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Future Regulation of Crypto

As cryptocurrency becomes more widely known and understood, more focus is being given to the legal and regulatory issues involved. Governments, such as the UK, have highlighted the need to welcome cryptocurrencies and to do so in a way which “doesn’t constrain their potential”. It is hoped that by introducing a new regulated framework for the operation of crypto assets, the risk will be reduced, both to the public and companies alike, until this time, both individuals and companies should continue to act with caution when dealing with crypto investments.

Companies conducting business in the crypto industry struggle with Anti Money Laundering regulations, as criminals benefit from the gaps in the industry, therefore it is essential that companies understand the red flags in order to keep the industry safe. Things likely to be considered are:

  • Technological features that allow users to cover their personal information,

  • Geographical risks,

  • Transaction size,

  • Transactions patterns,

  • The suspicious sender or recipient profiles,

  • Source of funds.

Ultimately it may be the markets themselves which assist in determining the future of crypto regulation. With continued publicised ‘crashes’ views may harden on many cryptocurrencies, resulting in a reduction of their overall acceptance by both companies and governments, making their legal and regulatory focus less significant. Though regardless of fluctuations, the evidence suggests that cryptocurrencies will hold a firm place in the global economy.

World map with different currency banknotes on it

A Global Framework Seeks to Minimise Money Laundering Through Crypto Assets

The international regulatory community has made an effort to minimise money laundering and other illegal activity through crypto assets via a global framework provided by the Financial Action Task Force and the guidance provided by the International Organization of Securities Commissions (IOSCO). The Financial Stability Board began to monitor crypto assets in an effort to develop further guidance, as well as the Basel Committee on Banking Supervision on the treatment to banks’ exposures to crypto assets. As the framework develops, a pattern is expected to emerge, however the concern is that as time passes authorities will get locked into differing regulatory frameworks, which is why a global response could be deemed necessary in order to lay out the limits of what is permissible and safeguard the market.

An additional challenge in applying existing regulatory frameworks to crypto assets, or developing new ones, is that regulators are struggling to keep up with the pace and advancements in cryptocurrencies, as the industry is developing in real time. Furthermore, data on crypto markets is patchy and regulators find it tricky to keep tabs on thousands of agents who are subject to different disclosure and reporting requirements.

Digital currency logos

Rules for Crypto Assets in Cyprus

For now, crypto assets in Cyprus are subject to the rules of civil law due to a lack of regulation, the Central Bank of Cyprus commented though Bitcoin is not illegal it is not subject to control or regulation either.

The rules laid down in the first cryptocurrency regulation by CySEC known as Circular C417 are designed to ensure that Cyprus Investment Firms (CIFS), make provisions to cover investments in cryptocurrencies and that risks involving cryptocurrencies are managed properly. CIFS must first obtain permission from CySEC to trade in cryptocurrencies (a CASP License) because they are not specifically regulated by previous financial regulation in Cyprus or in the EU. A CASP license is essential in Cyprus in order to be eligible to offer crypto related services to their clients, which is a step towards effective regulation and tracking Cryptocurrency.

Cyprus is listed among the freest locations for initial coin offering organisers and crypto-enthusiasts, though more regulation is likely to be needed in the future relating specifically to cryptocurrencies in order to reduce the negative result of the industry.

Written by Andie Henderson, Legal and Compliance Associate of Financial Associates International FAI Comply


FAI Comply undertakes the preparation and submitting of applications for CySEC CASP licensing and provides post-submission support leading up to the granting of the license, which authorises companies to provide investment services in accordance to applicable EU laws and regulations.


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