Cyprus To Strengthen Crypto Regulations in Line with FATF Standards

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Cyprus, known for its crypto-friendly stance in Europe, is considering a stricter approach to regulating the crypto sector by imposing harsh penalties on crypto service providers (CSPs) who fail to register with the Cyprus Securities and Exchange Commission (CySEC). 

The Parliamentary Committee on Legal Affairs has received a proposal for legislative amendment to the “Prevention and Suppression of Money Laundering and Terrorist Financing Law” by the Ministry of Finance.

The proposed amendment seeks to bring Cyprus in line with international standards for Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) set by the Financial Action Task Force (FATF). 

Additionally, the amendment seeks to align with the recommendations outlined in the MONEYVAL report, published in November 2022. MONEYVAL is a regional body of the Council of Europe that assesses compliance with anti-money laundering and counter-terrorism financing measures in member countries.

The Cyprus Bar Association has expressed concerns regarding the scope of this law as it requires CSPs registered in European Union member states to register again in Cyprus. It has further recommended that the “Travel Rule” be included in the law, which is currently not a part of Cyprus’ legislative framework.

In response, the Finance Ministry highlighted that under the European Union’s single market framework, the primary responsibility for monitoring crypto entities lies with the state where they are registered. However, Cyprus’ financial regulator, CySEC, has introduced measures to monitor CSPs operating in Cyprus, even if registered in EU member states.

Regarding the Travel Law, the ministry assured that they are currently in discussions with relevant authorities to ensure the regulation is correctly put into practice, for which they may need to make adjustments to Cyprus’ existing laws.

Crypto regulations have been getting stricter not just in Cyprus but across Europe. The EU is working on a comprehensive regulatory framework called the Markets in Crypto-assets (MiCA) Regulation, which is set to be launched in 2024. The regulation will impose strict requirements on CSPs, including licensing, Anti-money Laundering (AML), and investor protection requirements.

Even though such regulations may seem cumbersome to the CSPs, they will provide better financial security to consumers and investors in the web3 space. They will help mitigate money laundering, illegal activities and terrorism financing risks posed by the advent of new crypto technologies. 

Shashank is the founder of yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash