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12° Nicosia,
26 November, 2022
 

K. Treppides & Co Ltd: Cryptocurrency - Having your regulated firm able to trade in cryptocurrency

Forex, cryptocurrencies and regulation

By Linos Zambas
Director
K. Treppides & Co Ltd

Decentralized digital currency era began in 2008 by an unknown person named Satoshi Nakamoto which invented Bitcoin, the very first cryptocurrency.

A cryptocurrency or crypto is a tradable digital asset or digital form of money, built on blockchain technology that only exists online and is designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it.

Most authorities have yet to enact laws governing cryptocurrencies, meaning that, for most jurisdictions, the lawfulness of crypto mining remains unclear.

Cryptocurrency trading by Investment Firms in Cyprus can be divided into two categories with different set of regulations.

The first type is the trading on derivatives such as contracts for differences (CFDs), options and futures, where the underlying asset of the transaction is the cryptocurrency. This type of trading can be performed by Cyprus Investment Firms (CIFs), as they are recognised as MiFID II financial instruments. CIFs trading under this regime needs to comply with the rules of the Investment Services and Activities and Regulated Markets Law, as well as the national product intervention measures imposed by EU Member States on specific types of such instruments (i.e. CFDs).

The second type of cryptocurrency trading lies in the form where the transactions relate to the actual cryptocurrency where they can be transferred, traded and stored electronically. Initially Cyprus Securities and Exchange Commission (CySEC) authorised CIFs interested to offer such products under the “other business” regime. Later on, CySEC stopped accepting such applications in line with the plans to introduce the register of Crypto Asset Service Providers (CASPs) pursuant to the EU AML Directive.

Following the publication of the Amending Law 13(I)/2021 on the 23rd of February 2021, which amended the AML Law, CySEC introduced the framework for the registration of CASPs on the 25th of June 2021 transposing in this respect the provisions of the EU AML Directives.

The main two license types which a firm in Cyprus shall consider in order to operate in the crypto trade:

  1. CIFs engaging in cryptocurrencies exclusively as underlying assets of derivatives.

As stated above, CIFs trading under this regime needs to comply with the rules of the Investment Services and Activities and Regulated Markets Law, as well as the national product intervention measures imposed by EU Member States on specific types of such instruments (i.e. CFDs).

  1. CASPs Registration.

Applications of new CASP registration will follow a normal course of evaluation procedure in which CySEC will evaluate certain requirements, paying special attention to the fitness and propriety assessment of the Board of Directors, the composition of the Board, their reputation, professionalism, knowledge and experience while for the shareholders some of the main criteria will be their financial position, source of funds, their background and their reputation. 

There are 3 classes of CASPs relating to the distribution, offering and/or sale of cryptocurrencies in which the regulated entity can register depending on the financial services to be offered and depending on the class of the CASP and the type of services to be offered, the capital requirements vary from EUR50,000 (Class 1) for the provision of investment advice, up to EUR150,000 (Class 3) for providers offering the safekeeping of cryptocurrencies, underwriting and/or placement of cryptocurrencies and the operation of multilateral system. 

K. Treppides & Co Ltd is the largest independent consulting company in Cyprus with an established international presence and offices in Great Britain and Malta. Today the company employs approximately 200 professionals. It offers a full range of consulting, tax, accounting services to groups, companies and investors operating internationally in a variety of financial and business sectors. The Company, which started its operations in 1985, has 36 years of expertise and an elite team of experienced executives who can guide and assist investors and businesses during the establishment process and subsequent investment activity in Cyprus and internationally.

Contact Details:

Linos Zambas

lzambas@treppides.com

www.treppides.com

Nicosia: Treppides Tower, Kafkasou 9, Aglantzia, CY 2112, Nicosia, Cyprus

Limassol: Andrea Kariolou 38, Ayios Athanasios, CY 4102, Limassol, Cyprus

London:7 Milner Street, London SW3 2QA

Malta: Level 1, Somnium, Tower Road, Swatar, Birkirkara BKR 4012

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