Crypto assets moving into mainstream finance, Cyprus regulators say

'Trust key to future of payments'The future of payments will depend on trust, effective supervision and responsible innovation, senior officials from the Cyprus Securities and Exchange Commission (CySEC) and the Central Bank of Cyprus (CBC) said during a conference on cryptocurrencies and digital assets held in Limassol on Tuesday. The conference focused on cryptocurrencies, digital assets and the future of the sector, with both speakers highlighting the growing integration of crypto assets into the financial system and the importance of regulation as markets undergo structural change. CySEC chairman George Theocharides said crypto assets are no longer operating on the margins of financial markets. “They are becoming increasingly integrated into the broader financial ecosystem, interacting with traditional financial instruments, regulated intermediaries and institutional investors,” he said. Theocharides explained that this is not a temporary trend, but rather a structural transformation in the way markets are organised, assets are created and issued, and investors gain exposure to financial products. “Digital assets are increasingly becoming integrated into traditional channels of financial intermediation rather than operating outside them,” he said. He added that these developments have also created significant supervisory challenges. “From a regulatory perspective, the objective is not to replace existing systems but to ensure that new technologies operate according to the same fundamental principles of financial regulation,” Theocharides said. He described the European Union’s Markets in Crypto-Assets Regulation (MiCA) as a landmark in international financial regulation because it establishes, for the first time, a comprehensive and harmonised framework governing the issuance of crypto assets and the provision of related services across a major economic area. Theocharides said MiCA is already providing greater legal certainty, reducing regulatory fragmentation between EU member states and creating a stronger foundation for supervisory convergence. He added that the regulation also represents a clear policy choice that innovation in digital finance should develop within a regulated environment that prioritises market integrity, financial stability and investor protection. Moreover, Theocharides stressed that regulation and supervision should remain technology-neutral, focusing on risks, outcomes and conduct rather than the technologies themselves. He also said regulatory frameworks must be robust enough to protect investors and preserve market integrity, while remaining flexible enough to encourage innovation and competition. In addition, he underlined the importance of supervisory convergence and international cooperation. Theocharides said Cyprus is well placed to act as a bridge between traditional financial services and emerging digital finance because of its position within both the European Union and the eurozone’s financial architecture. He pointed out that Cyprus has developed a strong and credible regulatory framework for investment services, fund management and capital markets over recent decades, fully aligned with European standards. At the same time, he said the country has steadily expanded its involvement in financial innovation, including developments in fintech, digital assets and new market infrastructure. “The role of the Cyprus Securities and Exchange Commission is to ensure that this evolution takes place within a framework that protects investor confidence, promotes market integrity and supports the sustainable development of the financial sector,” Theocharides said. “The challenge is to ensure that innovation serves the real economy, strengthens financial stability and reinforces confidence in capital markets,” he added. Speaking at the same event, CBC executive board member George Karatzias said digital money is no longer a theoretical concept but has become part of the architecture of the financial system. He stated that innovation in money requires effective oversight and argued that Europe must ensure the future of payments remains firmly rooted in public trust. Karatzias explained that the Eurosystem is seeking to build a sovereign and integrated European digital assets ecosystem centred on central bank money. He said the objective is to create a balanced environment in which public and private forms of money coexist, each contributing to a more efficient, resilient and competitive European financial system. Turning to stablecoins, Karatzias said they are increasingly being used as a bridge between traditional finance and cryptocurrency markets. However, he warned that their growing importance also increases the need for regulation. “Scale brings responsibility, and responsibility requires supervision,” Karatzias said. He added that, from a supervisory perspective, the key question is why a stablecoin should be regarded as sufficiently trustworthy to maintain its stability during periods of market stress. Karatzias said Europe has addressed these challenges through MiCA by establishing a comprehensive regulatory framework covering licensing, transparency, disclosure requirements, supervision, market integrity and consumer protection. “The European philosophy is one of regulated innovation,” he said. “If stablecoins perform a monetary function, they must meet standards of resilience, transparency and accountability comparable to those expected of money itself,” he added. Karatzias also observed that the global stablecoin market remains overwhelmingly denominated in foreign currencies, while euro-denominated stablecoins continue to play only a limited role. “For Europe, this raises issues of currency substitution, dependence on external infrastructure and monetary sovereignty,” he said. He added that properly regulated euro-denominated stablecoins could become an important component of a broader European financial architecture built on trusted public money. According to Karatzias, the transformation of payments and financial market infrastructure is precisely why Europe has chosen to respond by building the legal, supervisory and institutional foundations needed for responsible innovation. He also outlined the latest developments regarding the digital euro, explaining that it is being designed to work seamlessly alongside commercial bank accounts. Karatzias said the digital euro is intended to provide a pan-European retail payment solution that reduces dependence on non-European payment providers while strengthening Europe’s resilience and strategic autonomy. He added that the European Central Bank (ECB) plans to launch a 12-month pilot programme during the second half of 2027 to test a beta version of the digital euro. The pilot is expected to include real-life use cases such as payments in shops and transfers between private individuals. Finally, Karatzias said the ECB is expected to provide further clarity soon regarding the possible participation of Cypriot market entities that have already expressed interest in joining the pilot programme.