Stablecoin issuer / redeemer in Cyprus

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.

ART Issuers: Require authorization from their national competent authority (in Cyprus, CySEC) to offer ARTs to the public or seek their admission to trading.

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.

1:1 Backing: Issuers of ARTs and EMTs must always maintain a reserve of assets equal to at least 100% of the nominal value of the outstanding stablecoins.

Segregation: Reserve assets must be legally and operationally segregated from the issuer's own assets.

EMTs: Reserve assets must be held in a segregated account with a credit institution (bank) or invested in highly liquid, low-risk assets, with at least 30% deposited in segregated accounts with credit institutions.

ARTs: Reserve assets must be held in custody by a credit institution or a crypto-asset service provider (CASP) authorised for custody services, or invested in highly liquid, low-risk assets (e.g., short-term government bonds, money market instruments) with a short maturity, denominated in the same currency as the ART references.

At Par Redemption: Issuers of ARTs and EMTs must grant holders the right to redeem their tokens at par value with the asset or assets they reference, at any time, and free of charge or for a nominal fee.

Redemption Policy: Issuers must have a clear and publicly available redemption policy.

Prudential Requirements: Issuers must have prudential safeguards, including own funds requirements, to cover operational risks.

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.

MiCA Regulation Articles 36 and 55 are applicable in Cyprus as part of EU law, but local implementation is now governed by Cyprus-specific regulatory guidance from the Central Bank of Cyprus and national supervisory frameworks, which provide the current legal references for ARTs and EMTs.

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.

Asset-Referenced Tokens (ARTs): These are crypto-assets that purport to maintain a stable value by referencing any other value or right, or a combination thereof, including one or several official currencies, one or several commodities, or one or several crypto-assets (e.g., a stablecoin referencing a basket of currencies, gold, or other crypto-assets like DAI, if it were issued in the EU).

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

The entity must meet local management and control tests to maintain its status, not strictly be a legal person established in Cyprus.

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.

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.

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

The Prevention and Suppression of Money Laundering and Terrorist Financing Law of 2007 (as amended) remains the foundational law, but CySEC has issued additional strengthened anti-money laundering guidelines beyond the original text, incorporating new risk requirements.

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.

Identification and Verification of Customer Identity:

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.

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.

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).

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

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

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.

CASPs offering "custody and administration of crypto-assets on behalf of clients" will require authorization as a CASP under MiCA. CySEC will be the competent authority for authorizing and supervising CASPs in Cyprus.

Existing CASPs in Cyprus will need to adapt their operations and potentially re-apply or notify for authorization under MiCA.

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.

Corporate Tax Rate: Cyprus has one of the lowest corporate tax rates in the EU, at 12.5% on taxable profits.