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In the Republic of Cyprus, the field of provision of investment
and related services is, at a large extent, regulated. More
specifically, the activities of and services provided by investment
firms in the Republic of Cyprus are regulated by the Law on the
provision of Investment Services and Activities and the operation
of Regulated Markets (Law 144(I)/2007) (“the
“). The main investment activities exercised
and/or provided by such investment firms constitute the reception
and transmission of orders in relation to one or more financial
instruments, the execution of orders on behalf of clients, dealing
on own account, portfolio management, investment advice and
consultancy, underwriting of financial instruments, placing of
financial instruments on a firm commitment basis, Placing of
financial instruments without a firm commitment basis and operation
of multilateral trading facility being a system that brings
together or facilitates the bringing together of multiple
third-party buying and selling interests in recognized financial
instruments. In any case, however, it is worth to stressed that the
aforesaid investment activities are exercised in connection to the
financial instruments to which specific reference is made in and,
thus, are duly recognized by the Law.

In particular, the activities relating to various financial
instruments, specifically listed in Part III of the Third Appendix
of the said Law fall within the scope of the Law and are subject to
licensing by Cyprus Securities and Exchange Commission, in its
capacity as the competent supervisory authority. That said, the
scope of ‘financial instruments’ covers -among others-
transferable securities, money-market instruments, units in
collective investment undertakings, options, futures, swaps,
forward rate agreements and any other derivative contracts relating
to securities, currencies, interest rates or yields as well as
other derivatives instruments, financial indices or financial
measures which may be settled physically, in cash or otherwise (as
provided in the Law) and any other derivative contract relating to
commodities, assets, rights, obligations, indices and measures,
which have the characteristics of other derivative financial

At first sight, it would appear that virtual currencies (a term
which includes cryptocurrencies) are not considered as
‘Financial Instruments’ in the legislative meaning afforded
to the term, thereby falling outside the scope of the Law. This
general rule is subject to an exception in so far as and to the
extent that Financial Contracts for Differences on Virtual
Currencies are concerned. More explicitly, a Financial Contract for
Differences constitute a financial instrument that allows traders
to invest into assets without actually owning them (by agreeing to
receive the difference between the current value of the asset and
its value in the future). However, it must be underlined
that it is up to the Central Bank of Cyprus in conjunction
with Cyprus Securities and Exchange Commission to decide on the
exact way a Financial Contract for Differences on Virtual
Currencies shall be treated in each particular case (considering
the background circumstances and particularities thereof).

Nevertheless, in so far as the legality and treatment of virtual
currencies is concerned, there is a legislative gap that must be
addressed especially in view of the expanding tendency of the
incorporation and operation of businesses engaged in sectors
relating to virtual currencies. Despite, however, the fact that
virtual currencies as such are not regulated, due to their volatile
nature, the said activities relating to virtual currencies
are not currently regulated neither at national or European
level, such activities are considered as especially high-risk
activities. It is precisely for this reason that the problems that
such a company may encounter are not, strictly speaking, restricted
to the opening and maintenance of a bank account, but rather extent
to the incorporation of the company itself.

Admittedly, considering the current legislative framework, today
the differentiation of cryptocurrencies from the
‘recognized’ Financial Instruments constitute a matter of
interpretation of the existing legislation regulating the provision
of investment services. In light of the foregoing and given the
fact that the governmental and other authorities face persons
engaged in such activities with reluctance due to the particularity
of virtual currencies, the introduction of a precise regulatory
framework shall, admittedly, fill in the gap and provide guidance
on the implementation and treatment of virtual currencies and
related instruments.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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