CySEC Targets Tighter Supervision Utilising Technological Tools and Starts Looking into Regulating Cryptocurrencies

With the goal to further act as a shield for investors, the Cyprus Securities and Exchange Commission (CySEC) will strengthen in-depth supervisory controls in 2022 while finding the tools to keep pace with any developments and technological needs required by the sector, says its chairman, George Theocharides.

According to Theocharides, the CySEC has put in place a specialised online system, which is an additional tool to collect, analyse and monitor the marketing policies of CIFs. CySEC is also in the process of developing procedures and methodologies, which, with the appropriate technological infrastructure, will enhance its capacity to ensure regulated entities' compliance with regulations such as EMIR, MIFIR and SFTR, by automatically detecting potential risks and irregularities at an early stage.

In addition to staffing supervisory departments with additional personnel, emphasis will be placed on strengthening in-depth supervisory controls, especially with regard to entities that pose the highest risk, such as online trading platforms.

CySEC to transform the Innovation Hub into a Regulatory Sandbox, so that in this controlled environment, start-ups, technology companies and other entities will be able to test their innovative products or services in real conditions under the supervision of the supervisory authority.

In 2022, the further discussion or adoption of a series of legislative and regulatory regulations at European Union level is expected. Among them is a package of four legislative proposals on combating money laundering and terrorist financing, which take into account new and emerging challenges related to technological innovation. In particular, it includes a proposal for the establishment of a European Anti-Money Laundering and Terrorist Financing Authority and a regulation on due diligence with respect to the client and the actual ownership, which will also cover cryptocurrency service providers or other supervisors, such as Equity Financing platforms.

In 2022, market practices, governance and risk management processes, customer attraction, suitability requirements, as well as anti-money laundering issues are among the issues that come under close scrutiny by CySEC. In particular, on-site audits are carried out to verify compliance of the supervised entities and remote audits, i.e. on a series of documents, the main findings of which are published on CySEC's website.

With regard to market size, the CySEC chairman referred to the continued growth of the investment sector, noting that the licensed CIFs amount to 245, while 48 applications for obtaining a CIF license are under consideration. From 2015 to date, the CySEC has revoked the licence of CIFs 17 times.

Talking about to the difficulties in the implementation and supervision that CySEC is called upon to manage with regard to the sanctions imposed on Russia, Theocharides says that CySEC has been in close contact with other authorities and taken all necessary measures to ensure the smooth operation. Based on the information received by CySEC, the sanctions have affected a number of supervised entities, and depending on the case, proceed with the provision of guidance or supervisory action as deemed necessary.

CySEC is also broadening of the supervisory scope to cover crypto assets. The electronic Register of Crypto Assets Services Providers will be launched very soon. It is particularly important for investors to be aware that they do not have access to protection or protection at this stage, as cryptocurrencies and related products and services do not fall within the existing scope of protection under current EU financial services rules. Recently, CySEC has participated in the joint campaign of the European Financial Supervisory Authorities, which concerned a series of warnings to consumers about the dangers of cryptocurrencies.