On 23rd February 2021, the 5th AML Directive was implemented by the Republic of Cyprus into the national AML Law, bringing major amendments to the virtual currency industry. In the present article the most important changes of the amended Prevention and Suppression of Money Laundering and Terrorist Financing Law of 2007 to 2021 (the “Law”) will be summarized.
For the first time, Crypto Assets are being defined as “a digital representation of value, which is not issued by a Central Bank or Public Authority or has their approval, is not necessarily linked to a legally circulating currency and does not have the legal status of currency or money, but is accepted by individuals as a transaction instrument or investment, which may be transferred, stored or distributed electronically and is not: (a) fiat currency; or (b) electronic money, or (c) financial instruments as defined in Part III of the First Annex to Investment Services”.
A Provider of Services related to Crypto Assets ("PSCA") is also defined under the AML Law as a person who provides or carries out one or more of the following services:
- exchange between cryptocurrencies and fiat currencies;
- exchange of cryptocurrencies with cryptocurrencies;
- the management, transfer, holding, and/or safekeeping, including custody, of cryptocurrencies or cryptographic keys or means enabling control over cryptocurrencies;
- offering and/or selling cryptocurrencies, including the initial public offering; and
- participation and/or provision of financial services related to the distribution, offering and/or sale of cryptocurrencies, including the initial public offering.
Financial Services related to the distribution, offering and/or sale of Crypto Assets means the following services and activities in relation to Crypto Assets:
- Receiving and transmitting orders;
- execution of orders on behalf of clients;
- own-account transactions;
- portfolio management;
- providing investment advice;
- acceptance and/or disposal of cryptocurrencies with a commitment withdrawal;
- disposal of cryptocurrencies without commitment withdrawal;
- the operation of a multilateral system in which several persons interested in the purchase and sale of cryptocurrencies may interact in a manner that results in a transaction.
As per the provisions of Section 59 of the AML Law, PSCA services will be monitored by the Cyprus Securities and Exchange Commission (“CySEC”), who are registered under the Registry of Members as per the provisions of Section 61E of the AML Law.
According to Section 61E of the AML Law, CySEC shall compile and maintain a Register of Providers of Services related to Crypto Assets. CySEC shall publish the Registry on its website or in any other way it may decide and determine, by issuing a Directive on the manner of operation, maintenance, updating and apprising of the Register.
Moreover, as per Section 61E, the following shall be entered in the Register:
- PSCA providing or carrying out services or activities on a professional basis by the Republic, regardless of their registration in a Member State register, for the services or activities they provide;
- PSCA providing or carrying out services or activities on a professional basis in the Republic, other than persons providing or carrying out services or activities relating to cryptocurrencies and which are registered in a Member State, for the services or activities they provide.
Subject to the provisions of subsection (2) of Section 61E, for registration in the Register, PSCA must submit an application to CySEC. A person who is not registered in the Register may provide or carry out in the Republic services or activities related to Crypto Aassets, provided that his registration in the register of a Member State for the services or activities he provides or carries out is valid.
CySEC has the authority to approve or reject the application for registration on the basis of the conditions laid down in the Directive that will be issued, as well as to delete registered PSCA from the Register or suspend their registration, subject to the terms and conditions set out in the said Directive.
PSCA will have to adopt and apply organizational and operational requirements where CySEC may determine the organizational and operational requirements that must be applied by each PSCA.
As per the provisions of subsection (8)(a) of Section 61E, PSCA will pay to CySEC fees and/or subscriptions for the registration and renewal of its registration in the Register, as well as for the submission and examination of requests, applications, notifications and/or announcements. The amount of fees and/or subscriptions will be determined following the issuance of the said Directive.
A person holding an executive position in a PSCA must always be competent and honest at all times and ensure the compliance of the PSCA in which he holds an executive position, with the obligations subject to the provisions of Section 61E and the Directives issued pursuant to it. CySEC will evaluate the ability and honesty of the person who holds an executive position in a PSCA, according to the criteria and the procedure that will be determined by the said Directive. The same will apply for the beneficiaries of a PSCA.
Pursuant to the amended Section 60 of the Money Laundering Law, customer identification procedures and customer due diligence measures for PSCA are adopted related to Crypto Assets, when their client carries out an individual transaction amounting to or exceeding €1,000 (one thousand euros), regardless of whether the transaction is carried out with a single transaction or with several transactions, between which there seems to be some relationship.
At the time of publication of the present article, CySEC had not yet issued the relevant Directive indicating the formalities for the registration of the PSCA entities as well as the amount of the relevant fee. It is expected to be issued before the end of the current year.
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.