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 combination of crypto-asset services and activities, similar to Cyprus Investment Firms (CIF) under MiFID.

2. What is the governing legal framework?

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, as amended by Law 98(I)/2023,
• the CySEC Directive for the prevention and suppression of money laundering and terrorist financing,
• the CySEC Directive for the register of crypto asset services providers, and
• the Market in Crypto Assets Regulation (MiCA), as it gradually comes into force by the end of 2024.

The applicable framework is expected to go beyond AML/CFT matters with MiCA’s entry into full force. MiCA which is a regulation developed on parallel grounds to those of MiFID, introduces CASP to regulatory obligations towards product governance, prevention of market abuse and prudential supervision, among others. The new EU legal framework is divided into two 18-month phases:

• the implementation phase, which is subdivided into 3 consultation measure packages, incorporating public feedback, and
• the transitional phase, which will allow CASP entities to continue providing their services once authorisation is acquired.

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. Why is registering a CASP with CySEC crucial?

In the context of the broadened AML/CFT framework, the CASP entities that are subject to CySEC supervision are further defined including CASP entities that:

• are incorporated in the Republic of Cyprus,
• are not incorporated in Cyprus but provide services or engage in activities on a professional basis from the Republic,
• are not incorporated in Cyprus but provide services or engage in activities on a professional basis to the Republic, unless they are registered in a Register of other Member States for services provided to the Republic.

It is imperative for all CASP entities that are regulated by CySEC to comply with the provisions of the AML/CFT Law to avoid the National Competent Authority (NCA) penalties encompassing:

• Imprisonment for 5 years maximum, or
• A fine of €350.000 maximum, or
• Both of the above.

4. 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 clear business 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.

5. How can SALVUS 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 favorable transition of a CySEC registration to a MiCA authorisation.

The Crypto-Assets Licensing team at SALVUS, through the successful registration of several CASP under CySEC, has developed unparalleled first-hand experience on 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 to discuss further your crypto-business needs, please contact us at info@salvusfunds.com or call us at +357 7000 7898; our Crypto-Assets Licensing 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.