5Comply

GABRIEL STYLLAS

CEO & Founder at 5Comply

Becoming a Crypto Asset Service Provider in Cyprus; Everything You Need to Know

Crypto asset service providers is a new concept that was introduced in Cyprus with the transposition of the Fifth Anti-Money Laundering Directive into national legislation. The amended AML legislation was introduced on 25 June 2021 and regulates the digital registry of crypto asset service providers. The Cyprus Securities and Exchange Commission (CySEC) that is the financial regulator in Cyprus, will be regulating the operation and supervision of the crypto-registry as well.

Q How is this new legislation important for cryptos?

This recent regulatory development is considered of paramount importance because, licensed crypto-asset providers will be able to provide amongst others, regulated cryptocurrency exchange services. This is a very positive step for Cyprus in becoming a key jurisdiction for crypto service providers. We believe that, this development will attract crypto service providers from all over the world, as registered crypto-providers in Cyprus will be considered credible institutions.

So far in Cyprus and in Europe in general, the lack of regulations and guidelines in the crypto-field has imposed legal and regulatory risks for investors, due to inadequate AML/CFT policies adopted in relation to cryptos. The regulation of cryptos marks the beginning of a new era towards the acceptance of digital cryptocurrencies in Cyprus. This will play a critical role on the way Cyprus banks treat cryptos as well.

Q What are the requirements to apply for a crypto-asset licence?

Initially, to apply for the crypto-licence you need to have an entity incorporated in Cyprus. In addition, four directors will be required; two of them acting as executive and two as non-executive directors. At least three of them must be Cyprus residents. CySEC will

perform an assessment of their knowledgment and experience in order to evaluate whether they satisfy the ‘fit and proper’ test. It is further required for the crypto-provider to have a fully operational office located in Cyprus where local resident staff members need to be hired on a full-time basis to fulfil the key functions of the company. There is a minimum number of personnel that needs to be hired, based on the type of licence selected.

The application to become a crypto-asset service provider is expected to take approximately 6 months and there are currently two options of licences based on different capital requirements; the €125,000 licence and the €150,000 licence.

Based on the €125,000 licence, the crypto provider will be able to provide (a) Reception & Transmission; (b) Execution of orders on behalf of clients; (c) Portfolio management; (d) Investment advice; (e) Exchange between cryptocurrencies and fiat money; (f) Cryptocurrency asset exchange; (g) Participation and / or provision of financial services on distribution, supply and / or sale of cryptocurrencies, including the initial offering; (h) Placing of crypto-assets without a firm commitment basis.

With the €150,000 licence, the crypto provider will be able to offer all the above along with (i) management, transfer, retention, and / or safekeeping, including the depositary of cryptocurrency assets or cryptographic keys or means that allow control over cryptocurrencies; (j) Underwriting and/or placing of crypto-assets on a firm commitment basis; (k) operation of a multilateral trading facility in which interested parties for buying and selling crypto assets may interact in a way that results in a transaction.

We can see that CySEC has provided different options in order for the crypto-provider to be able to choose according to his business model.

Q Can you currently apply to become a crypto-asset provider?

CySEC is yet to announce the official procedure for applying to become a licensed Crypto Asset Provider but based on CySEC’s press release in March regarding the Cyprus Capital Market, this is expected within 2021.

Q What do crypto-asset providers need to have in mind in terms of legislative obligations, once they register?

We need to remember that, the rationale of the competent authorities for including cryptos under the European AML framework is to mitigate and prevent the risks that arise from cryptocurrencies, especially in relation to ML. Hence, the crypto-registry will oblige the crypto-providers to adhere to the AML rules and procedures that apply to traditional financial institutions i.e. apply due diligence procedures, monitor and report suspicious transactions, provide ownership transparency, etc.

Q What do you believe about the future of cryptocurrencies and blockchain technology?

In my opinion cryptos are here to stay. As a technology — blockchain and its lubricating cryptocurrencies will transform finance and the internet towards centralisation. Blockchain and cryptocurrency will be a major platform of innovative disruption in the upcoming decades. However, the valuations in the crypto market are determined by demand and supply and if any overreaction in the market occurs, will be corrected in the long term.

Whatever the case, its acceptance by the government authorities is implied among others, by the issuance of relevants laws and by the fact that several countries have already launched their own cryptocurrencies.

Q How can FiveComply assist crypto-service providers?

Our team can provide you with full support, guidance and assistance in applying for a crypto-licence. As this is a newly-established regulatory area, we believe that our expertise and knowledge in the field can play an important role in yielding positive results with your CySEC application. We can also provide continuous support after acquisition of your licence, in order for your firm to remain compliant and up-to-date according to the latest legislative and regulatory provisions.

We understand that questions might be raised concerning the crypto-field and we are more than happy to discuss with interested parties about their options and any questions they might have about the crypto-licences. We always aim to give priority to each client’s individuality and needs by providing tailored-made advice.