REGISTRATION PROCEDURE AND REQUIREMENTS
On the 25th of June 2021, the Cyprus Securities and Exchange Commission (“CySEC”) published the Directive on the Register of Cryptoasset Service Providers (“the Directive”). The Directive was adopted in accordance with the powers granted to CySEC under the new Anti-Money Laundering Law 188(I)/2007 (“the Law”) and it came into force on the same day.
According to the Law, the following entities must be registered with CySEC, in order to provide services regarding cryptoassets:
(a) Cryptoasset service providers which provide or exercise services or activities on a professional basis from Cyprus, regardless of their registration in another Member State of the European Union;
(b) Cryptoasset service providers which provide or exercise services or activities on a professional basis in Cyprus, except persons who provide or exercise services or activities regarding cryptoassets and have been registered in another Member State of the European Union.
It is noteworthy to mention that neither the Law nor any other legislation include any provisions regarding the granting of a licence of a cryptoasset service provider (“CASP”). However, a CASP should meet certain criteria in order to get registered with CySEC.
It is reminded that according the Law, 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,………:
(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:
1. Reception and transmission of orders;
2. Execution of orders on behalf of clients;
3. Dealing on own account;
4. Portfolio management;
5. Provision of investment advice;
6. Underwriting and/or placing of cryptoassets on a firm commitment basis;
7. Placing of cryptoassets without a firm commitment basis;
8. Operation of a multilateral trading facility for buying and selling cryptoassets
It is important to note that, although the definition of financial services under the new AML Law as to cryptoassets resembles the definition of investment services under MiFID II, cryptoassets under the Law explicitly exclude financial instruments as defined under MIFID II.
Main requirements for registration
The requirements for the registration of a Cryptoasset Services Provider (“CASP”) with CySEC include among others:
(a) Submission of a duly completed application which indicates the name, the business name, legal form and legal entity identifier of the CASP, its physical address, the provided services by the CASP, the website of the CASP and any other information which may be requested by CySEC;
(b) The persons holding a position in the management of the CASP shall be of good repute, possessing sufficient knowledge, skills and experience;
(c) The persons with qualifying holding in the CASP shall be of good repute with sufficient financial soundness;
(d) Board of Directors: The Board shall be consisted of at least four persons, from which two shall manage the activities of the CASP and two shall be independent;
(e) Compliance of the CASP with the Law and the Directive.
Capital adequacy and own funds
The CASP shall maintain, at all times, own funds equal to the higher of:
(a) the initial capital, as mentioned below, or
(b) one fourth (1/4) of the CASP’s fixed costs during the previous year, which is reviewed annually.
Initial capital references
Category 1: The initial capital of Euro 50.000 for the provision of investment advice.
Category 2: The initial capital of Euro 125.000 for the provision of services of Category 1 and/or any of the following services:
· Reception and transmission of orders;
· Execution of orders on behalf of clients;
· Exchange between cryptoassets and fiat currencies;
· Exchange between cryptoassets;
· Participation and/or provision of financial services regarding the distribution, offer and/or sale of cryptoassets, including the initial offering;
· Placing of cryptoassets without a firm commitment basis;
· Portfolio management.
Category 3: The initial capital of Euro 150.000 for the provision of services of Category 1 or Category 2 and/or any of the following services:
· Management, transfer, holding and/or safekeeping, including custody, of cryptoassets or cryptographic keys or means which allow the exercise of control on cryptoassets;
· Underwriting and/or placing of cryptoassets on a firm commitment basis;
· Operation of a multilateral trading facility for buying and selling cryptoassets.
The CASP should meet the capital requirements of Common Equity Tier 1 according to the Regulation 575/2013 regarding its initial capital and own funds.
Following the submission of a duly completed application, CySEC shall inform the applicant or its representative within six (6) months regarding its registration or not to the register.
Register of CASPs
The register of CASPs will be available to the public on CySEC’s website and the following information will be visible:
(a) the name, the business name, legal form and legal entity identifier of the CASP;
(b) physical address of the CASP;
(c) the services provided or intended to be provided by the CASP;
(d) the website of the CASP.
The Directive also provides for the withdrawal or suspension of the registration of a CASP, the procedure and notification of any amendments to the provided information by the CASP, the provision of information to clients or potential clients, conflict of interest rules and relevant fees payable to CySEC.
Please contact our Financial Services & Funds department at FinancialServices@kinanis.com for further information and assistance regarding the Register of Cryptoasset Service Providers.
This publication has been prepared as a general guide and for information purposes only. It is not a substitution for professional advice. One must not rely on it without receiving independent advice based on the particular facts of his/her own case. No responsibility can be accepted by the authors or the publishers for any loss occasioned by acting or refraining from acting on the basis of this publication.
Christos P. Kinanis
Lawyer — Managing Partner
Associate Lawyer — Financial Services & Funds Department
Lawyers’ Limited Company
12 Egypt Street, 1097, Nicosia
P.O. Box 22303, 1520 Nicosia, Cyprus
Tel: + 357 22 55 88 88 — Fax: + 357 22 66 25 00
Web site: www.kinanis.com