Cyprus Gets Crypto Downgrade In MONEYVAL Evaluation

January 20, 2022
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A new report into Cyprus’ anti-money laundering and counter-terrorist financing progress calls for better compliance with the Financial Action Task Force (FATF), with a particular focus on virtual asset service providers.

A new report into Cyprus’ anti-money laundering and counter-terrorist financing (AML/CTF) progress calls for better compliance with the Financial Action Task Force (FATF), with a particular focus on virtual asset service providers (VASPs).

Although Cyprus has improved its level of compliance with FATF standards on combating money laundering and the financing of terrorism, it is failing to successfully manage money laundering risks when it comes to VASPs, according to a follow-up report published by the Council of Europe’s Committee of Experts on Money Laundering and Terrorist Financing (MONEYVAL).

Cyprus’ rating on the implementation of this revised recommendation has been downgraded from “largely compliant” to “partially compliant”.

However, the authorities have taken several measures to implement these new FATF requirements, including the publication in December 2021 of an assessment of money laundering and terrorist financing risks presented by virtual assets and the related services providers, according to MONEYVAL.

But many of the new measures it had undertaken were done too late for the purpose of its assessment by the organisation.

In December, the country’s finance ministry unveiled plans to better regulate the crypto industry.

This included outlining that the Central Bank of Cyprus and the Cyprus Securities and Exchange Commission (CySEC) should update their respective AML/CTF obligations to include measures dealing specifically with crypto-assets and VASPs.

According to the finance ministry, the revised directives should expressly incorporate the Travel Rule for wire transfers of crypto to address the FATF deficiency and should make enhanced due diligence indicators and requirements for crypto-assets that are currently implicit to be made more explicit.

Recommendations were also made for CySEC to provide education to its supervised obliged entities regarding the identification of suspicious activity in relation to crypto-assets.

The Overall Progress Made

In 2019, MONEYVAL concluded that Cyprus complied or largely complied with 37 of the 40 FATF Recommendations, and asked the Cypriot authorities to report back under its enhanced follow-up procedure on progress to address the remaining shortcomings for the three FATF Recommendations in which Cyprus had been assessed as being only “partially compliant”.

According to the updated report, Cyprus is “compliant” with 16 of the FATF Recommendations, “largely compliant” with 20 recommendations and “partially compliant” with four recommendations (non-profit organisations, correspondent banking, new technologies, and powers of law enforcement and investigative authorities).

Going forward, Cyprus will remain in enhanced follow-up and will continue to report to MONEYVAL on progress to strengthen its implementation of AML/CTF measures, and is expected to report back within one year’s time.

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