Establishing a CASP in Cyprus in 2023

1. What is a CASP and what are the related services?

A Crypto Asset Service Provider is defined as a person who provides or exercises, one or more, of the following services or activities to another person or on behalf of another person:

• The exchange between crypto-assets and fiat currencies;
• Exchange between crypto-assets;
• Management, transfer, holding, and/or safekeeping, including custody of crypto-assets or cryptographic keys or means which allow the exercise of control on crypto-assets;
• Offering and/or sale of crypto-assets, including the initial offering;
• Participation and/or provision of financial services regarding the distribution, offer, and/or sale of crypto-assets, including the initial offering.

In this respect, the set of services relating to the distribution, offering and/or sale of crypto-assets consists of the following:

• Reception and transmission of orders;
• Execution of orders on behalf of clients;
• Dealing on own account;
• Portfolio management;
• Provision of investment advice;
• Underwriting and/or placing of crypto-assets with a firm commitment;
• Placing of crypto-assets without a firm commitment;
• Operation of a multilateral system, which brings together multiple third-party buying and selling interests in crypto-assets in a way that results in a transaction.

This, undoubtedly mirrors, the investment services prescribed in the European Directive on the Markets in Financial Instruments (MiFID), governing conventional financial instruments.

Based on this list of crypto-related services, CASP entities can be formed to cater to varying business models offering different combinations of crypto-asset services and activities, similar to Cyprus Investment Firms (CIF) under MiFID.

2. What is the governing legal framework?

In the context of the AML/CFT framework, CASP providing services in or from Cyprus, are considered obliged entities and are subject to CySEC’s supervision. The applicable framework, prescribes the conditions and requirements for the registration and operation of a CASP in Cyprus, and is comprised of:

• the Prevention and Suppression of Money Laundering and Terrorist Financing Law of 2007, Law 188(I)/2007,
• the CySEC Directive for the prevention and suppression of money laundering and terrorist financing, and
• the CySEC Directive for the register of crypto asset services providers.

The applicable framework is expected to go beyond AML/CFT matters with the Market in Crypto Assets Regulation (MiCA) entry into force. MiCA which is a regulation developed on parallel grounds to those of MiFID, will introduce CASP to regulatory obligations towards product governance, prevention of market abuse and prudential supervision, among others.

CASP established and registered with a national competent authority, within the European Economic Area (EEA), are required to notify CySEC of their intention to provide their services in Cyprus. In the case where the offered services and activities are not covered by the CySEC CASP regime, then CASP entities are required to apply for registration with CySEC.

3. Registering a CASP with CySEC

Registering a CASP with CySEC requires previously the submission of a complete and well-documented application.  In this context, obtaining a CASP registration demands the following requirements:

• Submission of a Business Plan indicating business clear objectives, targeted customers, governance arrangements and financial projections.
• Description of the organisational structure, that is required to fulfil specific conditions.
• Evidence of maintaining the appropriate initial capital and own funds. The initial capital requirement depends on the crypto-asset services proposed to be provided by each CASP. These are divided into three CASP classes:
  • Class 1 – 50,000 EUR
  • Class 2 – 125,000 EUR
  • Class 3 – 150,000 EUR
• Demonstration of adequate AML/CFT procedures and controls considering the specific risks of the CASP business model and the proposed crypto asset services.
• Submission of the Internal Operations Manual, describing the policies and procedures to be implemented and followed by the CASP throughout its operations.
• Information concerning the crypto-asset public keys and wallet addresses, used for each crypto-asset.
• Details on the IT systems, security policies and procedures, as well as of the controls in place for preventing and addressing incidents of theft and fraud.

4. What are the expected regulatory developments?

As the crypto-assets technology is rapidly adapting to the European financial system, we anticipate the sector of crypto-assets to experience further growth and wider adaption in the coming years. Thus, and according to the findings of the latest National Risk Assessment (NRA) we expect supervisory authorities to proceed with the following measures:

• CySEC, the Central Bank of Cyprus (CBC) and the Cyprus Bar Association (CBA) to review and update their AML/CFT Directives with provisions relating to crypto assets.
• CySEC’s Authorisation Department to integrate its existing procedures into the CASP authorisation framework.
• CySEC’s implemented CASP register to include verified information on the CASP legal structure, arrangement, beneficial owners and management.
• CySEC and the Cyprus Police, to adapt to the continuous operating nature of blockchain and crypto-businesses, by implementing automated monitoring and notification systems.
• The CBC to provide guidance on the actions to be taken by its supervised entities, in order to cater CASP registered entities and persons involved with crypto asset activities.
• The expansion of CySEC’s supervisory scope and CASP entities’ regulatory obligations for the effective enforcement of the MiCA provisions.

5. How SALVUS can assist your CASP registration

We consider Cyprus as the most suited jurisdiction for the establishment of a CASP, and the CySEC CASP regime as the European regulatory regime most aligned with MiCA. This allows for CASP entities registered in Cyprus to benefit from a more favourable transition of a CySEC registration to a MiCA authorisation.

The Crypto-Assets team at SALVUS, through the successful registration of several CASP under CySEC, has developed unparalleled first-hand experience with the policies and procedures required by the regulator for a CASP registration. This expertise is put to work, where we guide you in selecting the crypto-asset services most suited for your business model and objectives.

We employ a project management approach, to assist our clients in the collection of the required documentation and the completion of all the necessary application forms. Furthermore, our team acts on your behalf through the entire communication with the regulator, to ensure that all preconditions are fulfilled.

Once your registration is successfully approved, our Regulatory Compliance team takes over providing a wide range of post-registration services, to meet all your regulatory and reporting obligations.

If you require additional information regarding your CASP’s registration or discuss further your crypto-business needs, please contact us at info@salvusfunds.com or call us at +357 7000 7898 our Crypto-Assets team is ready to answer your questions.

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The information provided in this article is for general information purposes only. You should always seek professional advice suitable to your needs.