In light of recent developments in cryptocurrency regulation within the European Union, Cyprus is taking steps to amend its “Prevention and Suppression of Money Laundering Law.” This amendment aims to strengthen the oversight of the cryptocurrency industry by imposing fines on unauthorized crypto service providers.
Cyprus is cracking down on crypto service providers operating without proper authorization. The government is revising the “Prevention and Suppression of Money Laundering Law” to enforce stricter penalties. This move aligns with international standards set by the Financial Action Task Force (FATF) and recommendations from the MONEYVAL report.
Under the proposed amendment, all crypto asset trading firms, also known as CSPs, must register with the Cyprus Securities and Exchange Commission (CySEC), the nation’s financial regulatory body. Failure to comply with this requirement could result in substantial fines, reaching up to €350,000, and imprisonment for a maximum of five years, or both.
The government justifies these stringent measures as necessary to mitigate the risks of money laundering and terrorism financing, especially in light of advancements in technology. It’s worth noting that Cyprus is not alone in implementing strict regulations against unlicensed CSPs. Other countries like Malta have imposed hefty fines and prison sentences for cryptocurrency-related infractions, while France and Ireland have also introduced penalties for similar violations.
However, the Cyprus Bar Association has expressed concerns about the potential impact of these strict regulations on the country’s reputation as a business-friendly jurisdiction. They argue that while combating money laundering and terrorism financing is crucial, the penalties should be proportionate and not discourage legitimate businesses from operating in Cyprus. The association opposes the draft amendment and questions the need for CSPs registered in other EU member states to additionally register in Cyprus, as they are already subject to their home state’s jurisdiction.
Additionally, the association has suggested the adoption of the “Travel Rule,” which requires CSPs to share customer and transaction information with authorities. In response, the Finance Ministry contends that this rule aligns with how the EU’s single market operates. They emphasize that, despite CSPs being registered in other EU member states, CySEC has jurisdiction over those offering services in Cyprus. The Finance Ministry assures that necessary amendments to Cyprus’ legal framework will facilitate the swift implementation of the “Travel Rule,” which is currently under review by the Parliamentary Committee on Legal Affairs and is expected to be approved soon.
Once implemented, the “Travel Rule” will bolster the regulatory framework for CSPs in Cyprus, promoting greater transparency and accountability in financial transactions. This move aligns with the broader efforts of the EU to combat money laundering and terrorist financing across its member states.