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A. INTRODUCTION

The enactment of the amending law to the Prevention and
Suppression of Money Laundering and Terrorist Financing Law
188(I)/2007 on 18.02.20211 (“the new AML Law”)
fully implementing the EU Directive 2018/843 (“the
5th AML Directive”), constitutes the introduction
of cryptoassets in the Cyprus regulatory system.

The new Cyprus AML regulatory framework on cryptoassets paves
the way for the upcoming Cyprus umbrella law on Distributed Ledgers
Technology (“the DLT law”) and the EU Markets in
Crypto-Assets Regulation (“the MiCA Regulation”) and is
considered as a positive development for the establishment of
Cyprus as a key-jurisdiction on cryptoassets related financial
services and related technologies.

B. DEFINITION OF CRYPTOASSETS AND THEIR SERVICE PROVIDERS

The new AML Law defines cryptoassets as:

“a digital representation of value that is not issued
or guaranteed by a central bank or a public authority, is not
necessarily attached to a legally established currency and does not
possess a legal status of currency or money, but is accepted by
persons as a means of exchange or investment and which can be
transferred, stored or traded electronically and that is
not,

(a) Fiat currency, or

(b) Electronic money, or

(c) Financial instruments as defined in Part III of the
First Appendix of the Law on the Provision of Investment Services
and Activities and Regulated Markets”.

In this respect, a cryptoasset service provider
is defined as:

“a person who provides or exercises one or more of the
following services or activities to another person or on behalf of
another person, which do not fall under the services or activities
of the obliged entities mentioned in paragraphs (a) to (h) of
article 2A:

(a) Exchange between cryptoassets and fiat
currencies;

(b) Exchange between cryptoassets;

(c) Management, transfer, holding and/or safekeeping,
including custody, of cryptoassets or cryptographic keys or means
which allow the exercise of control on cryptoassets;

(d) Offering and/or sale of cryptoassets, including the
initial offering; and

(e) Participation and/or provision of
financial services regarding the distribution, offer
and/or sale of cryptoassets
, including the
initial offering”

“Financial Services regarding the distribution,
the offer and/or the sale of cryptoassets”

means the following services and activities relating to
cryptoassets:

(a) Reception and transmission of orders;

(b) Execution of orders on behalf of clients;

(c) Dealing on own account;

(d) Portfolio management;

(e) Provision of investment advice;

(f) Underwriting and/or placing of cryptoassets on a firm
commitment basis;

(g) Placing of cryptoassets without a firm commitment
basis;

(h) Operation of a multilateral trading facility for buying
and selling cryptoassets

It is important to note that the definition of
financial services under the new AML Law as to cryptoassets
resembles the definition of investment services under MiFID II
integrating in this way the alternative and innovative financial
systems into the traditional provision of financial services.

The register of cryptoasset service
providers

The Cyprus Securities and Exchange Commission (“the
CySEC”) becomes the competent authority for the establishment
of the register of the cryptoasset service providers (the
“Register”) under the new AML Law.

Cryptoasset service providers which provide or exercise services
or activities on a professional basis in Cyprus, regardless of
their registration to another Member State of the European Union,
will need to be registered to the Register maintained by CySEC.

A cryptoasset service provider will need to comply at all times
with any registration, organizational and functional requirements
and with any other obligations established by CySEC. It is expected
that CySEC will publish relevant directives in due course with the
relevant requirements and information on the Register.

C. THE FUTURE OF CRYPTOASSETS IN CYPRUS

Without doubt, the introduction of regulatory provisions in
Cyprus regarding cryptoassets and their service providers in light
of the upcoming DLT Law and the MiCA Regulation is a positive step
towards the creation of a thorough legal framework. It is evident
that Cyprus is adopting proactive measures to prevent and mitigate
the risk of money laundering and terrorist financing through
cryptoassets.

It remains to examine how CySEC will exercise its powers and
discretions during the adoption of relevant directives which will
guide the cryptoasset services providers. Since CySEC has already
expressed its concern on the issue, through other directives
addressed to regulated entities dealing with cryptoassets, it is
expected that its guidelines will empower the compliance of the
cryptoasset service providers with their AML obligations.

It is evident nevertheless, that the journey of transformation
towards a digital era in the financial services has started.

D. HOW WE CAN ASSIST YOU

Our Financial Services and Blockchain teams are closely
monitoring the developments regarding the introduction of
blockchain technology and cryptoassets in Cyprus legal system.
Through our exposure and consultation in various blockchain and
financial technology projects, we may assist and guide your
business to evolve in the new technological era.

Footnote

1.
Ν.13(Ι)/2021

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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