Crypto Asset Service Providers one year later
Its been a year since we last considered CyCEC’s policy statement on Crypto Asset Service Providers our view at that moment was that:
Any structured and government-backed attempt to integrate and utilize some aspects of blockchain technologies; either as a currency or smart contract or otherwise is a very welcomed step. Will this legislation attract giants like Binance, Coinbase or Huobi Global this remains to be seen …
Well its been a year … and CySec’s deadline of December 2022 is swiftly approaching, so what has happened since last year, which players obtained a crypto license in Cyprus, what services are Crypto Asset Service Provider applying for and what is the future of CASP for Cyprus.
Current registered Cyprus Crypto Asset Services Provider
As of today CySEC lists 2 Crypto Asset Service Providers (“CASP”). These are:
- Just2Trade Ltd
- RT Digital Securities Cyprus Ltd (Revolute).
At the same time CySEC maintains a register of companies that have received crypto asset licenses elsewhere in Europe and who have also applied for one in Cyprus. As of today CySEC lists 5 EEA CASPs: These are:
In an news article issued by Cyprus Mail the author mentioned that
[CySEC] recently received 18 applications for crypto asset providers in total, of which it approved just two
[CySEC] is the competent supervisory authority for crypto asset providers in Cyprus. […] CySEC only supervises these companies in relation to their anti-money laundering and anti-terrorist financing compliance.
“It is very important that investors are aware that at this stage they have no recourse or protection, as cryptocurrencies and related products and services do not fall within the existing scope of protection under the current EU rules on financial services,” Theocharides stressed.
What services and oversight applies to Crypto Asset Service Providers?
In simple terms, the above 7 entities can be distinguished between local and EEA CASP.
A Crypto Asset Service Providers can be classified in one of three ways however the most common service offered is that of acting as an exchange between (i) crypto-assets and fiat currency; (ii) crypto-assets; and (iii) Management, transfer, holding and/or safekeeping, including custody, of crypto-assets or cryptographic keys or means which allow the exercise of control over crypto-assets.
In other words . . . a crypto exchange and crypto wallet.
BUT, if we consider CySEC’s warning to heart, the oversight imposed on CASP mostly relates to Money Laundering and Terrorist Financing Law along with other minor fit and proper tests. Meaning that the oversight imposed on other CySEC registered entities is discounted or/and not applicable to CASP. So from a regulatory perspective CASPs are light work … or are they?
What about MiCA?
MiCA who? – MiCA is short for Markets in Crypto-Assets (MiCA) a proposed regulation in EU law intended to help streamline distributed ledger technology (DLT) and virtual asset regulation in the European Union (EU) whilst protecting users and investors.
A provisional agreement was reached on the 30th of June 2022 between Council presidency and the European Parliament covering issuers of unbacked crypto-assets, and so-called “stablecoins”, as well as the trading venues and the wallets where crypto-assets are held.
This regulatory framework will protect investors and preserve financial stability, while allowing innovation and fostering the attractiveness of the crypto-asset sector. A dedicated and harmonized framework is therefore necessary at Union level to provide specific rules for crypto-assets and related activities and services and to clarify the applicable legal framework
MiCA will bring more clarity in the European Union, as some member states already have national legislation for crypto-assets, but so far there had been no specific regulatory framework at EU level.
Until MiCA!
MiCA is only provisionally approved, at the moment of writing . . . so the CASP license obtained by Revolute, Crypto.com and others is applicable exclusively to transactions between Cypriot entities and persons. Using the CASP license in other EEA member states is not possible. So passporting your CASP license is also not possible.
What is the future of Cyprus Crypto Asset Service Providers
As with most EU directive they are adopted at EU level and then transposed into national legislation through local laws.
For once … Cyprus and more specifically CySEC has beat them to it.
Assuming the current legislation is suitable for, and in line with, MiCA a Cyprus Crypto Asset Service Provider will be ready to go and offer Crypto services to the other 30 EEA member states. Hence using Cyprus and this licensing as a stepping stone to the rest of the EEA.
Our proactive engagement with crypto businesses under the CySEC Innovation Hub, aiming to support innovative businesses and to engage with providers of emerging financial technologies, ensured that our expectations were clearly communicated to market participants well in advance and that the Cypriot framework has captured the industry’s pace, alleviating the risks involved. Our work on financial innovation at national and EU level is ongoing, and we are determined to encourage responsible innovation, whilst ensuring the orderly functioning of the markets.
What are Cyprus Crypto Asset Service Providers?
The Cyprus Securities and Exchange Commission (“CySEC”) on the 13 of September 2021, published a detailed Policy Statement on the registration and operation of Crypto Asset Service Providers (PS -01-2021) (the “Policy Statement”), setting out its approach to the registration and operation of Crypto-Asset Providers and the principles contained in the Act to Prevent and Combat Money Laundering and Terrorist Financing Law of 2007, as amended.
CySEC highlights that, depending on their structure, crypto-assets may be considered either:
- as financial instruments under the Investment Services and Activities and Regulated Markets Law; or
- as Electronic Money under the Electronic Money Law; or
- Be a digital representation of value that is not issued or guaranteed by a central bank or public authority, is not necessarily linked to a legally established currency, and does not have the legal status of a currency or money, but is accepted by natural or legal persons as a medium of exchange and can be transmitted, stored and traded electronically, and does not qualify as a fiat currency or as one of the instruments referred to in the points above.
In addition, the Policy Statement refers to the limited number of investment firms that are currently permitted to offer limited crypto-asset activities as a non-regulated activity. These firms must formulate and submit to CySEC an action plan for phasing out their crypto-asset activities by the end of 2022 and, in the meantime, apply for registration as a Crypto-Asset Providers no later than the end of October 2021 or otherwise establish another entity to apply for registration as a Crypto-Asset Providers.
Registering a Cyprus CASP
Through its Policy Statement CySEC sets out its expectations for Crypto-Asset Provider’s if you would like to find out more about the requirements and conditions please visit our previous publication available here
Publications on Cyprus Business Law
Cyprus Annual Return HE32 for Companies
Cyprus private companies limited by shares are required to prepare and submit to the registrar of companies an annual return HE32. The Cyprus annual return HE32 must be accompanied by (1) Audited Financial Statements (the “FS”) and (2) Declaration of the Director and Secretary (the “Declaration”) confirming that the FS submitted are those presented to the shareholder at an Annual General Meeting (“AGM”)
Cyprus Company Formation
A company is formed in Cyprus by way of law. The principal legal instrument giving such right is the Companies Law, Chapter 113 of the laws of the Republic of Cyprus, however the memorandum and articles play an equal important role in a Cyprus Company Formation. These two ‘constitutional’ documents are often called upon to deal with business matters of the Company and in other times to define the rights of the various parties.
Private Company Limited by Shares
A Cyprus Private Company Limited by shares is a class of private companies incorporated in accordance with the Cyprus Companies Law, Chapter 113 of the laws of the Republic of Cyprus. It is the most frequently used vehicle in Cyprus its numbers, statistics of the Registrar of Companies, being over 200.000 and on an annual basis around 14.000 new companies are incorporated every year.
Cyprus Registrar Forms legality issues and effect
Within the Companies Law, Chapter 113 of the Laws of the Republic of Cyprus the term “Prescribed Form” (καθορισµένο τύπο) which means the Cyprus Registrar Forms is mentioned several times. Although the Companies law requires information to be submitted in the Prescribed Form this does not create automatic legality of the said action (e.g. change of director) is not implied
Transfer of shares when is it effective?
In the case of Morsa Trading the district court held that a person becomes a registered member of a Cyprus company when that person’s name is registered in the register of members. Accordingly, the transfer of shares in a Cypriot Company requires, amongst other things, the registration in the register of members.
Company Migration to Cyprus
Migrating a company to Cyprus is not without its challenges, nevertheless if the foreign countries laws allow a company may redomicile and migrate to Cyprus. After which time it will be registered under the companies law.
Harris Sharpe
Author - Photographer
For many years he has worked and devoted his skills and efforts towards building a successful career as a leading executive. From humble beginnings, his aim has always been to yield results; with a keen focus to attention to detail and client satisfaction. His experience has always been varied and not specific, at times he preferred it. With that in mind, he has dealt with CySEC on licensing and ongoing regulation, international private equity and credit fund managers, NASDAQ and NYSE listed companies occasional millionaires as well as self-made millionaires. His passion though is difficult transaction work organizing and deploying people for a common goal. Harris enjoys reading and studying the Cyprus law and sharing that information on this website.
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