Fiduciana assist?

For more information and regular updates on the matter, feel free to contact our team at [email protected]