The absence of regulation led to endless criticism and suspicion of the crypto industry. But be alert. We might be living in the final days of fighting crypto as regulation knocks on the door. What didn’t kill crypto now makes it stronger. Could the same principle apply to our economy?

April 20th, 2023. Mark this date, as it might make an impact. Members of the European Parliament (MEPs) approved the Markets in Crypto Assets (MiCA) regulation. For the first time globally, a comprehensive framework for crypto regulation is en route for application. MiCA sets new unified rules on the supervision, consumer protection, and environmental safeguards of crypto-assets, including crypto-currencies. 

Apart from MiCA, MEPs also voted on a regulation covering the information accompanying the transfer of funds and certain crypto-assets, the Travel Rule Regulation. Therefore, by the end of 2024 or early 2025, we will have sound regulation of crypto-assets in the European Union. And the financial sector will change completely.

MiCA aims to harmonize crypto-assets and crypto-currencies regulation across the EU. It will replace all regulations placed individually by member states. These individual regulations shaped a complex and inconsistent environment concerning crypto-asset services within the EU.

What seems even more significant is that MiCA will address the reasonable doubts and worries arising from recent failures and defaults in the sector. It sets requirements and measures to safeguard and protect investors, as with other traditional financial instruments. In addition to protecting investors, MiCA promotes innovation and growth in the crypto-asset market. Thus, the regulation aims to:

• ensure investor protection with clear rules and standards,
• prevent market abuse and promote fair competition,
• nurture innovation,
• sufficiently manage risks, and
• provide legal certainty to businesses and investors.

MiCA, once active, will put in place new fundamentals for growth. It will allow EU member states to utilize the sector without being conceived as dodgy or money-laundering activities.

Cyprus was working toward introducing a national bill on blockchain and crypto-assets. However, operating under EU regulations makes the environment safer for our economy to explore such opportunities.

On September 13, 2021, the Cyprus Securities and Exchange Commission (CySEC) issued a Policy Statement on the Registration and Operations of Crypto-Asset Services Providers (CASPs). The policy statement covers:

• the finalized rules for CASPs under the Prevention and Suppression of Money Laundering and Terrorist Financing Law of 2007,
• the Register of Crypto Asset Services Providers,
• and other areas elaborating on the next steps and CySEC’s expectations. 

At that time, CySEC aimed to mitigate some of the risks of the crypto-assets sector by holding CASPs responsible for abiding by the following obligations:

1. The fitness and probity of CASP Beneficiaries and persons holding a management position;  
2. the conditions concerning CASPs registration;  
3. the organizational and operational requirements;
4. performing Know Your Client and other client due diligence measures;
5. drawing the economic profile of their clients;
6. identifying the source of funds of their clients;
7. monitoring the clients’ transactions;  identifying and reporting suspicious transactions; 
8. undertaking a comprehensive risk assessment of their clients and activities
9. and take proportionate measures per client, activity, and crypto-asset in question

This was the first step in attracting companies operating in the crypto-asset market. A generalized framework was formed, focused on safeguarding investors and removing some of their concerns regarding the quality of service providers.

Looking at the CASPs register, it is evident that Cyprus can be an attractive jurisdiction for global players in the crypto sector. Two out of eight CASPs are leaders in their segments, and their names are recognizable worldwide; Binance and eToro.

Despite our size, Cyprus’ economy has vast experience as a service provider jurisdiction. To this extent, one would expect that we can be agile and quick to exploit opportunities in new markets, such as crypto-assets. It might not be a new market, but it will be newly regulated and exploitable. Taking cautious steps, such as the policy statement on CASPs, shows that we can learn from past mistakes and proceed maturely in future endeavors.

Maybe the most significant component for every economy is producing new and additional value annually. Additional value comes from the creation of new products and services. Furthermore, when such products are used repeatedly, the producer economy enjoys the traits of sustainability.

As a service provider mainly for taxation purposes, our economy has always been in danger; one day, tax services will no longer have the same demand. We are now experiencing a contraction in this specific sector as tax regulations worldwide are changing. Reasonably, it is best to shift to areas and economic sectors with great futures ahead of them. 

And here comes a great opportunity; MiCA. The crypto-assets industry is unexploited in European economies due to the absence of universal regulation. And when the EU voted for the world’s first sound regulation on crypto-assets, it is a strong sign that it wishes for the sector to flourish.

We have a growing market, huge space to explore, endless possibilities with crypto-assets, and upcoming universal legislation. These factors are external, and Cyprus has no control over them. What we can control is becoming a hospitable and favorable destination for the organizations operating in the crypto-assets market. How do we become one? By solving the operators’ problems and challenges.

Crypto-asset companies face many challenges, some of which can severely impact their operations and success. Such challenges include:

1. Regulatory uncertainty: Compliance with varying regulations can be challenging for crypto-asset companies operating in multiple countries or regions. As soon as MiCA comes into force, this uncertainty will be lifted within the EU. 

2. Financial services access: Many traditional financial institutions are hesitant about providing banking services to crypto-asset companies because of regulatory concerns and the risks associated with the crypto market. We should take advantage of our Regulators’ agility and responsiveness, to create a national strategy on crypto-asset companies' acceptance by Banks and FinTech. In simple words, create a framework that works for everyone.

3. Customer education and support: Users must have a particular level of expertise and awareness because the crypto sector can be complicated and technical. To encourage adoption and address user concerns, businesses must make an investment in consumer education, user-friendly interfaces, and responsive customer service. The Human Resource Development Authority of Cyprus (“ANAD”) can sponsor such training and make the market more attractive and safe.
    
4. Energy consumption: Specific operations in the crypto-asset market, like mining, take on a significant amount of power consumption. As the market grows, so do the concerts on the matter. Yet again, our beautiful island holds a competitive advantage. We have 300+ days a year of sunshine! We can create an ecosystem that feeds itself. Create solar energy and provide it to crypto-asset companies. It will benefit both markets, as excess solar power production can be channeled to crypto-needs, and crypto-asset companies will enjoy cheaper electricity. Of course, a national strategy should apply, taking into consideration the overall national energy strategy, green energy targets, location of crypto-asset companies facilities (i.e., close to solar energy production facilities), and all other factors that contribute to sustainability.

Over the last few years, we have attracted a significant number of technology companies to relocate to Cyprus. With steady steps, we are shifting our economy towards technology service providers. One more step in that direction is attracting the crypto-asset market. It will not be easy, and we will face great competition.

As Spyros Vassiliou, Lawyer and Vice Chairman of Invest Cyprus, states, “We must always keep up with global economic trends and be ready to service the sectors which experience growth. Crypto assets are an expanding sector, and we have seen recently CySEC providing licenses to CASPs. We should prepare to service such companies, but we must do so with caution, sound regulations, and appropriate risk control.”

Moreover, we must clear any shadows regarding our services as a country. Crypto-assets are in the spotlight regarding their source of funds. As a jurisdiction, we have been heavily criticized on the same matter in the past. This is an area where we must shed light. If not, then we may come up against great obstacles again. 

It will need a combination of regulatory lobbying, technological innovation, security precautions, industry cooperation, and user and regulator education. However, we hold many advantages, such as our business-prone legal system, attractive taxation, company relocation incentives, regulator flexibility, ease of doing business, almost endless sun, lower company operation costs, great hospitality, and above all, people with warm hearts. We are a great destination for doing business and living a happy life. Time to effectively and sustainably promote it.