Cyprus: Register of crypto-asset service providers

MSI's Cyprus law member Damianos & Co provides general information regarding the legal frame work of cryptocurrencies in Cyprus.

Crypto-assets or crypto-currencies, is a type of electronic cash which can be used for payments between users via secure, cryptographic, blockchain technology. Such technology is used to record the owners of the crypto-assets, and for effecting payments between the users of the blockchain technology. The crypto - assets only exist electronically and use a peer-to-peer system. There is no governmental supervision of the crypto – assets, nor, their providers or issuers. Crypto-assets and legal framework in Cyprus The definition of crypto-assets is included in the Prevention and Suppression of Money Laundering and Terrorist Financing     Law of 2007 – Law 118 (I)/2007, as amended     (the ‘’AML Law’’). According to the AML Law, crypto-asset is a digital depiction of a value not issued by a central bank or public authority and therefore does not carry any warranties from such. Furthermore, it is not necessarily connected with a legal currency, nor is it regulated by legal frameworks applicable to currency or money. It is, nevertheless, considered as a transaction mean or investment and as such, it may be transferred, stored or moved electronically. It is not however:
  1. (fiat currency), or
  2. electronic money, or
  3. financial – monetary instrument
A Crypto-Asset Services Provider is defined, in the AML Law, as a service provider regarding Crypto-assets or as a person providing the following services:-
  1. Exchange between crypto-assets and other currencies;
  2. exchange between crypto-assets;
  3. management, transfer, safekeeping, transmission, keeping including by trust, of crypto-assets or crypto keys or means, which, allow the exercise of control on crypto-assets;
  4. offer and/or sale of crypto-assets including the original offer; and
  5. participation in, and/or provision of, financial – monetary services regarding the distribution, offer and/or sale of crypto-assets, including the original offer.
Despite the practical difficulties connected with the supervision of Crypto – Assets, the Cyprus Securities and Exchange Commission (‘’CySec’’) has, recently, established a register of crypto asset services providers (the ‘’Register’’). According to the relevant regulatory framework, the Crypto – Asset Services Providers, as defined in the AML Law, are obliged to apply for inclusion in the Register. Such registration will ensure to the extent possible, the Service Provider’s compliance with the applicable legal framework in Cyprus, which, inter alia, includes the following obligations: The fitness and probity of the Crypto Assets Services Provider beneficiaries and persons holding a management position;
  • The conditions in relation to the Crypto Assets Services Provider registration;
  • Organisational and operational requirements;
  • The performance of Know Your Client and other client due diligence measures;
  • The drawing of the economic profile of clients;
  • Identification of the source of client funds;
  • Monitoring the clients’ transactions;
  • Identifying and reporting suspicious transactions;
  • Undertaking a comprehensive risk assessment in relation to clients’ activities and take proportionate measures per client, activity, and crypto-asset in question.
According to the CySec, there are three types of Crypto-Assets Services Providers. Each different type provides different services and has different capital requirements, as follows: Type 1: provision of investment advice, with capital requirement the amount of    €50.000 Type 2: provision, in addition to investment advice, of any of the following services, with capital requirement the amount of EUR 125.000:
  • 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.
Type 3:  provision of any of the services provided by Types 1 and 2, and in addition, one or more of the following services, with capital requirement the amount of EUR 150.000:
  • 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.
The Crypto Assets Services Providers, who operate, in or from, Cyprus must submit a duly completed application form, along, with relevant questionnaires and any additional information and/or required evidence and following such submission, CySec shall examine the application and decide accordingly. Several details and information will have to be provided to CySec to enable it to review the application and certain requirements will have to be met for CySec to approve the application. Certain fees are also payable regarding such application.