What is Cyprus Security and Exchange Commision (CySEC)
CySEC is the anti-money laundering and counter-terrorist financing (AML/CFT) supervisor for crypto-asset operations undertaken in or from Cyprus.
The regulatory framework for a Crypto Asset Services Provider ("CASP") in Cyprus includes rules, inter alia, in relation to:
- The fitness and probity of the CASP beneficiaries and persons holding a management position;
- The conditions in relation to CASPs registration;
- The organisational and operational requirements;
- Performing Know Your Client (KYC) and other client due diligence measures.
In November 2020, CySEC issued an important circular (no 417) regarding the prudential treatment of crypto assets and enhancement of risk management procedures associated with crypto-assets.
CySEC also stipulates legal provisions which the Cyprus Investment Firms (CIFs) trading in crypto-assets and/or financial instruments relating to crypto-assets should take into account as well as revisit their risk management procedures and strategies to ensure that all risks associated with this product are duly taken into consideration.
At Michael Chambers & Co LLC we have an extensive understanding of Cypriot and European legislation and would be delighted to share our unique experience in acquiring licenses for Crypto Exchange Offices, Cryptocurrency Exchanges, and Initial Coin Offering (ICO) initiatives with you.
We can help Crypto Exchanges in Cyprus with their incorporation, legal support, and regulatory license. Our knowledge and expertise enables your company to comply with EU regulations.
In our article below, you will find all details necessary regarding:
- Registration in Cyprus
- Crypto asset service provider, as defined under 2(1) of the AML Law
- Type of License, Capital Requirements and Time Frame
- Application Procedure
- Requirements for approval by CySEC
Crypto-asset providers registration in Cyprus
The Crypto Asset Service Providers (CASP) Registry, as well as its operation, registration, and supervision restrictions, were introduced by the Cyprus Securities and Exchange Commission (CySEC) in June 2021. This significant new development necessitates that interested parties seek for registration with the Cyprus Securities and Exchange Commission (CySEC) in order to conduct crypto exchange services within a regulated environment.
Type of Crypto Exchange Licenses available in Cyprus based on different capital requirements.
- Class 1 License
- Class 2 License
- Class 3 License
Capital Requirements Per License
Class 1 License – Crypto Asset Services Provider (CASP) that provide investment advice €50.000 initial capital requirement
Class 2 License – €125.000 initial capital requirement
Under this license, the service provider will be able to provide services referred to in Class 1 and/or any of the below services:
- Exchange between crypto-assets
- Exchange between crypto-assets and fiat currency
- Placement of crypto-assets without firm commitment
- Reception and transmission of client orders
- Portfolio management
- Execution of orders on behalf of clients
- Participation and/or provision of financial services related to the distribution, offering and/or sale of crypto-assets, including the initial offering
Class 3 License – €150.000 initial capital requirement
By obtaining this license, the service provider will be able to provide the services allowed under the Class 1 & Class 2 licenses, in addition to:
- Underwriting and/or placement of crypto-assets with firm commitmen
- Administration, transfer of ownership, transfer of site, holding, and/or safekeeping, including custody, of crypto-assets or cryptographic keys or means enabling control over crypto-assets.
- Operation of a multilateral system, which brings together multiple third-party buying and selling interests in crypto-assets in a way that results in a transaction.
How is a crypto asset service provider defined by law?
"Provider of Services relating to Crypto Assets" is characterized as an individual who gives or completes at least one of the accompanying administrations or exercises to someone else or in the interest of someone else, which don't fall inside the administrations or exercises of the responsible elements alluded to in sections (a) to (I) of Article 2A:
- Offering and / or selling cryptocurrencies, including the initial public offering
- Exchange between crypto assets
- Exchange between cryptocurrencies and fiat money
- Participation in and / or provision of financial services related to the distribution, offering and / or sale of cryptocurrencies, including the initial public offering, and
- The management, transfer, retention, and / or safekeeping, including custody, of cryptocurrencies or cryptographic keys or means enabling control over cryptocurrencies;
Therefore, the Cryptocurrency Service Provider (CASP) in the sense of Money Laundering and Terrorism Financing Prevention and Control Act (AML / CFT Act), which provides services inside and outside Cyprus, has officially entered the Cyprus Securities and Exchange Commission (CySEC). You need to register.
Cyprus Asset Service Provider (CASP) (eg, Cyprus) established in the EEA and registered with at least one EEA national competent authority for AML / CFT purposes in response to attempts or expected management or exercises in Cyprus. Ordinary or legitimate substances located in Cyprus, including residents of the) must provide warnings that show evidence of a significant obligation to support or action. If these controls or exercises are not covered by a system that oversees registration for AML / CFT purposes, the Cryptocurrency Service Provider (CASP) will be the Cryptocurrency Service Provider (CASP) and the Securities and Exchange Commission (CySEC). You need to apply for registration with Cyprus Securities).
New companies planning to provide services subject to Directive 269/2021 must register with the Cyprus Securities and Exchange Commission (CySEC) before they can begin operations inside or outside Cyprus.
Procedure for application in Cyprus
- All corporate documents of the Company (incorporation certificate, certificate of directors/secretary, shareholders, address, Memorandum & Articles, etc) together with the application form.
- The time frame for the preparation of the application and supporting documents is usually 1-2 months, depending on the availability of the required documents.
- Together with the above documents, an internal procedures manual, anti money laundering manual and know your client procedures must be filed with the application.
- The application and all supporting documents are filed with CySEC.
- CySEC has up to 6 months from the date of submission to either approve or deny the application.
Requirements
Ιn order to apply and successfully be approved by CySEC, you must fulfil the conditions mentioned below:
- Incorporate an entity in Cyprus of which the Board of Directors has at least 4 members with at least 2 being executive directors. The directors must be approved by CySEC on their knowledge and experience in the field and must satisfy the fit and proper test of CySEC.
- Present adequate internal control mechanisms for the smooth operation and functioning of the company.
- Present adequate policies and procedures in compliance with the Law and Directive for the Prevention and Suppression of Money Laundering and Terrorist Financing.
- Satisfy the legal substance requirement: A fully operational office must be established within the Republic and local staff will need to be hired on a full-time basis in order to satisfy the key functions of the company.
- Consummate governance arrangements, are in place, with reference lines that are transparent and are clearly identified and defined.
CySEC Application Fees
Application for the granting of a Crypto Asset Services Provider (CASP) authorisation costs ten thousand euros (€10,000) for the application and five thousand euros (€5,000) for the annual renewal of the licence.
In the event that the application is declined, the license fee is not refundable.
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.
