Cyprus gov’t to regulate the ‘risky’ digital currency space

Cyprus gov’t to regulate the ‘risky’ digital currency space

Cyprus has joined a growing list of countries looking to regulate the digital currency industry in the near future. In a report, the country’s Ministry of Finance noted that the sector poses some risks of money laundering and other illicit activities but claimed local police had acquired enough ‘sophisticated understanding’ to combat them. 

The report follows a risk assessment study conducted by the ministry, the Advisory Authority for Combating Money Laundering and Terrorist Financing, and the House of Representatives. Commissioned in July 2020, the study was completed and finalized in November this year.

The study concluded that there’s little digital currency activity in the country. Despite rising adoption in the region, the ministry stated that there had been limited access points for digital currencies into the broader Cyprus economy.

The study also found that most local authorities, including the Cyprus Securities and Exchange Commission (CySEC) have “limited direct understanding or experience regarding the specific Money Laundering (ML) and Terrorist Financing (TF) risks of VA and VASP sector.” Nevertheless, local police have reportedly acquired some direct experience and sophisticated understanding of the virtual asset space.

Going forward, the Central Bank of Cyprus and CySEC should update their AML and CFT directives to include measures that deal directly with digital currencies, the report recommends. These directives must incorporate the Travel Rule to comply with Financial Action Task Force (FATF) recommendations. The Travel Rule requires VASPs to exchange sender and recipients’ identifying information for transactions greater than $1,000.

The ministry believes that CySEC has the biggest role to play in regulating the sector. For one, it must educate all its supervised obliged entities on how to identify suspicious activities related to digital currencies. It must also ensure that any financial firm dealing in digital currencies complies with the wire transfer rule and shares and maintains market data and metrics.

The ministry also wants the Cypriot government to collaborate with its neighbors and peers who are making strides in digital currency regulations to further its regulatory efforts.

As CoinGeek reported three months ago, CySEC published a new policy document that set out the compliance requirements for VASPs. It revealed that the industry would be regulated under the Investment Services and Activities and Regulated Markets Law or under the Electronic Money Law.

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