Cyprus Tightens Crypto Regulations with Hefty Penalties for Non-Compliance

Cyprus is set to introduce stringent penalties for unregulated cryptocurrency service providers (CSPs), according to the Cyprus Mail. The government has submitted a legislative amendment to the “Prevention and Suppression of Money Laundering Law,” aiming to align the country with international anti-money laundering (AML) and combating the financing of terrorism (CFT) standards. The amendment was presented to the Parliamentary Committee on Legal Affairs on October 10, 2023.

The proposed amendments stipulate that all CSPs dealing with crypto assets must register with the Cyprus Securities and Exchange Commission (CySEC). Failure to comply will result in penalties ranging from fines of up to €350,000 to imprisonment for up to five years, or a combination of both. This move reflects Cyprus’s commitment to minimizing risks associated with money laundering and terrorist financing.

The Cyprus Bar Association has expressed reservations about the amendments, particularly the requirement for CSPs registered in other EU member states to also register in Cyprus. In response, the Ministry of Finance highlighted that monitoring responsibility for such entities initially lies with the state where they are registered.

CySEC is also considering issuing guidelines related to the “Travel Rule” to further enhance regulatory oversight. Discussions are ongoing to ensure the proper and timely implementation of this regulation.

The Travel Rule, originally part of the Bank Secrecy Act in the US, mandates financial institutions to share transaction details with other institutions involved in fund transfers. This rule, adapted for the cryptocurrency industry, aims to prevent money laundering and terrorism financing by ensuring transaction details “travel” with the transfer. In cryptocurrencies, exchanges and wallet providers must share customer information, enhancing transparency and regulatory compliance.

The UK’s Financial Conduct Authority (FCA) has outlined compliance expectations for cryptoasset businesses regarding the ‘Travel Rule’ as well, effective from September 1, 2023. The rule mandates the collection, verification, and sharing of transaction information to align with anti-money laundering and counter-terrorist financing standards.

This development is particularly relevant to Cyprus’ recent regulatory tightening, as both countries aim to align their cryptoasset industries with international standards set by the Financial Action Task Force (FATF).

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