EU’s MiCA to fill legislative void, but stakeholders still vary over authorities’ stance
Entrepreneurs in the island’s booming high-tech and fintech industries have welcomed the passing of an EU directive regulating crypto assets, pushing Cyprus to finally introduce a legislative framework despite the authorities being reluctant to do so.
The European Parliament had approved the Markets in Crypto Act (MiCA) in late April, which will come into force next year and has been hailed as a “landmark moment” for cryptocurrencies that will lay the ground rules for doing business with the likes of Bitcoin.
With MiCA, Europe became the first continent with comprehensive regulation for crypto assets, with the new supervisory structures also designed to be a bulwark against ‘Lehman Brothers moments’ like the crypto exchange FTX.
The MiCA legislation means that the EU will have a unified approach to crypto asset regulation across all 27 member states, including Cyprus, meaning firms approved in one country can “passport” their operations into others.
In Cyprus, industry stakeholders have been claiming that the island’s authorities were, to say the least, hesitant towards crypto assets.
Entrepreneurs earlier last month were in uproar after the government had withdrawn a bill designed to regulate blockchain technologies and crypto assets last month.
As they had argued, pulling the plug on the legislation will endanger the future of the island’s technology industry, adding that this is further proof that authorities are far from being crypto-friendly.
The Finance Ministry had withdrawn the bill, claiming that it contained unconstitutional elements, and that it in some ways it overlapped with the MiCA act.
The Cyprus Bar Association had argued that the bill covers a different scope than the MiCA regulation, pointing out it could achieve comprehensive regulation for various issues related to blockchain technologies and crypto assets.
Lack vision
In comments to the Financial Mirror, the University of Nicosia CEO and Digital Currency professor Antonis Polemitis said that Cyprus authorities lacked the vision to set up the island as a jurisdiction for companies doing business in digital currencies.
“Leaving blockchain unregulated will deter big tech companies from choosing the island as a business base,” argued Polemitis, adding that “Cyprus has lost the chance to set up a billion-dollar industry”.
Polemitis was part of a task force commissioned by the Finance Ministry to propose a legal framework for digital currencies and service providers almost a decade ago.
The bill withdrawn by the ministry had been drawn up by the task force but had been lingering in Parliament hallways for almost three years.
“Regulations on blockchain would facilitate high tech, especially fintech companies, as they would provide stability, predictability, and legal assurance,” said Polemitis.
Polemitis said the lack of regulations on blockchain and crypto assets made life hard for businesses relocating to Cyprus and entrepreneurs stepping into the crypto world.
He said the lack of regulation feeds into Cypriot banks’ not allowing companies or individuals dealing with crypto to open digital currency accounts.
“It is next to impossible to encourage crypto businesses to come to Cyprus, as the local banks actively block any crypto-related transactions.
“These companies can’t even open an account here,” said Polemitis.
He argued that companies that do decide to move to Cyprus relocate their office here but set up offshore bank accounts.
“The digital industry is rapidly advancing. If you want to be a leader in the sector you need to be able to comprehend the industry’s needs and act pre-emptively. It’s all a matter of philosophy and vision,” said the UNic professor.
Not much of a difference
“Without the backing of the island’s banking institution, there is not much you can do, however,” said economist Stelios Platis, echoing Polemitis’ concerns.
He told the Financial Mirror that the lack of regulation had been feeding into Cypriot banks’ not allowing companies or individuals dealing with crypto to open digital currency accounts.
“It is next to impossible to encourage crypto businesses to come to Cyprus, as the local banks actively block any crypto-related transactions,” commented Platis.
However, the economist does find reason behind Cypriot banks’ stance as they are not big enough to take on alone the risk of taking on clients dealing in crypto currencies.
“Even with the latest EU directive, nothing much will change as I don’t believe that the island’s authorities are regulatory and reputationally ready to facilitate a rapid growth in the industry,” said Platis.
He argued that the island is still tarnished by a bad reputation when it comes to compliance with EU regulations and sanctions.
“Cyprus’ reputation is still stained by the golden passport schemes and recent sanctions on services providers by UK and US authorities, accusing them of helping to hide Russian oligarchs’ assets following sanctions on Russia over Ukraine,” he said.
“If you add that crypto assets have in many cases been used for money laundering and extortion, then you get a mix that many would prefer to avoid,” said the economist.
In that sense, argued the economist, not much is expected to change with the implementation of MiCA in Cyprus, nor would things have been different if authorities had adopted legislation earlier in the day.
“Introducing legislation alone, does not mean a boom in the island’s digital and high tech industry will follow the next day. Malta, was one of the first countries to establish a crypto regulatory framework back in 2018, namely, Virtual Financial Assets (“VFA”) framework, but has not been able to set up a competitive jurisdiction,” he said.
