CySEC will conduct on-site inspections of crypto custodians from H2 2026 through mid-2027, targeting operational security and private key management.
The Cyprus Securities and Exchange Commission will launch on-site visits and desk-based reviews of authorized crypto asset service providers starting in the second half of 2026 through mid-2027.
In a circular issued to regulated firms, CySEC chairperson George Theocharides said the regulator is preparing to audit a representative sample of local crypto entities under the Common Supervisory Action for 2026, coordinated by the European Securities and Markets Authority.
The inspections target firms approved to offer digital asset custody. Regulators will assess operational security and technical infrastructure, with particular attention to risks tied to distributed ledger technology, Theocharides said.
CySEC said the reviews will cover governance and control procedures, key and storage management, and security protocols governing private keys, wallet storage and access controls. Transaction controls, monitoring, incident response, smart contract security and third-party risk management also fall under review.
The initiative aligns CySEC with national competent authorities across the European Union and responds directly to ESMA's risk-based supervisory priorities. EU regulators have identified operational resilience and digital asset custody as high-risk areas, Theocharides noted.
By standardizing on-site visits and desk audits, ESMA and national regulators aim to promote supervisory convergence and uniform security expectations as digital assets integrate further with traditional finance, he said.
CySEC, which issued a consultation paper in late 2025 proposing a new directive on prudential information reporting for crypto asset service providers, warned local firms that the standards outlined in the circular are mandatory. Compliance readiness will serve as the baseline for selecting which CASPs face inspections, the regulator said.
European financial watchdogs have also warned that criminals are exploiting the market transition to steal funds. Fraudsters impersonate official regulators to deceive firms, the circular added.
The initiative comes as European regulators push for tighter oversight of digital asset firms, part of a broader shift in crypto market analysis.
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