The Cyprus Securities and Exchange Commission (CySEC) recently announced new regulations concerning the registration process of crypto asset service providers, explaining that it is beginning to evaluate and process their applications.
This would require crypto asset service providers to comply with the regulatory framework, which includes operational and organizational requirements.
More concretely, CySEC would classify crypto assets as financial instruments or electronic money depending on the structure of the business. To do so, they will use pre-existing regulatory frameworks, such as the Investment Services and Activities and Regulated Markets Law and the Electronic Money Law, as references.
However, the organization still warned against the risks associated with this technology, particularly issues with scalability, governance issues and conformity with the pre-existing regulatory framework. The organization also highlighted that its intention is to incentivize financial innovation that would comply with money laundering and illicit funds legislation.
“Our proactive engagement with crypto businesses under the CySEC Innovation Hub, aiming to support innovative businesses and to engage with providers of emerging financial technologies, ensured that our expectations were clearly communicated to market participants well in advance and that the Cypriot framework has captured the industry’s pace, alleviating the risks involved," commented CySEC Chair Demetra Kalogerou. "Our work on financial innovation at national and EU level is ongoing, and we are determined to encourage responsible innovation, whilst ensuring the orderly functioning of the markets.”
The new rules don't cover crypto derivatives, though it is understood that those should comply with the European Securities and Markets Authority standards as well as pre-existing CySEC rules.
With this move, CySEC joins Malta and Gibraltar’s regulatory agencies, who previously provided a status to crypto services providers. This, according to the organization, would help mitigate some of the risks associated with investing in these kind of assets.
The regulatory landscape in the rest of the world keeps shifting mainly due to the regulators' inability to keep pace with the innovations in the sector. The fact that each country has a different approach to this matter makes the situation even more confusing. For example, countries such as Australia and the UK are considering extending pre-existing regulations to cryptocurrencies as they have a more friendly approach, while others like China remain hostile and have chosen to restrict their production and distribution.