HomeCompliance with Anti-Money Laundering (AML) requirements in Cyprus
As a member of the European Union, Cyprus is obliged to comply with anti-money laundering directives. The island has already become an offshore financial centre, attracting foreign investors and entrepreneurs. And although this serves as a boost for economic development, Cyprus also risks turning into a strategic location for illegal financial flows.
Do you want to protect your business from fines and reputational risks? Our legal company is ready to become your reliable partner in ensuring AML compliance.
We specialise in the implementation of effective AML procedures that comply with strict European standards. From auditing and developing Know Your Client policies to preparing reports and staff training – we provide full legal support and a reliable control system. Entrust us with all aspects of AML compliance and focus on growing your business!
What are AML rules in Cyprus?
Anti-Money Laundering is a set of rules and procedures aimed at countering money laundering and financing terrorism. AML requirements oblige financial organisations to identify, prevent, and report transactions related to the illegal origin of funds.
Main functions of AML compliance:
- Timely identification of illegal transactions related to criminal activity in order to prevent the infiltration of “dirty” money into the legitimate financial system;
- Prevention of terrorism financing, so that organisations cannot use financial channels for collecting and transferring funds;
- Demonstration of transparency and reliability of the business, increasing trust from international partners and investors.
In Cyprus, AML compliance is based on EU Directives on combating money laundering, which are implemented into national laws and regulations. The Central Bank of Cyprus supervises banks and credit institutions. The Cyprus Securities and Exchange Commission regulates and oversees investment firms, fund management companies, as well as platforms providing financial services.
Subjects subject to compliance with AML requirements
Banks and credit organisations. All banks operating in Cyprus are required to implement and maintain AML programmes, which include KYC policy, transaction monitoring, and regular reporting to the Central Bank. Credit unions and institutions fall under the same AML principles.
Investment firms. This category includes CySEC-licensed and regulated brokers, dealers, and other organisations engaged in securities trading. AIFM management companies are responsible for implementing and complying with AML policies in alternative funds, are obliged to verify unit holders, and submit STR reports upon identifying suspicious transactions and signs of money laundering.
Financial and payment institutions. Payment systems, electronic money providers, and other organisations processing electronic payments work in close cooperation with banks and are obliged to comply with AML/CTF rules. Additionally, when entering into leasing transactions, companies are required to identify clients and monitor suspicious operations.
Insurance companies. They are obliged to conduct client checks and identify ultimate beneficial owners, especially when entering into long-term insurance policies or transactions involving large sums.
Legal and accounting firms. When participating in real estate transactions, creating companies or trusts, as well as in financial operations, lawyers and legal consultants are obliged to verify the sources of funds and report suspicious transactions. Accountants and auditors who provide services in capital management, tax consulting, and preparation of financial statements are also subject to AML requirements.
Trust providers. Corporate administrators handle company registration, provide addresses and nominee directors, and offer services for managing corporate structures. All these operations are potentially exposed to money laundering risks, which is why AML policies are mandatory. Trust companies conduct fiduciary management of assets, and therefore they are required to identify beneficial owners and monitor the targeted use of assets.
Real estate agencies. When conducting transactions involving large sums related to the purchase or sale of property, realtors are obliged to verify their clients and sources of funds. Development companies may also come under AML (Anti-Money Laundering) control if they implement large-scale projects implying significant financial flows.
Requirements for compliance with AML rules
KYC (Know Your Customer) is a set of measures for identifying and verifying clients, aimed at determining their identity, sources of income, and purposes of interaction with the organisation.
Key aspects of KYC in Cyprus:
- Collection of client data: personal information, identity documents (passport, ID), legal documents (founding papers, shareholder registers, etc.);
- Definition of beneficial owners: identifying the actual individuals who control the company or are the ultimate beneficiaries.
- Verification of the origin of funds: assessment of the legality of capital sources to identify potential risks.
Such an approach allows the company to prevent involvement in money laundering transactions, reduce the risk of dealing with a client who may be on sanctions lists or have a criminal background.
In Cyprus, as in all EU countries, the principle of Risk-Based Approach applies, according to which each organisation must independently determine the level of its AML risks and develop procedures to minimise them.
Key steps:
- Definition of risks: analysis of geographical coverage, types of clients (individuals, legal entities, PEP, etc.), range of services (investments, transfers, loans, etc.);
- Development of internal procedures: creating clear rules for employees, documenting standard forms and templates (questionnaires, checklists);
- Setting limits and red flags: identifying operational and financial indicators pointing to increased risks;
- Regular monitoring and updating of policies: in accordance with changes in legislation, industry standards, or the specifics of the company’s activities.
Organisations subject to Cyprus AML legislation are obliged to identify and promptly report suspicious transactions to the relevant authorities (e.g., MOKAS — the Cypriot Financial Intelligence Unit).
How does it work? Employees analyse transactions and client activity for compliance with usual business practices. If there are signs of money laundering or terrorism financing, employees prepare an STR (Suspicious Transaction Report). The report is submitted without notifying the client to avoid provoking the transfer of funds to other channels or the destruction of evidence.
AML requirements stipulate that companies must invest in the continuous professional development of their staff, especially those who directly interact with clients or process financial transactions. Among the possible training formats, seminars and workshops, internal courses and training sessions, online programmes and webinars should be highlighted.
Fines for non-compliance with requirements
Violation of AML/CFT requirements can lead not only to serious financial sanctions but also to reputational and legal consequences.
When violations are identified, CySEC may impose administrative fines, and in critical cases, revoke the licence. The Central Bank of Cyprus supervises banks and payment institutions and is also entitled to apply financial sanctions and restrictions.
Large administrative fines are also possible. The amounts can reach hundreds of thousands of euros, and in the case of repeat offences, even multi-million figures. In addition to the fine itself, the company incurs expenses for legal support, revision of compliance procedures, and potential legal proceedings.
The presence of administrative investigations or fines negatively affects the company’s reputation. Banks, investment funds, and other financial organisations may refuse to cooperate with a company tarnished by non-compliance with AML. As a result, there is a potential loss of clients and profits.
Another possible consequence is the suspension of the company’s activities or the revocation of its licence. By decision of the court or regulator, operations on bank accounts may be temporarily restricted if there are suspicions of illegal activities or serious AML violations.
The company will not be able to conduct operations on stock exchanges, provide brokerage services, or manage clients’ assets due to the market access blockage. For an investment company, fund, or payment institution, the loss of a licence effectively means the end of legal activity.
AML in Northern Cyprus
The territory of Northern Cyprus is not recognised by the international community as an independent state. Therefore, the legal regime in the field of combating money laundering here differs significantly from the jurisdiction of the Republic of Cyprus, which is part of the EU.
The TRNC is recognised only by Turkey, while the rest of the world continues to regard Northern Cyprus as part of the Republic of Cyprus. This means that European directives formally do not apply in this territory, and access to international financial institutions is complicated.
Despite the fact that TRNC formally has its own legislation, in the field of financial control, the influence of Turkish regulations is noticeable. Due to its unrecognised status, financial and banking organisations operating in Northern Cyprus are outside direct integration with the global system. This creates additional difficulties for companies and investors wishing to conduct legal activities in compliance with international AML standards.
The Cyprus Securities and Exchange Commission (CySEC) does not extend its influence to Northern Cyprus. Financial and investment companies cannot obtain EU-recognised licences and are also not subject to passporting within the single European market.
The banking system of Northern Cyprus is not integrated into SEPA and other international payment networks. This complicates transactions outside Turkey and may attract increased attention from foreign banks when dealing with counterparts from TRNC.
Strengthening of rules and control in the AML (Anti-Money Laundering) sphere in Northern Cyprus
Recently, there has been a trend in Northern Cyprus towards tightening regulations and strengthening control in the area of combating money laundering and financing of terrorism. Although this region is not recognised by the international community except for Turkey, local regulators and financial institutions are striving to increase transparency and stability to build trust and attract international capital.
Being closely connected with Turkey, which has itself intensified efforts to comply with FATF standards, Northern Cyprus is gradually adapting its AML norms and practices to Turkish and international ones. This is reflected in the development of stricter Know Your Client policies, transaction monitoring, and the implementation of global risk management standards.
Main directions of AML tightening:
- Increased requirements for KYC. Local banks and financial organisations have strengthened procedures for client identity verification, checks of beneficial owners, and the origin of funds. Priority is given to enhanced monitoring of high-risk clients: politically exposed persons (PEP), non-residents of countries with insufficiently transparent regulation, etc.
- Enhanced monitoring of transactions. Financial institutions are required to closely track suspicious operations and increased volumes of money transfers. Unified databases and reporting systems are being created for information exchange between banks and regulators.
- Strict accountability and sanctions. Local regulators and specialised anti-money laundering bodies are expanding their powers to conduct inspections and impose fines for non-compliance with AML standards.
Services for AML compliance that we offer
For financial organisations, investment funds, consultants, and other service-providing entities, it is important not only to comply with legislation but also to build a reputation as a reliable and transparent partner. Our legal company offers comprehensive services for AML compliance, helping clients effectively manage risks, reduce the likelihood of fines or reputational losses.
Audits and AML assessments
To identify gaps and weaknesses in existing procedures, regulations, and internal controls, we conduct audits and AML assessments. Our team offers a comprehensive AML audit, which involves an in-depth review of current AML/KYC procedures and company activities, risk assessment by products, client base, geographical coverage, and sales channels, as well as the preparation of a detailed report with findings and recommendations.
After a comprehensive analysis of the company’s vulnerability level to money laundering, our specialists will provide recommendations for improving and optimising the current regulations.
Thanks to a deep understanding of Cypriot and European legislation, we will help to promptly identify and eliminate risks before regulatory inspections, improve the efficiency of internal procedures, and enhance trust from investors and partners.
Development of policies and procedures
Our specialists will develop an AML/CTF system for your company that will comply with legislative requirements and the specifics of your business. We will create regulations and step-by-step instructions reflecting the requirements of Cyprus and EU legislation, taking into account the specifics of your business activities.
Moreover, our company also provides services for upgrading existing documentation in accordance with the latest EU directives, local regulations, and CySEC practices. We optimise client identification procedures and transaction monitoring.
Continuous compliance support
To ensure long-term compliance with AML/CFT requirements in the context of constantly changing legislation and market realities, we offer regular audit checks, which include continuous monitoring of legislative changes, annual and unscheduled inspections of internal procedures to identify potential non-compliance.
Our specialists are also ready to conduct seminars and practical sessions for involved AML employees. We provide consultations during the implementation of new products or entry into new markets, support during inspections by CySEC and other regulators, preparation of explanatory letters and documentation workflow.
Contact us right now for an initial consultation and the development of an effective AML compliance policy. Submit a request on our website or call the specified number, and we will offer a personalised solution that meets all the requirements of Cyprus and EU legislation.
