The enactment of the amending law to the Prevention and Suppression of Money Laundering and Terrorist Financing Law 188(I)/2007 on 18.02.20211 (“the new AML Law”) fully implementing the EU Directive 2018/843 (“the 5th AML Directive”), constitutes the introduction of cryptoassets in the Cyprus regulatory system.
The new Cyprus AML regulatory framework on cryptoassets paves the way for the upcoming Cyprus umbrella law on Distributed Ledgers Technology (“the DLT law”) and the EU Markets in Crypto-Assets Regulation (“the MiCA Regulation”) and is considered as a positive development for the establishment of Cyprus as a key-jurisdiction on cryptoassets related financial services and related technologies.
B. DEFINITION OF CRYPTOASSETS AND THEIR SERVICE PROVIDERS
The new AML Law defines cryptoassets as:
“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 persons as a means of exchange or investment and which can be transferred, stored or traded electronically and that is not,
In this respect, a cryptoasset 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, which do not fall under the services or activities of the obliged entities mentioned in paragraphs (a) to (h) of article 2A:
“Financial Services regarding the distribution, the offer and/or the sale of cryptoassets” means the following services and activities relating to cryptoassets:
It is important to note that the definition of financial services under the new AML Law as to cryptoassets resembles the definition of investment services under MiFID II integrating in this way the alternative and innovative financial systems into the traditional provision of financial services.
The register of cryptoasset service providers
The Cyprus Securities and Exchange Commission (“the CySEC”) becomes the competent authority for the establishment of the register of the cryptoasset service providers (the “Register”) under the new AML Law.
Cryptoasset service providers which provide or exercise services or activities on a professional basis in Cyprus, regardless of their registration to another Member State of the European Union, will need to be registered to the Register maintained by CySEC.
A cryptoasset service provider will need to comply at all times with any registration, organizational and functional requirements and with any other obligations established by CySEC. It is expected that CySEC will publish relevant directives in due course with the relevant requirements and information on the Register.
C. THE FUTURE OF CRYPTOASSETS IN CYPRUS
Without doubt, the introduction of regulatory provisions in Cyprus regarding cryptoassets and their service providers in light of the upcoming DLT Law and the MiCA Regulation is a positive step towards the creation of a thorough legal framework. It is evident that Cyprus is adopting proactive measures to prevent and mitigate the risk of money laundering and terrorist financing through cryptoassets.
It remains to examine how CySEC will exercise its powers and discretions during the adoption of relevant directives which will guide the cryptoasset services providers. Since CySEC has already expressed its concern on the issue, through other directives addressed to regulated entities dealing with cryptoassets, it is expected that its guidelines will empower the compliance of the cryptoasset service providers with their AML obligations.
It is evident nevertheless, that the journey of transformation towards a digital era in the financial services has started.
D. HOW WE CAN ASSIST YOU
Our Financial Services and Blockchain teams are closely monitoring the developments regarding the introduction of blockchain technology and cryptoassets in Cyprus legal system. Through our exposure and consultation in various blockchain and financial technology projects, we may assist and guide your business to evolve in the new technological era.
This publication has been prepared as a general guide and for information purposes only. It is not a substitution for professional advice. One must not rely on it without receiving independent advice based on the particular facts of his/her own case. No responsibility can be accepted by the authors or the publishers for any loss occasioned by acting or refraining from acting on the basis of this publication.
Partner – Financial Services & Funds Department
Associate Lawyer – Financial Services & Funds Department
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The Firm has been offering legal and consulting services since 1983 evolving from a traditional law firm to an innovative cutting-edge multidisciplinary law firm combining exceptional expertise in law, tax, vat and accounting.
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We consider ourselves as ‘traditional pioneers’ and our motto is to foresee and anticipate any issues that may potentially impact our clients’ business and to offer effective advice and solutions proactively.
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