What are the main findings and what are the main recommendations of the Report published today by the Ministry of Finance on cryptocurrencies in the Cypriot economy.
The Ministry of Finance has carried out a risk assessment in relation to the introduction of cryptocurrencies in the Cypriot economy, recording the study findings and the proposed actions to be taken by the financial institutions of the Republic of Cyprus.
The entire 200-page Report was published today by the Ministry of Finance and can be downloaded here (link is external).
According to the announcement of the Ministry of Finance, the Advisory Authority for Combating Money Laundering and Terrorist Financing (Advisory Authority), taking into account the international standards and in particular the Recommendation 15 of the Financial Action Task Force (FATF) on before the introduction of new technologies, acted as follows: On the basis of cooperation between the Ministry of Finance and the House of Representatives, in July 2020, a specialized Risk Assessment was commissioned for the introduction of crypto-assets (CCs) Crypto-Assets (PICs) in the Republic, in a specialized consulting company in the USA, Bandman Advisors, specializing in FinTech & RegTech technology, CC and PYKS. All stakeholders participated and provided relevant information on this effort.
The findings and recommendations of this Report were taken into account in the drafting of the primary and secondary legislation on Combating Money Laundering and Terrorist Financing (FXT / CFT) adopted in 2021, in relation to this area. The Report, which was finalized in November 2021, is published on the website of the Ministry of Finance, in accordance with the provisions of Article 57 of the Law on Preventing and Combating Money Laundering and in accordance with the relevant European Directives. We take this opportunity to thank all the parties who contributed to the preparation of this Exhibition and especially the Bandman Advisors for the excellent collaboration, the knowledge they conveyed to us and their meticulous work.
Some of the key findings and recommendations of the Report are set out below: The Authorities are committed to implementing the relevant recommendations and mitigating the risks of F / OSS in the sector.
Some of the key findings:
- There is very limited activity of KS or PYKS (or type PYKS) in Cyprus. There were limited access points for CS activity in the wider Cypriot economy.
- There is a widespread perception that the CS / PYK sector is high risk, but overall there is limited direct understanding or experience of the specific risks of money laundering (XX) and terrorist financing (XT) of the CS and PYKS sector. side of the key principles. The Cyprus Securities and Exchange Commission (CCP) had initial direct supervisory experience in the risk supervision of a small subset of entities.
- The ECC will play a critical role in overseeing the activities of the CS, guiding Cyprus' efforts to mitigate the risks of CS / XT related to CS / PYX.
- The Police has gained some direct experience and specialized understanding for the CS sector.
- There is very little to no use of specialized tools and databases for compliance purposes, in relation to commercial cryptocurrencies and transaction monitoring, and supervisors, law enforcement and MOKAS have received little to no training in their use. .
- As of the end of 2020, Cyprus had not implemented the rule on data accompanying the transfer of crypto-assets for their transfer through Investment Companies and PCS, which is often referred to as the "Travel Rule" for crypto-assets. The shortage can be corrected by secondary legislation.
- The current measures to mitigate the vulnerabilities of NGOs, including the consultancy and risk assessment work currently undertaken on behalf of the Ministry of Interior, do not take into account the CS / PYS sector.
- Procedures for updates by supervisors to liable entities regarding sanctions list ratings and other communications are designed for normal business hours. Because the CS markets, unlike the traditional financial markets, operate on a 24/7/365 basis, this could be a significant gap in terms of CSR and CS movement (partly mitigated by other sources of information available to obligated entities through widely available databases).
Some of the suggested actions:
- The Central Bank of Cyprus (CBC) and the Cyprus Securities and Exchange Commission (CCP) will need to update their respective CSF / CSF Guidelines to include measures specific to CS / CSR. The revised guidelines should explicitly incorporate the Travel Rule for CF Bank Remittances to address the gap in relation to the FATF Recommendations and should make clearer the indicators and enhanced due diligence (ADR) requirements for CFs that are currently indirect.
- In the light of the role of the ECC in overseeing the activities of CSRs and CSRs and its key role in mitigating the risks of MS / MS for CSRs / CSRs, it should also provide training to its responsible entities on the detection of suspicious activity in relation to with KS.
- Companies in the investment services sector should adopt written policies and procedures to comply with the Travel Rule. As a top priority, the ECC should ensure that investment firms that are already involved in PYC-type activities do so.
- Authorities should start keeping and sharing data and metrics specifically for CS / PYCs. Although activity levels are now thought to be negligible, this will set a well-documented baseline as activities increase, promoting early detection of risks or changes in their levels.
- Training and significant capacity building should be offered regarding the risks of CS / PYX XX / XT, as well as technological and wider market development in the CS / PYX sector. Training needs should be guided and monitored at the level of an Advisory Authority.
- Supervisors, law enforcement and MOKAS should receive in-depth training on these issues and strengthen their capacity accordingly.
- Cyprus should make use of its cooperation with other jurisdictions that have had additional and complementary experiences with the CS / PYKS sector, drawing on these relationships to identify lessons and best practices. This international cooperation could be an important channel for Cyprus to strengthen and accelerate capacity building for the CS / PYC sector.
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