Blockchain left hanging - The Law Office of the Republic pauses relevant bill

The Law Office of the Republic of Cyprus has "shown the red card" to legislation concerning decentralised technologies – better known as blockchain.

As a result, the bill cannot proceed further, with the reasons for the rejection, as InBusinessNews has been informed, relating to its unconstitutionality as established by the Attorney General’s Office and the legislative redundancy its existence has created. This development has caused a strong reaction from legal quarters, as well as from the private sector in general.

The timeline …

Let's take things from the beginning. The Republic of Cyprus signed the European Blockchain Technology Cooperation on 4 June 2018, and together with six other member states signed the joint Declaration of the Southern Mediterranean Countries on Distributed Ledger Technologies on 4 December 2018, with the aim of strengthening cooperation in the digital sector and making the South of Europe a leader in emerging technologies.

For this reason, the National Blockchain Strategy was drawn up, which would seek to build on these efforts and aim to promote the utilisation and proper application of Distributed Ledger Technology and Blockchain technology, not only in the public, but also in the private sector of Cyprus.

In the following years, this Strategy went through all the stages required to create a bill entitled ‘The Distributed Universal Technology Act of 2021’. From that point, an important consultation took place with the participation of the Ministry of Finance, private individuals, universities, the Central Bank of Cyprus, the Cyprus Bar Association, the JCC and the organisation Cyprus Blockchain Technologies. Everyone submitted their views and comments on the proposed bill.

The Law Office’s ‘no’

More than a year has passed since the collection of comments in 2021 and the review of the bill legislatively, with the Law Office of the Republic recently ruling it as unconstitutional and essentially postponing it indefinitely.

The reasons, well-informed sources told InBusinessNews, are because the bill's provisions were considered to be redundant and potentially restrictive. That is, terms and points of the proposed bill, due to the fact that they were explained in other existing legislation, and would create redundancy.

With the decision of the Legal Service being straightforward and clear - after the election of the new government - the Ministry of Finance decided to withdraw the bill. This move, as explained to us, was taken by the Ministry of Finance based on the opinion of the Legal Service, but also on the expected passing of the European MiCA regulation by the Brussels institutions, in the coming months. MiCA, as considered by the Ministry of Finance, will cover several issues related to blockchain technologies and cryptocurrencies. So, implicitly but clearly, the bill is no longer on the table.

Private sector disappointment

On notification of the rejection of the bill, the legal sector and especially the individuals active in the blockchain field, appear visibly disappointed. This legislative framework was considered very important to them, especially in the case of several technology companies located on the island, since it would also constitute a framework for their more modern and smooth operation. Hence the fact that the promotion of such a framework was referred to the commitments of the two previous elections.

What well-informed sources have pointed out to InBusinessNews, is the fact that, with the rejection of the bill by the Legal Service, there is a possibility that the companies' documents will not be admissible in case they have to be called into a courtroom for any reason. Therefore, this legal obstacle creates a further headache.

Another point pointed out by lawyers and private individuals is that the upcoming European Markets in Crypto-Assets Regulation (MiCA for short) does not cover all legal aspects and that a national policy framework is needed that will act as an "umbrella" without affecting the rest of the legislation. Additionally, the MiCA regulation is more about supervisory authorities rather than legislation governing the way businesses operate.

Let’s see what happens in April...

So, removing the national strategy and the bill from the horizon, the only indication of a legislative framework is the MiCA proposal. This proposal would theoretically cover issuers of unsecured cryptocurrencies, as well as trading venues and wallets where cryptocurrencies are held.

This regulatory framework will protect investors and safeguard financial stability, while enabling innovation and enhancing the attractiveness of the crypto sector.

As we mentioned above, MiCA is more about the framework of the supervisory authorities, and there are still questions as to whether it will be applied to other - mainly legal - sectors. Nevertheless, MiCA is headed for a final vote on 19 April by the competent European body and from then on – if it is approved - the process of its implementation by the member states will begin with a schedule of 12-18 months. That is, even more "empty" time for Cyprus.

Until the implementation of MiCA, the data for our country will continue as it is, as the creation of any new relevant bill is not planned.

However, bearing in mind the many-page comments of the consultation and with their update, these could be used by initiatives of other Deputy Ministries - beyond the Ministry of Finance -, thus strengthening the modernisation of procedures for technology companies.