Crypto-funded debit card in Cyprus

Exchange between crypto assets and fiat currencies.

Management, transfer, holding, and/or safekeeping of crypto assets or cryptographic keys or means which allow the exercise of control over crypto assets.

CySEC Directive for the Prevention and Suppression of Money Laundering and Terrorist Financing (Regulatory Administrative Act 342/2021) for CASPs. This specific directive, issued by CySEC, outlines the detailed AML/CFT obligations for CASPs, including registration, operational requirements, and specific procedures.

CySEC Policy Statement PS-01-2021 currently outlines practical requirements for Crypto-Asset Service Provider (CASP) registration and ongoing compliance in Cyprus. However, this framework is in the process of being superseded by the EU's Markets in Crypto-Assets (MiCA) regulation, with CySEC mandating that existing CASPs in Cyprus must apply for authorization under MiCA by February 27, 2026.

Minimum initial capital requirements apply, typically tiered based on the scope of services. For custody and administration of crypto-assets, it falls under Class 2 services, requiring a minimum capital of €125,000.

Physical Presence: The CASP must have a physical presence in Cyprus and demonstrate substance.

Directors and key personnel must be "fit and proper," with adequate knowledge, experience, and integrity. For specific regulated entities, such as Cyprus Investment Firms (CIFs) under CySEC, at least four board members (two executive, two non-executive) must be present, with at least two executive directors managing day-to-day operations and physically residing in Cyprus. However, under general Cyprus company law, a private company requires at least one director, and a public company requires at least two directors.

AML/CFT Compliance: Comprehensive AML/CFT policies, procedures, and internal controls, including customer due diligence (CDD), ongoing monitoring, record-keeping, and suspicious transaction reporting.

E-money Tokens (EMTs) are crypto-assets referencing a single fiat currency, but in Cyprus, they are now treated under a transitional regulatory regime that distinguishes them from traditional e-money, with specific guidance from the Central Bank of Cyprus addressing the interplay between MiCA and PSD2.

EMT Issuers: Must be authorized as a credit institution (bank) or an e-money institution (EMI) under Directive 2009/110/EC (E-money Directive II). If an EMI, they also need to be specifically authorized under MiCA.

Competent Authority in Cyprus: The Cyprus Securities and Exchange Commission (CySEC) is the designated competent authority for the supervision of crypto-asset service providers (CASPs) and, under MiCA, will be the primary authority for authorizing and supervising ART issuers and existing EMIs/banks issuing EMTs.

Legal Reference: MiCA Regulation (EU) 2023/1114, Article 3(1)(5) and Title III (Articles 43-58).

Identification and Verification of Customer Identity:

Natural Persons: Full name, date and place of birth, nationality, permanent residential address, unique identification number (e.g., passport or ID number). Verification requires reliable, independent source documents and/or data.

Identification of Beneficial Ownership: For legal entities, identifying and verifying the ultimate beneficial owner (UBO) who directly or indirectly holds 225% or more of the shares or voting rights, or otherwise exercises control.

Source of Funds (SoF) / Source of Wealth (SoW): Especially for higher-risk clients or significant transactions, CASPs must take reasonable measures to establish the source of the funds and/or wealth involved.

Enhanced Due Diligence (EDD): Must be applied in high-risk situations, including:

Ongoing Monitoring: Continuously monitoring the business relationship and transactions to ensure consistency with the CASP's knowledge of the customer, their business, and risk profile. This includes monitoring for suspicious patterns or unusual deviations.

Internal Reporting: Employees must report suspicions to the appointed Money Laundering Reporting Officer (MLRO).

MLRO's Duty: The MLRO must evaluate the internal report and, if a suspicion is formed, submit an STR to the Unit for Combating Money Laundering (MOKAS), which is Cyprus's Financial Intelligence Unit (FIU).

Tipping-off: CASPs and their employees are strictly prohibited from disclosing to the customer or any third party that an STR has been or will be submitted, or that a money laundering investigation is underway.

Duration: Records must be kept for at least five (5) years from the completion of the transaction or the termination of the business relationship.

Internal Policies and Procedures: CASPs must establish and maintain robust internal AML/CFT policies, controls, and procedures, including a comprehensive risk assessment. These should be documented in an "AML Manual."

Money Laundering Reporting Officer (MLRO): Appointment of a suitably qualified and experienced MLRO at management level responsible for overseeing AML/CFT compliance.

Staff Training: Regular and ongoing training for all relevant employees on AML/CFT risks, regulations, and internal procedures.

Entity Targeted: eToro (Europe) Ltd (a major global trading platform also offering crypto services). Violation Type: Non-compliance with regulatory requirements related to organizational requirements, safeguarding clients' funds, and prevention of money laundering and terrorist financing (AML/CFT). This included deficiencies in operational risk management, internal controls, and measures taken to prevent money laundering and terrorist financing. Outcome: Imposition of an administrative fine. eToro (Europe) Ltd stated it has taken corrective measures.

Entity Targeted: Bitpanda GmbH (a well-known European digital investment platform operating as a registered VASP in Cyprus). Violation Type: Non-compliance with the AML/CFT Law, specifically regarding internal controls and measures for the prevention of money laundering and terrorist financing, and deficiencies in customer due diligence procedures. Outcome: Imposition of an administrative fine. Bitpanda GmbH took corrective measures.

Cyprus introduced a dedicated crypto tax framework via new Article 20E of the Income Tax Law, effective January 1, 2026, replacing the previous application of existing tax laws by analogy.

If a company (resident in Cyprus) engages in cryptocurrency trading as its primary or significant business activity, all profits derived from such activities are subject to the 12.5% corporate income tax rate.

The strict reserve requirements (1:1 backing, segregation, investment in highly liquid/low-risk assets) fundamentally rule out purely algorithmic stablecoins that rely solely on arbitrage mechanisms or burning/minting without direct asset backing. If such a stablecoin cannot demonstrate 1:1 asset backing, it will not be able to obtain authorization under MiCA.