In a move aimed at bolstering its regulatory framework in the cryptocurrency sector, Cyprus is planning to introduce stringent penalties for cryptocurrency service providers (CSPs) who fail to register with the relevant authorities.

These penalties, which include hefty fines of up to €350,000 and imprisonment of up to five years, or a combination of both, come as the government strives to enhance its oversight of the burgeoning crypto industry.

This development follows the submission of a proposed legislative amendment to the “Prevention and Suppression of Money Laundering Law,” presented by the Ministry of Finance to the Parliamentary Committee on Legal Affairs.

The amendment seeks to align Cyprus with international standards set by the Financial Action Task Force (FATF) to combat money laundering from illegal activities and the financing of terrorism, as well as the recommendations of the MONEYVAL report published in November 2022.

Under the proposed amendments, CSPs dealing with cryptocurrency assets will be required to register with the Cyprus Securities and Exchange Commission (CySEC).

Failure to do so will result in severe penalties, reflecting the government’s commitment to minimizing the risks associated with money laundering from illegal activities and the financing of terrorism, particularly in light of the introduction of new technologies.

The most substantial penalties for non-compliance are seen in Malta, where penalties for violations of cryptocurrency regulations, including operating without a license, can include imprisonment for up to six years and fines of up to €15 million.

Other countries, such as France and Ireland, impose penalties ranging from imprisonment to substantial fines for similar offences.

Notably, Cyprus has sought input from the Cyprus Bar Association, which has expressed reservations about the scope of the law, specifically the obligation for CSPs registered in other EU member states to also register in Cyprus.

Additionally, the association has recommended the incorporation of the “Travel Rule” into the law, which is currently not part of Cyprus’ legislative framework.

In response, the Finance Ministry has highlighted that due to the functioning of the single market within the European Union, the responsibility for monitoring entities that have registered in another member state initially lies with that state, rather than the host state.

However, Cyprus’ financial regulator, CySEC, has included provisions for the oversight of CSPs providing services in Cyprus, regardless of their registration in other EU states.

Regarding the “Travel Rule,” the Ministry of Finance noted that discussions are ongoing with relevant authorities to ensure the proper and timely implementation of this regulation, with necessary modifications to Cyprus’ existing legislation.

Furthermore, CySEC is exploring the possibility of issuing guidelines related to the “Travel Rule” to further enhance regulatory oversight in this regard.

Cyprus is taking these steps to create a well-regulated cryptocurrency environment, aligning itself with international standards while addressing concerns from key stakeholders.