The financial market regulator in Cyprus is considering the introduction of a severe monetary penalty of up to €350,000, imprisonment of up to five years, or both for cryptocurrency service providers who failed to register with relevant authorities, Cyprus Mail reported.

Crackdown on Non-Compliant Crypto Firms

Although there is no official confirmation yet from the Cyprus Securities and Exchange Commission (CySEC), it is planning to impose stringent penalties after the submission of a proposed legislative amendment to the 'Prevention and Suppression of Money Laundering Law', which seeks to align the Cypriot rules with global standards set by the Financial Action Task Force (FATF).

The proposal specified that the Cypriot companies dealing with crypto assets must register with CySEC. The rule's primary purpose is to minimize the risk of money laundering and prevent terror financing.

The Pan-European Challenge

CySEC consulted with the Cyprus Bar Association about the plans. The island's legal minds pointed out challenges around the scope of the law, especially the obligations of crypto services providers already registered in other EU member states to register in Cyprus.

Cyprus already offers crypto licenses to companies under its existing rules. However, it needs to amend its framework to align with the pan-European Markets in Crypto-Assets Regulation (MiCA), which will become effective next year.

The association of Cypriot lawyers further recommended the regulator to implement 'Travel Rule' into the law, which is currently not a part of it. Cyprus' Ministry of Finance is already in discussion with the relevant authorities to modify the frameworks to add those laws.

While CySEC is still considering imposing the rules to bring penalties for non-compliance, several of its other European counterparts already have similar laws in place. Malta has the most substantial one, with a fine of up to €15 million and imprisonment for three years for any non-compliance by crypto firms, including operations without licenses. France and Ireland also have similar laws with ranging penalties.