cryptocurrencies and regulation
By Chara Acheriotou
Treppides & Co Ltd
Cryptocurrency is the “next big thing” in the evolving world as it represents a significant digital innovation in financial services with great potential in the blockchain technology. Cyprus as one of the leading and most acknowledged regulated jurisdictions with robust regulatory framework through its national competent authority, namely the Cyprus Securities and Exchange Commission (CySEC), introduced the framework for the registration of Crypto-Assets Service Providers (CASPs) within the meaning of the Prevention and Suppression of Money Laundering and Terrorist Financing Law (AML Law), transposing in this respect the provisions of the EU AML Directives.
Determination of CASPs
As defined by the AML Law, the CASP is a legal person who provides or exercises one or more of the following services or activities to another person or on behalf of another person:
- Exchange between crypto-assets and fiat currencies;
- Exchange between crypto-assets;
- Management, transfer, holding and/or safekeeping, including custody, of crypto-assets or cryptographic keys or means which allow the exercise of control over 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.
In accordance with CySEC, there are 3 classes of CASPs through which the following financial services relating to the distribution, offering and/or sale of cryptocurrencies can be offered:
- Reception and transmission of orders;
- Execution of orders on behalf of clients;
- Dealing on own account;
- Portfolio management;
- Provision of investment advice;
- Underwriting and/or placing of crypto assets with a firm commitment;
- Placing of crypto-assets without a firm commitment; and
- 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.
Depending on the class of the CASP and the type of services to be offered the capital requirements vary from EUR50,000 (Class 1) for the provision of investment advice, up to EUR150,000 (Class 3) for providers offering the safekeeping of cryptocurrencies, underwriting and/or placement of cryptocurrencies and the operation of multilateral system.
Briefing of registration/operation requirements
In order to be successfully registered in the CASP registry maintained by CySEC, CASPs must always adhere to certain requirements as those have been set by CySEC. It is anticipated that the authority will pay special attention to the fitness and propriety assessment of the Board of Directors as well as to the beneficiaries of the entity. Indicatively, the Board of Directors must consist of at least four (4) members comprised by two executive directors and two independent, non-executive directors who must be able to demonstrate good reputation, professionalism and sufficient knowledge and experience while for the shareholders one of the main criteria will be their financial position. For clarification purposes, a new corporate entity is required for the registration while existing Cyprus Investment Firms cannot combine control functions with the CASP.
Compliance wise, the provider must proceed with the development and implementation of solid systems and controls as well as adequate risk management procedures, to ensure the prudent operation of the CASP as well as to combat any possible risk of loss of clients’ assets and money laundering. In order to prevent possible loopholes, the proper identification of customers source of funds and maintenance of internal records is essential.
Given the sophisticated environment of cryptocurrencies, it is also expected that proper procedures shall be outlined as concerns the continuous performance of the CASPs functions, preventing in this way any interruption and allowing simultaneously the timely recommencement of their activities. Most importantly and taking into consideration the dynamic of the market, CASPs must adopt security mechanisms to reduce the risk of data corruption and guarantee the security and authentication of the transfer of confidential information.
The future of crypto industry in Cyprus
It is a fact that the “introduction” of the cryptocurrencies in the financial world initially caused a variety of reactions as to the safety and risks associated with their possession and trading. However, and as the cryptocurrency market matures, their popularity stemming from their decentralized nature will increase and it is anticipated that will predictably play a significant role in shaping people’s perception of cryptocurrencies as well as in shaping the future economy.
Cyprus is proceeding with a “crypto-friendly” approach towards Fintech industry, which is gradually and steadily being developed. The attractive corporate tax incentives, the set-up possibilities and the strong regulatory framework in place in Cyprus, have the potential of establishing Cyprus as the next cryptocurrencies hub by also protecting the interests of the investors.
Treppides & Co Ltd is the largest independent consulting company in Cyprus with an established international presence and offices in Great Britain and Malta. Today the company employs approximately 200 professionals. It offers a full range of consulting, tax, accounting services to groups, companies and investors operating internationally in a variety of financial and business sectors. The Company, which started its operations in 1985, has 36 years of expertise and an elite team of experienced executives who can guide and assist investors and businesses during the establishment process and subsequent investment activity in Cyprus and internationally.
Nicosia: Treppides Tower, Kafkasou 9, Aglantzia, CY 2112, Nicosia, Cyprus
Limassol: Andrea Kariolou 38, Ayios Athanasios, CY 4102, Limassol Cyprus
London:7 Milner Street, London SW3 2QA
Malta: Level 1, Somnium, Tower Road, Swatar, Birkirkara BKR 4012