Cyprus Banking Restrictions on Crypto Transactions - 2025 Guide

Cyprus markets itself as a crypto‑friendly EU gateway, but traditional banks still walk on a tightrope when dealing with digital assets. The latest legal tweaks mean every euro‑transfer involving a crypto‑asset triggers new checks, documentation, and sometimes outright denial. If you’re running a crypto‑exchange, a DeFi startup, or simply moving crypto funds through a Cypriot bank, you need to know exactly what the rules demand and how to stay compliant.

Key Takeaways

• All crypto‑related transfers above €1,000 must satisfy the EU Travel Rule - meaning identity data travels with the payment.
• Banks must keep detailed audit trails, screen against EU/UN sanctions, and apply enhanced due diligence for self‑hosted wallets.
• CySEC registers and supervises over 87 crypto‑asset service providers; CBC oversees electronic money tokens.
• Non‑compliance can trigger fines up to €5million or 10% of annual turnover.
• Capital gains on cryptocurrency sales remain tax‑free in Cyprus, but the banking environment is tightening.

Regulatory Backbone: MiCA, EU Directives, and Local Law

The European Union’s Markets in Crypto‑Assets (MiCA) regulation, fully effective since December2024, set the stage for a harmonised crypto ecosystem across member states. Cyprus transposed MiCA into national law while amending its existing AML/CFT framework to bring crypto businesses under the same supervisory lens as traditional banks.

Markets in Crypto‑Assets (MiCA) is an EU regulation that creates a unified licensing, disclosure, and consumer‑protection regime for crypto‑asset service providers. Under MiCA, every CASP operating in Cyprus must obtain a CySEC licence, maintain minimum capital, and enforce robust AML procedures.

The European Union (EU) provides the legislative backdrop for financial regulation, including the Transfer of Funds Regulation (Regulation (EU)2023/1113) and AML directives. These directives compel Cyprus to embed the Travel Rule and real‑time beneficiary screening into banking processes.

Key Supervisory Bodies

Central Bank of Cyprus (CBC) acts as the monetary authority, issuing guidelines for banks on crypto‑related activities and overseeing electronic money tokens. The CBC’s 2025 guidance requires banks to retain transaction logs for at least five years and to flag any transfers to unregistered wallets.

Cyprus Securities and Exchange Commission (CySEC) is the national competent authority that registers and supervises crypto‑asset service providers, enforcing MiCA compliance. By Q22025, CySEC had licensed 87 CASPs, each subject to periodic audits and capital‑adequacy checks.

AML/CFT Law and the Travel Rule

The original Prevention and Suppression of Money Laundering and Terrorist Financing Law (AML/CFT Law) of 2007, amended in 2025, expands the definition of ‘financial institution’ to include crypto‑asset service providers. This amendment forces CASPs and banks to treat crypto transactions as high‑risk monetary flows.

The Travel Rule requires that parties to crypto transfers above €1,000 provide full sender and receiver information, which must be transmitted alongside the transaction. Failure to transmit this data results in a reversible block and potential penalties.

Implementation details include real‑time beneficiary verification, mandatory sanctions‑list screening, and a requirement that banks maintain an immutable audit trail for each crypto‑related transfer.

Impact on Banks and Crypto Businesses

Traditional banks in Cyprus now run a two‑step verification for any crypto‑related payment: first, a KYC check on the corporate client; second, a verification of the CASP’s licence status with CySEC. This extra layer adds roughly 15‑20seconds to processing times, according to early trials by Eurofast (2025).

For crypto businesses, the new regime translates into concrete actions:

• Adopt a dedicated AML/CFT policy that mirrors the CBC’s guidelines.
• Integrate the Travel Rule data exchange into your wallet or exchange API.
• Maintain a register of all self‑hosted wallets used by customers and apply enhanced due diligence.
• Ensure that all correspondent banks are aware of your CySEC licence.
• Prepare for periodic on‑site inspections by CySEC inspectors.

These steps have become non‑negotiable; a 2025 survey by the Cyprus Blockchain Association showed that 68% of crypto firms still struggle to secure a banking relationship despite meeting the technical requirements.

Taxation Edge: No Capital Gains Tax

Cyprus remains attractive because it does not levy capital gains tax on cryptocurrency disposals, a policy unchanged since 2023. This means that while banks tighten controls, crypto traders still enjoy a tax‑free exit strategy, provided the gains are not derived from activities classified as “business income.”

Recent Developments and the Road Ahead

June2025 saw the launch of a National Sanctions Unit dedicated to enforcing EU and UN sanctions, with direct authority over crypto‑related financial flows. Its creation signals a stricter enforcement climate, especially for banks that fail to screen crypto transactions against evolving sanctions lists.

By 2027, all payment service providers-including traditional banks-must support instant euro payments under Regulation (EU)2024/886. This will likely reduce the processing lag introduced by the Travel Rule, as real‑time settlement becomes the norm.

Analysts project that by 2027, about 95% of crypto transactions in Cyprus will be routed through fully licensed CASPs, a jump from roughly 78% in early 2025. The remaining “shadow” activity will shrink as banks and regulators tighten data‑sharing protocols.

Compliance Checklist for Crypto Firms

1. Verify that your CASP holds a valid CySEC licence.
2. Implement Travel Rule data collection for all transfers > €1,000.
3. Maintain a secure audit log for five years, covering sender, receiver, amount, and wallet addresses.
4. Screen every counter‑party against EU and UN sanctions lists using the National Sanctions Unit’s API.
5. Apply enhanced due diligence for self‑hosted wallets: request source‑of‑funds documents and perform periodic risk assessments.
6. Conduct staff training on AML/CFT obligations and CBC’s crypto‑banking guidelines.
7. Prepare documentation for potential CySEC on‑site inspections (policy manuals, transaction records, KYC files).
8. Stay updated on upcoming instant‑payment requirements slated for 2027 and adapt your settlement infrastructure accordingly.

Comparison: Banking Restrictions Before vs. After 2025 Amendments

Frequently Asked Questions