CySEC confirms crypto regulation – What it means for Maxigrid and BitandBuy!

CySEC crypto regulation and Maxigrid
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See, CySEC regulates crypto assets. The chairwoman Demetra Kalogerou just signed off Circular C417 providing specific regulatory guidance. What does it mean for the Maxigrid Case in connection with its crypto platform BitandBuy? Maxigrid Ltd is a regulated Cyprus Investment Firm (CIF) and has made its crypto platform – as well as its bank accounts with GlobalNetint – available to scammers and acted as a payment processor for them. The Financial Ombudsman Service of the Republic of Cyprus purported that the CySEC would not regulate crypto assets. Apparently, it does. The CySEC has issued a guideline on how CIFs should deal with crypto.

Maxigrid Case in a nutshell

Maxigrid has operated its crypto-platform BitandBuy under the domains www.bitandbuy.com and https://crypto.maxigrid.com. Both domains were not approved by the CySEC. Via BitandBuy and Maxigrid client-victims of FX and CFD broker scams such as RoyalsFX or LincolnFX made their deposits with the following procedure

  • Purchase Bitcoins (BTC) via BitandBuy using a credit card or bank transfer
  • BTCs were then transferred to the wallets of the scammers
  • Alternatively, some of the scams’ client-victims have made bank wires directly Maxigrid bank accounts at the regulated Lithuanian e-Money Institution GlobalNetint.

Maxigrid Limited is beneficially owned by the Israeli Roy Almagor with Jekaterina Pedosa as the companies director and CEO.

Vanished Crypto Platform

Several victims of the scams facilitated by Maxigrid and its BitandBuy platform have complained to FinTelegram and EFRI and provided the supporting documentation. FinTelegram, too, was set to cc in many emails to Maxigrid and therefore contacted Maxigrid directly. We asked for clarification. The result was that Maxigrid closed the BitandBuy crypto platform down without any further comment. Hard to believe, isn’t it?

CySEC and its crypto asset regulation

CySEC issued guideline for crypto assets

One victim of a scam facilitated by Maxigrid complained to The Financial Ombudsman Service of the Republic of Cyprus and received the reply that CySEC was not responsible for the crypto activities of the regulated CIFs and consequently the Financial Ombudsman wouldn’t be responsible either. FinTelegram has reported about this.

Apparently, the CySEC actually regulates the crypto activities of its CIFs after all. On November 25, 2020, the regulator issued guidance on how CIFs should treat crypto assets “when calculating their own funds and capital adequacy ratio, accordingly.” In its definition of crypto assets, CySEC refers to the EBA report of the European Banking Authority from January 2019.

It is clear from the text of Circular C417 that a crypto regulation has been in place already for regulated CIFs.

Preliminary conclusion

Given CySEC‘s crypto assets regulation, it’s evident the rules also apply to the Maxigrid Case. It means that Maxigrid conducted CySEC-regulated activities with BitandBuy. The Circular explicitly confirms that a regulated CIF may only perform crypto activities with the CySEC permission:

It is provided that CIFs can only transact in crypto assets if they have obtained a permission to provide such services pursuant to article 6(9)(b) of Law 144(I)/2007 or article 5(5) of Law 87(I)/2007.

CySEC Circular C417

According to Maxigrid, it has not received such permission. Hence, the operation of the BitandBuy platform was in itself a violation of CySEC’s regulatory regime.

Finally, it also means that the Financial Ombudsman in Cyprus is responsible for the Maxigrid Case and the answer to the complaining victim was simply wrong. That’s a shame but we will advise the victim to re-complain!

In the meantime, GlobalNetint has terminated the banking relationship with Maxigrid. The CIF’s approach was too extreme even for GlobalNetint, which specializes in the high-risk segment.

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