Registration and Operations of Crypto Asset Service Providers

On 13 September, the Cyprus Securities and Exchange Commission (“CySEC”) issued a policy statement on the registration and operations of Crypto-Asset Services Providers (“CASPs”). This much anticipated regulatory step is a product of the transposition of the 5^th Anti - Money Laundering Directive into national law and the introduction of crypto-assets and the new CASPs regime under our domestic Prevention and Suppression of Money Laundering and Terrorist Financing Law (the “AML Law”).

The AML Law defines a crypto-asset as “a digital representation of value that is neither issued nor guaranteed by a central bank or a public authority, it is not necessarily attached to a legally established currency and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and which can be transferred, stored, and traded electronically”, and one which is not a) fiat currency; or b) electronic money, or c) financial instruments as defined in the Investment Services Law.

Accordingly, CASPs are defined as persons providing or exercising one or more of the following services:

• exchange between crypto-assets and fiat currencies;
• exchange between crypto-assets;
• management and/or transfer and/or retention and/or safekeeping, including custodianship, of crypto assets or cryptographic keys or means enabling control over crypto-assets;
• offering and/or selling crypto-assets, including the initial public offering; and
• participation and/or provision of financial services related to the distribution, offering and/or sale of crypto-assets, including the initial public offering.

Further, the following financial services relating to crypto-assets may be provided by CASPs:

• 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;
• 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 CASPs are “obliged entities” within the meaning of the AML Law and are thereby subjected to the provisions of the AML Law and the CySEC AML Directive.

A CASP must formally register with CySEC before commencing its operations, via submitting a duly completed application form, along with relevant questionnaires as prescribed by the CySEC directive for the register of CASPs (the “CySEC Directive”).

The CySEC Directive contains the information a CASP must include in its registration application as well as its requirements for approval. As such, a CASP must have sound governance arrangements, internal control mechanisms, effective risk management procedures and sound security mechanisms in place. A CASP must appoint at least four directors (two executive and two independent) who shall be honest and competent, having a good reputation, knowledge, skills and experience, and devoting sufficient time to the performance of their duties. The initial capital of a CASP ranges between EUR 50.000 to EUR 150.000, depending on the services it is registered to provide. CySEC informs the CASP applicant on whether its registration is approved within six months from the submission of a duly completed application.

Our firm welcomes all enquiries and will be happy to provide guidance and support in relation to incorporation, registration and operation of CASPs.

This publication is provided for your convenience and does not constitute legal advice.

Authors: Huseyin Erguven, Polyvios Nikolaou