Cyprus Securities and Exchange Commission (CySEC) accepts new policy for Crypto-Asset providers

This summer, on the 25th of June, Cyprus Securities and Exchange Commission released its directive on the Crypto-Assets Service Provider register (CASP Directive), which main objective is formation of subsidiary legislation, issued under the section 61E of the Cypriot Prevention and Suppression of Money Laundering Law 2007.

In addition to that, on the 13th of September, CySEC issued a Policy Statement on the Registration and Operations of Crypto-Asset Service Providers.

According to CySEC regulations, the following is considered to be Crypto-Assets:

Digital representations of value which are:

• Neither issued nor guaranteed by a central bank or a public authority;

• Not necessarily attached to a legally established currency;

• Does not possess a legal status of currency or money;

• Accepted by natural or legal persons as a means of exchange;

• Can be transferred, stored and traded electronically;

• Does not qualified either as fiat currency or as any of the instruments termed as Financial Instrument Tokens (FIT), which qualify as financial instruments under the Investment Services and Activities and Regulated Markets aw, transposing MiFID II and E-Money Tokens (EMT), which qualify as Electronic Money under the Electronic Money Law, transposing EMD.

Below you can find a list of crypto-business models, which are affected by CASP legislation:

• Cryptocurrency exchanges: the digital marketplaces where you can buy and trade cryptocurrencies, crypto-asset, altcoins, and NFTs either as crypto-to-crypto or as fiat-to-crypto and vice versa transactions (i.e. Coinbase, Binance);

• Crypto Wallet businesses and anyone that providers management, administration, transmission, transfer, retention, custodianship and safekeeping of crypto-assets or cryptographic keys or means which allow for the exercise of control in crypto-assets;

• Initial Coin Offerings (ICO), Security Token Offerings (STO), Initial Exchange Offerings (IEO), Initial Dex Offerings (IDO);

• All initial offerings, offerings and/or sale of crypto assets;

• Participation and/or provision of financial services related to the distribution, offering and/or sale of crypto assets. Such financial services cover:

-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 on a firm commitment basis;

-Placing of crypto assets without a firm commitment basis;

-Operation of a multilateral system, where multiple third-party buying and selling trading interests in crypto assets are able to interact in the system in a way that results in a transaction.

Those businesses, which will be considered by CySEC as Crypto-Assets Service Providers, will face the necessity to comply with the following requirements for company registration and operation:

• Initial capital adequacy and own funds, which range from EUR 50,000 to EUR 150,000;

• Competency of directors and shareholders: Ultimate Beneficial Owners, directors and persons holding managerial positions are required to be of good repute and competency. Additionally, the financial soundness of beneficiaries with a qualifying holding in the applying crypto-assets services provider is required.

• Board shall be composed out of at least four directors, two of whom shall perform executive duties and the other two being non-executive directors. Also, the majority of the Board has to be permanent Cyprus residents and appropriate knowledge, experience and competence for them is a must.

• Administrative, accounting, internal control, risk assessment, digital processing of data systems and confidentiality of data are required to be at the top-notch level.

• Also, in order to ensure business continuity and compliance with AML regime and the applicable and regulatory framework – maintenance of adequate outsourcing arrangements is required.

To sum up, it is clear, that new regulations inflicted by the CySEC are pretty strict and tightening the governmental control over Crypto market, which is inevitable due to mushroom growth of Crypto-industry.

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