• Cryptocurrency Firms Appreciate CySEC Regulation, but Challenges Remain

  • After more than a decade and several unicorns, the majority of the cryptocurrency industry is still looking for a welcoming jurisdiction where they can be recognized and operate as crypto service providers. However, things are changing.

    Many smaller jurisdictions have introduced crypto-specific regulations in recent years, recognizing the companies in the space as crypto service providers. Cyprus, a popular base for European-bound financial services firms, is the most recent to issue a policy statement regarding the registration and authorization of crypto firms.

    The Cyprus Securities and Exchange Commission (CySEC) will recognize cryptocurrency companies as crypto service providers under the new framework.

    “It is encouraging news that the CySEC has begun to look into the direction of regulating cryptocurrencies, and it should have the effect of bringing more companies under their umbrella,” Natalia Zakharova, Head of Sales at FXOpen, told Finance Magnates. “As a result, we believe it will have a positive impact on the industry.”

    Other industry players are also pleased with the move, as stated by Marie Tatibouet, CMO at gate.io: “This is very good.”

    She also stated that many crypto companies will now prefer to relocate their headquarters to Cyprus due to regulatory uncertainty surrounding cryptocurrencies in other jurisdictions.

    Accession to the EU

    The Cypriot regulator will categorize crypto companies based on their business structure under the newly implemented rules. The rules will also adhere to the European Union’s AMLD5 guidelines.

    “One of the most important aspects of the CySec regulations is the inclusion of crypto-asset businesses within the scope of EU AML legislation under the amended AMLD5 Law in Cyprus,” Tatibouet added.

    “For the first time, crypto exchanges and custodians were subject to EU anti-money laundering rules under this law. I believe this is a crypto-friendly step because it is a critical step toward business legitimacy.”

    The CySEC is known as the financial services industry’s “gateway” to the European Union. It is home to dozens of brokers and other financial firms that use their Cyprus Investment Firm (CIF) license to operate across the European Economic Area (EEA).

    “Our proactive engagement with crypto businesses through the CySEC Innovation Hub, with the goal of supporting innovative businesses and engaging with providers of emerging financial technologies,” said Demetra Kalogerou, former CySEC Chair.

    Some Difficulties

    Despite the numerous benefits, some requirements may be difficult for crypto companies to meet. They must first hire four local directors. Furthermore, companies must pay EUR 10,000 for authorization under the new framework, as well as EUR 5,000 in renewal fees.

    As Apifiny’s founder and CEO, Haohan Xu, pointed out, the new rules do not necessarily imply that crypto companies will begin migrating to the Mediterranean island.

    “If the Cyprus government or its main regulator, CySEC, creates the legislation, there will be many ‘strings attached,’” Xu said. “Most licenses in Cyprus, such as a broker-dealer or VASP license, allow for the appointment of up to four Cypriots as directors. In addition, the broker-dealer must hire an accountant, a legal representative, and a secretary to deliver documents to CySec. Before a company hires its own staff, that is a total of seven employees.”

    “When compared to other jurisdictions, the seed money for a company seeking a license in Cyprus is also very high. For example, the cash component on the company’s balance sheet must be 750,000 EUR.”

    He also stated that offshore jurisdictions Bermuda and The Cayman Islands provide much more favorable regulatory frameworks for cryptocurrency firms. “Bermuda has its own regulated exchange, which the BMA (Bermuda Monetary Authority) has made available for qualified digital asset listings. Bermuda also provides a tiered registration package for start-up projects with limited capital and a small footprint on the island,” he adds.

    However, Cyprus’s European Union membership remains the most appealing criterion for attracting crypto firms.

    Cyprus Isn’t on Its Own

    The CySEC, on the other hand, is not the first financial regulator in the EU to implement a crypto-specific framework. Similar rules were enacted in Gibraltar and Malta years ago, and despite initial enthusiasm, they were unable to attract many crypto companies.

    “The siren call that Cyprus is attempting to offer is the EU passport of digital assets,” said Epiphany CEO. “Both Malta and Gibraltar have the same EU status, but that status is constantly changing. France and Germany have truly led the way; both have established crypto banking and broker-dealer regulations, and the industry has responded.”

    “However, jurisdiction is not the most pressing issue as the digital asset industry expands. Rather, market openness and oversight of traditional kingpins are important factors.”

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