The Financial Services Commission (FSC), following the enactment of the Virtual Asset and Initial Token Offerings Services Act (“VAITOS Act”), and the guidance issued by the Financial Action Task Force (FATF) relating to Virtual Assets and Virtual Assets Service Providers, has deemed it necessary to clarify the regulatory stance that will be adopted with respect to Non-Fungible Tokens (NFTs).

To provide a brief overview, an NFT is a token recorded using distributed ledger technology (such as Blockchain), whereby each NFT recorded is distinguishable from any other NFT. This allows each NFT to be given unique features and to be associated with a distinct physical or virtual asset. NFTs are often linked to items such as artworks, music or videos.

The Guidance Notes issued on 30^th of November 2022 are to be read together with the Relevant Acts, and other guidelines and circulars issued by the FSC. Within the said Guidance Notes it has been stressed out that, NFTs may take different forms and therefore, warrant different regulatory treatments; thus, the FSC decided to differentiate into three (3) distinct Scenarios for each subcategory of NFTs.

Firstly, NFTs that are issued and marketed to the public as unique digital collectibles but they are not used for payment or investment purposes shall not be subject to the regulatory scope of the FSC, regarding the activities associated to them.

Secondly, some NFTs display characteristics of securities and therefore they shall be treated as such, according to FSC. For instance, fractional NFTS, which are assets that allow investors to invest in a particular NFT by owning only a fraction of it, can be considered as ‘securities’, as defined in the Securities Act. Therefore, FSC makes explicit that NFTs that are considered as ‘securities’, or constitute a share or an interest in a collective investment scheme must be regulated in accordance with its marketing and distribution practices to the general public. More precisely, regarding Virtual Asset Platforms that facilitate the sale and secondary trading of NFTs identified as ‘securities’, as per the definition of the Securities Act, targeting Mauritian residents or based in Mauritius, need to be licensed by the FSC as a securities exchange or securities trading system.

Last but not least, the third Scenario announced by FSC has to do with ‘other NFTs’, that are not part of the previous Scenarios mentioned above. For the issuance of NFTs which fall under the category of virtual assets and are neither unique digital collectibles, nor securities, the relevant persons shall apply for registration under section 24 of the VAITOS Act. In addition, persons that intend to transfer, exchange, hold and administer NFTs which fall under the category of virtual assets need to apply for the relevant licence in accordance with section 8 of the VAITOS Act.

Lastly, FSC notified investors who are not sufficiently knowledgeable in virtual assets to be cautious as there are various risks associated with NFTs including illiquid secondary markets, volatility, opaque pricing, hacking and fraud. Finally, FSC also mentioned that these Guidance Notes shall not be interpreted as legal, financial or other professional advice.

Our dedicated team at FiveComply is here to help you with the different types of crypto-licenses available and to provide you with the latest updates and developments.

The Cyprus Securities and Exchange Commission through the issuance of Circular C518, has informed all CIF regulated entities of the new Prudential Supervision Forms:

1. Prudential Form 165-03 ‘Prudential Supervision Information’

   The Prudential Form 165-03 updates and replaces the Form 144-14-11, the purpose of which is to collect relevant information by the CIFs in order to facilitate CySEC’s supervisory role in the areas of:

   1. the assessment of Internal Capital Adequacy Assessment Process (ICAAP) and Internal Liquidity Adequacy Assessment Process (ILAAP),
   2. the assessment of audited financial statements,
   3. the safeguarding of clients’ money.

In this respect, Form 165-03 has been updated to incorporate the changes that have taken place following the introduction of the new prudential framework for investment firms (IFR/IFD).

Form 165-03 should be considered as an annual reporting obligation for all the CIF regulated entities and it should be submitted to CySEC through the Transaction Reporting System (TRS), by the 30^th of June, annually. Exceptionally for this year end i.e., 31/12/2021, the said from should be submitted via TRS on 30^th of July 2022.

FiveComply wishes to remind CIF regulated entities that the deadline to submit the Form 165-03 for the year ended 31/12/2021 is no later than the 30^th of July 2022.

1. Prudential Form 165-04 ‘Application Form for prudential permissions’

   The ad-hoc Prudential Form 165-04 aims to facilitate the CIFs when requesting CySEC’s permission, with reference to the Regulation (EU) 2019/2033 (‘IFR’), Regulation (EU) 575/2013 (‘CRR’) and Law L.165(I)/2021, where applicable, in the following areas:

   1. Application for interim profit recognition,
   2. Application for liquidity reduction.

   Therefore, the CIFs that wish to request CySEC’s permission, for any of the areas mentioned above, should complete only the relevant Section(s) of the Form 165-04 for which the permission is requested and submit it to CySEC via TRS. The remaining sections, not applicable for the CIF, should be left empty.

Our team of FiveComply experts can assist you in complying and submitting in a proper and timely manner the regulatory reports/forms imposed by CySEC. Contact us now for any questions you may have!

The Cyprus Securities and Exchange Commission (CySEC) has issued Circular C515 drawing the attention to Benchmark Administrators that the European Securities and Markets Authority (ESMA), has published the Guidelines on methodology, oversight function and record keeping under the Benchmarks Regulation.

The Guidelines are designed to establish consistent, efficient and effective supervisory practices within the European System of Financial Supervision (ESFS) and to ensure the common, uniform and consistent application of the requirements related to material changes to the methodology, the use of an alternative methodology in exceptional circumstances and the oversight function.

The purpose of these guidelines is to amend the existing guidelines on non- significant benchmarks, in line with the new guidelines introduced for administrators of critical and significant benchmarks, with regard to the oversight function and the use of an alternative methodology in exceptional circumstances. The guidelines apply from 31 May 2022.

CySEC has adopted these Guidelines by incorporating them into its supervisory practices and regulatory approach.

Contact us now for any questions you may have!

The Cyprus Securities and Exchange Commission (CySEC) has issued Circular C513 informing the Cyprus Investment Firms (CIFs) of their obligation to on-going monitor their prudential requirements. The CySEC reminded all CIFs, about the necessary steps that they must take when they no longer meet their own funds requirements and/or concentration limits. The following steps should be taken:

1. Class 2 and class 3 CIFs should notify CySEC as soon as they become aware that their own funds fall below their own funds requirement.
2. Class 2 CIFs should notify CySEC without delay when they exceed the concentration limits.
3. All CIFs should have sound administrative and accounting procedures to enable them to monitor their own funds, own funds requirements, concentration risk and all other obligations from IFR
4. Establish an effective internal control framework as per Final Report on Guidelines on Internal

Governance under Directive (EU) 2019/2034 and CySEC Circular C508.

1. CIFs which are notifying CySEC, that they have not met their relevant prudential requirements, through their normal submission of the Prudential Forms 165-01 or 165-02 is not sufficient as CIFs in this case either do not monitor their prudential requirements on an on-going basis or willingly fail to inform CySEC.

Therefore, CySEC expects from all CIFs to:

1. Implement sound administration and accounting procedures and adequate internal control mechanisms, appropriate and proportionate to the nature, scale and complexity of the risks inherent in the business model and the activities of the CIF, which will enable them to monitor on an on-going basis all their prudential requirements accordingly.
2. Be notified without undue delay and in any case prior to the normal submission of the Prudential Forms 165-01/165-02, when any of the following cases occur, on a solo and/or consolidated basis, for the date of the occurrence:
   1. the own funds of the CIF have decreased below its own funds requirement, calculated in accordance with Article 11 of IFR, which amounts to at least D, where D is defined as the highest of the following:
      • The CIF’s fixed overheads requirement calculated in accordance with Article 13 of IFR;
      • The CIF’s permanent minimum capital requirement in accordance with Article 14 of IFR;
      • The CIF’s K‐factor requirement calculated in accordance with Article 15 of IFR
   2. The composition of own funds has been decreased below the minimum requirement, as calculated in accordance with Article 9 of IFR.
   3. The CIF’s liquid assets are below its liquidity requirement, calculated in accordance with Article 43 of IFR, ie. less than the one third of the fixed overhead requirement calculated in accordance with Article 13(1) of IFR.
   4. The CIF has exceeded the concentration risk limits, as defined in Articles 37(1) and 37(3) of IFR.
3. Verify that their internal control framework (i.e., compliance, risk management and internal audit functions, where established) ensures compliance with laws, regulations and supervisory requirements at all times.

Our dedicated team at FiveComply remains always at your disposal for any assistance you may need. Contact us now for any questions you may have!

The Cyprus Securities and Exchange Commission (CySEC) has issued a Press Release informing the public that the online platform for the Cyprus Beneficial Ownership Register of Express Trusts and Similar Legal Arrangements (CyTBOR), will be accessible to trustees as of 17/05/2022 and all involved parties as of 17/06/2022.

According to CySEC, the necessity for the creation of the CyTBOR derives from the Prevention and Suppression of Money Laundering and Terrorist Financing Law of 2007 (AML/CFT Law), in full accordance with the 4th and 5th European Directives or the Prevention and Suppression of Money Laundering and Terrorist Financing.

CyTBOR facilitates easy and immediate searches for up-to-date information and data about the beneficial owners of Express Trusts and Similar Legal Arrangements. For this reason, it is now possible to directly search and identify the settlors, trustees, protectors (if any), beneficiaries, and any other natural person exercising final control over the trust through direct or indirect ownership, or by other means

In addition to CySEC, all supervisory authorities, such as the Customs Department, the Taxation Department, MOKAS and the Police, will have unhindered access to the Register within the framework of their responsibilities.

Furthermore, according to CySEC’s announcement, it is possible to provide timely information on the beneficial owners of express trusts and similar legal arrangements to the respective competent authorities of the other Member States of the European Union, while all liable entities will also have access to the Register, as part of due diligence and identification measures of their clients.

The Cyprus Securities and Exchange Commission (CySEC) has issued Circular C504 informing Regulated Entities (i.e., CIFs and AIFMs) on the publication of Guidelines on certain aspect of the MiFID II appropriateness and execution-only requirements that were issued by European Securities and Markets Authority (ESMA) on April 14, 2022.

Our dedicated team at FiveComply can assist you in achieving compliance with any CySEC regulatory obligation.

On 21^st of February 2022,  the European Commission has published in its official journal (‘OJ’) the revised list of High-Risk Third Countries. The Commission Delegated Regulation (EU) 2022/229 (‘the Delegated Regulation’), amends Delegated Regulation (EU) 2016/1675 on the list of high-risk third countries with strategic anti-money laundering (AML) and counter-terrorist financing (CTF) deficiencies under the Fourth Money Laundering Directive ((EU) 2015/849) (MLD4).

The Delegated Regulation makes the following changes to Delegated Regulation (EU) 2016/1675:

• Burkina Faso, Cayman Islands, Morocco, Senegal, Haiti, the Philippines, South Sudan, Jordan and Mali are added to the list of third countries that are identified as having strategic AML and CTF deficiencies.
• Ghana, Botswana, Mauritius, the Bahamas and Iraq are removed from the list of countries identified as not having strategic AML and CTF deficiencies. The Bahamas, Botswana, Ghana, Iraq and Mauritius have strengthened the effectiveness of their AML/CFT regime.

Therefore, in the Annex to Delegated Regulation (EU) 2016/1675, the table under point ‘I. High-risk third countries which have provided a written high-level political commitment to address the identified deficiencies and have developed an action plan with FATF’ is replaced by the following:

The Delegated Regulation enters into force twenty (20) days following its publication in the OJ (i.e., 13 March 2022).

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The Cyprus Securities and Exchange Commission (CySEC) has issued Circular C487 (‘the Circular’) informing Cyprus Investment Firms (‘CIFs’) on the revised threshold criteria that determine a ‘significant CIF’ for the purposes of the Investment Services and Activities and Regulated Markets Law of 2017, as amended, (‘the Investment Services Law’) in light of a new prudential framework for investment firms (IFR/IFD). It should be noted that, Circular C487 updates and replaces Circular C228 that was issued on 26 July 2017, in relation to the matter.

According to the Circular, a CIF should be considered a ‘significant CIF’ where its on and off-balance sheet assets are on average, greater than EUR 100 million over the four‐year period immediately preceding the given financial year (‘the threshold’).

CIFs should assess/decide within four months from the end of each of their financial year, whether they meet the threshold to become a ‘significant CIF’ for the purposes of the Investment Services Law and for the purposes of sections 22(4) and 27 of the Prudential Law. This assessment is considered as valid, until the next assessment is made for the following year. Where a CIF has been in business for less than four years, for the purposes of the above assessment it shall use its on and off-balance sheet assets for the periods available.

CIFs that after the abovementioned assessment are qualified as ‘significant CIFs’ must make arrangements to establish and have in place sound, effective and comprehensive strategies, processes and systems to achieve compliance with the following requirements:

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The Financial Intelligence Unit (FIU) of Seychelles has issued Guidelines for Suspicious Transaction Reporting (STR) in an effort to provide practical assistance and comprehensive approach to reporting entities by enabling them to recognise suspicious transactions and meet their reporting obligation under Section 48 of the AML/CFT Act 2020 to the FIU.

More specifically, the issued Guidelines, explain reporting timelines, the information that must be included in the Suspicious Transaction Report (STR) and the procedure for submitting reports electronically to the FIU.

It is also important for reporting entities, to differentiate their STR reporting obligations from the currency transaction threshold reporting obligations (i.e., the Cash Transaction Threshold Report (CTTR) and Wire Transfer Threshold Report (WTTR). The difference is that, CTTR and WTTR are merely threshold reports and such transaction(s) shall not necessarily involve criminal behaviour.

The FIU emphasises that, any reporting entity that suspects that any service or transaction may be related to criminal conduct, including an offence of money laundering or terrorist financing activities, it shall submit an STR to the FIU, in line with the requirements under section 48 of the AML/ CFT Act and related Regulations.

Our specialised team can assist you to be compliant; contact us now for any information you need.