Cyprus is taking significant steps to fortify its regulatory framework within the cryptocurrency sector. The country is set to implement rigorous penalties for cryptocurrency service providers (CSPs) that neglect to register with the appropriate authorities. These penalties, encompassing substantial fines reaching as high as €350,000 and the possibility of imprisonment for up to five years or a combination of both, signify the government’s determined effort to strengthen its supervision of the rapidly expanding crypto industry.
Cyprus proposes stringent regulations
On October 10, a report from the Cyprus Mail revealed that the local Ministry of Finance is set to revise the existing Prevention and Suppression of Money Laundering Law. This move aims to align Cyprus with international anti-money laundering and anti-terrorist financing (AML/CFT) standards established by the Financial Action Task Force (FATF) and the recommendations outlined in the MONEYVAL report from November 2022.
Under these proposed amendments, all service providers involved with crypto assets must register with the financial regulatory body, the Cyprus Securities and Exchange Commission (CySEC). Non-compliance could result in penalties ranging from fines of up to €350,000 to imprisonment for a maximum of five years or a combination of both.
Similar penalties for comparable offenses are enforced in countries like France and Ireland. Notably, Malta imposes the most severe penalties for non-compliance with cryptocurrency regulations, including potential imprisonment of up to six years and fines reaching up to €15 million.
It’s worth noting that the country has sought input from the Cyprus Bar Association, which has expressed reservations regarding the scope of the law. Specifically, there are concerns about the requirement for CSPs registered in other EU member states to also register in Cyprus. Additionally, the association has recommended the inclusion of the travel rule, which is currently not part of Cyprus’ legislative framework. In response, the Finance Ministry has clarified that, within the European Union’s single market framework, the initial responsibility for monitoring entities registered in another member state rests with that state rather than the host state.
However, Cyprus’ financial regulator, CySEC, has included provisions for overseeing CSPs providing services in Cyprus, regardless of their registration in other EU states. As for the travel rule the Ministry of Finance has stated that discussions are ongoing with relevant authorities to ensure its proper and timely implementation, with necessary adjustments to Cyprus’ existing legislation. Additionally, CySEC is exploring the potential issuance of guidelines related to the travel rule to enhance regulatory oversight in this area further.
Cyprus forges ahead with progressive crypto regulation plans
Cyprus is actively working to establish a thoroughly regulated cryptocurrency environment, a move aimed at harmonizing with global standards while also addressing the concerns of significant stakeholders.
In preparation for the forthcoming Markets in Crypto Assets regulation, or MiCA, which will enable companies in the European Union to serve the entire bloc with a license obtained from a single member state, Cyprus has proactively introduced an advanced registration system before MiCA’s anticipated implementation in 2024.
Notably, the country served as the headquarters for FTX’s EU division until the exchange’s license was revoked due to its sudden collapse in November. Binance also recently sought to withdraw its status in the country, seemingly as part of a broader regulatory consolidation effort in anticipation of MiCA.
This move aligns with a broader trend of nations tightening regulations around crypto asset service providers to curb illicit activities like money laundering and fraud.
