Cyprus Joins in Publishing Crypto Asset Regulations.
As of November 25, 2020, the Cyprus Securities & Exchange Commission (“CySEC”), has published Circular C417 regulating the treatment of crypto assets by Cyprus Investment Firms (“CIFs”).
The Circular provides that when a CIF invests directly in crypto assets for speculative basis, it should treat these as investments in a derivative product subject to both of the following risks:
i. Counterparty Credit Risk ("CCR"), and
ii. Market Commodity Risk.
Accordingly, CIFs will have to assess the risks involved with investing in crypto to account to maintain compliance with the Internal Capital Adequacy Assessment Process (ICAAP). Interestingly, the Circular states CIFs should (rather than “must”) also disclose within their Pillar III disclosures any material crypto-asset holdings and include information on the exposure amounts of different crypto-asset exposures, -the capital requirement for such exposures and the accounting treatment of such exposures.
The Circular provides that CIFs should revisit their risk management procedures and strategies and ensure that all risks associated with this product are duly taken into consideration. However, given the high-risk nature of crypto assets, it is advisable that CIFs review and revise their risk-management procedures and strategies.
For legal advice on any of the above, contact our securities lawyers at Emily@eaglaw.co