Cyprus: 3 Key Considerations In Establishing Your Virtual Currency Investment Fund

Last Updated: 17 January 2019
Article by Emily A. Georgiades

With the ever-increasing popularity of cryptocurrency exchanges around the globe it seems that the use of virtual currencies is only set to become the norm in the future.

As such, it is no wonder why more and more entrepreneurs are looking to establish investment funds that trade cryptocurrencies If properly executed, these investment funds have the potential to earn billions. However, to be successful in such an endeavor, one should be aware of the 3 key considerations that can affect the success of your investment fund:

  1. the external regulations that will govern the investment fund;
  2. the internal regulations that govern the investment fund; and
  3. the cost of establishing the fund.

Key 1: External Regulations:

When deciding upon a forum within which to establish an investment fund, it is prudent to consider the size of the market along with how stringent the regulations will be. Europe, for example, has a large potential pool of investors but there are federal regulations such as Directive 2014/65/EU on Markets in Financial Instruments and Regulation (EU) No.600/2014 on Markets in Financial Instruments (also known as "MiFID II" and "MiFIR" respectively), which every EU Member-State must abide by and then there are national regulations, which will govern investment funds. Establishing an investment fund in Cyprus, which intends to trade virtual currencies is relatively simple to set-up and will be governed by EU directives and the regulations set forth by the Cyprus Securities and Exchange Commission (CySEC).

Presently, virtual currencies are unregulated in Cyprus. However, this may be set to change in the near future. On January 9, 2019, the European Securities and Markets Authority (ESMA) published its Advice to the European Institutions regarding Initial Coin Offerings (ICOs) and crypto-assets. There is an ongoing global conversation on the nature of virtual currencies and whether or not they qualify as securities. ESMA's Advice is essentially opening up a dialogue between the EU Member States to adopt regulations for crypto-assets, as some crypto-assets, e.g. those with profit rights attached, may qualify as transferable securities or other types of MiFID financial instruments. However, Member States have defined the term "financial instrument" differently, hence created challenges to both the regulation and the supervision of crypto-assets.

In addition, in October 2018, the Financial Action Task Force (FATF) adopted changes to its Recommendations and Glossary such as "virtual assets" and "virtual asset service providers", to explicitly clarify, that the Recommendations apply in the case of financial activities involving virtual assets. The FATF Recommendations also set out comprehensive requirements for combating money laundering and terrorist financing, including those that make use of virtual assets. Moreover, FATF will consider in February 2019 whether and how to provide further clarifications in the standards to guide implementation, and will also update by June 2019 its 2015 Risk-based Approach Guidance on Virtual Currencies.

In the United States, for example, the notion of a utility token versus a security token has greatly evolved in accordance with the Howey Test (Securities and Exchange Commission v. W. J. Howey Co., et. al., 328 U.S. 293 (1946)). According to this test, the Supreme Court examined the substance over the form of a particular transaction to decipher, whether that particular transaction is in fact an "investment contract". If so, then it would fall within the ambit of the securities regulations.

Given that securities-trading is a global phenomenon that often involves trading by citizens of various countries, it may be envisaged that the EU will adopt laws to conform with the U.S. model. Therefore, in future crypto-assets being traded as securities (as opposed to utility tokens) may be expected to fall under EU national and supra-national securities regulations. The ongoing dialogue, advice and evolution of securities regulations serves to have each nation ensure that investor protection and market integrity remain paramount.

For the moment, virtual currency-trading investment funds should be aware that each EU Member-State has its own regulations (or lack thereof) regarding virtual currency trading specifically. However, in its Advice, ESMA stated that if crypto-assets are determined to qualify as transferable securities or other types of MiFID financial instruments, a full set of EU financial rules, including the Prospectus Directive, the Transparency Directive, MiFID II, the Market Abuse Directive, the Short Selling Regulation, the Central Securities Depositories Regulation and the Settlement Finality Directive, are likely to apply to their issuer and/or firms providing investment services/activities to those instruments.

Key 2: Internal Regulations:

The internal compliance procedures of an investment fund are as significant as the external regulations, that govern the fund. Regardless of whether or not national regulations impose rules on the trading of virtual currencies, investment funds generally should implement internal compliance procedures addressing risk-management and legal/regulatory compliance monitoring.

Risk management procedures should ensure, that risk limits always remain in accordance with the risk profile the fund discloses to investors and monitoring adherence to risk limits. Ongoing legal and compliance monitoring entails devising anti-money laundering and counter-terrorist financing policies and procedures, and remuneration policies. If there are transactions with foreign investors such as US citizens, then it is also important to consider adherence to bi-lateral treaties such as FATCA (Foreign Account Tax Compliance Act). Additionally, there is European Market Infrastructure Regulation (EMIR) compliance for sub-funds and ISDA agreements.

Implementing proper compliance procedures allows investors to feel more confident in investing with your fund.

Key 3: Cost of Establishment:

Once you navigate the external and internal regulations, the cost of setting-up the investment fund is a key factor in determining the choice of jurisdiction. Each EU Member State has different regulatory and legal set-up costs. For example, in Cyprus the process of obtaining a trading license is relatively straight forward. The regulator in Cyprus (the Cyprus Securities & Exchange Commission) will require a certain amount of initial capital for the investment fund to be established but this depends on the type of investment fund to be established, what assets (or mix of assets) the investment fund will trade and the type(s) of investors the investment fund will trade with (i.e. retail vs. professional or well-informed investors). Furthermore, in Cyprus, the legal costs in establishing an investment fund and providing ongoing compliance support is cost-effective and generally competitive with other EU member-states. In fact, trading licenses may be obtained within 6-8 months (and possibly within 3 months through the fast-track method).


Although ESMA has issued its Advice on Crypto-Assets, in reality it may pass some time before the regulations change. Given the dynamic securities regulations both in the European Union and in other nations, it is imperative to consult experienced securities regulations attorneys with knowledge of the regulations within the EU and even in other countries, in which the investment fund intends to trade virtual currencies. Furthermore, devising proper internal compliance procedures and knowing which federal and national regulations apply to your investment fund, will help in furthering your business goals.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions