Summary of CySEC's Circular C417

Memo #59-2020

CySEC Circular No: C417
Date: 25/11/2020
Subject: Prudential treatment of crypto assets and enhancement of risk management procedures associated with crypto assets
Purpose: To provide guidance to the CIFs on issues relating to crypto assets.

In Summary:

CySEC has issued the Circular C417 on 25/11/2020 to provide guidance to the Cyprus Investment Firms (‘CIFs’) on issues relating to crypto assets and more specific this Circular C417 deals with the prudential treatment of crypto assets and financial instruments relating to crypto assets, as well as, how the risk management procedures of CIFs should be enhanced.

It is provided that CIFs can only transact in crypto assets if they have obtained a permission to provide such services pursuant to article 6(9)(b) of Law 144(I)/2007 or article 5(5) of Law 87(I)/2007.

Specific this Circular C417 refers about:

A. Calculation of own funds and capital adequacy ratio (Pillar I)

    1. Direct investment in crypto assets on a non-speculative basis (banking book exposure)
    2. Direct investment in crypto assets on a speculative basis (trading book exposure)
    3. Direct investment of CIFs’ clients in crypto assets and/or in financial instruments relating to crypto assets with the CIF acting as the counterparty to these
        transactions

CYSEC notes that CIFs are expected to reflect the above treatment in the submission of the Form 144-14-06.1 (calculation of own funds and capital adequacy ratio) for the period ended 31 December 2020 which needs to be submitted to CySEC by 11 February 2021.

B. Internal Capital Adequacy Assessment Process (‘ICAAP’) (Pillar II)
C. Pillar III disclosures
D. Enhancement of risks management procedures associated with crypto assets

CySEC also notes that considering the nature of crypto assets, CIFs should also examine taking mitigating measures against operational, cybersecurity and reputational risks.

Read the CySEC Circular C417

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