Cyprus Investment Firms- Must be Licensed by CySEC

A Cyprus Investment Firm can be set up and licensed in many activities in about four to six months. Cyprus as a destination has lately been offering a one stop shop services for the Cyprus Investment Firms. The European Union, with circa half a billion residents can provide the perfect marketplace for you to establish your client base. More particularly, Cyprus is an ultimate domicile of choice, as it combines competitive costs in comparison to other EU jurisdictions and a favorable tax regime which encompasses forty-five countries through double-tax treaties such as Russia and UK.

Hence if you are providing financial services in the EU such as Portfolio Management, Forex Trading, Investment Advice, Brokerage Services etc. Or if you are in any way involved in managing discretionary accounts or even if you are a Financial Service Provider seeking to enter European Markets then a Cyprus Investment Firm (CIF) can be considered as an ideal dominion for you to provide Financial Services for customers in the EU.
This article serves two main functions. Firstly, to highlight the significance of a Cyprus Investment Firm and how it is formed. Secondly, it attempts to address some of the issues which raise concerns.

The Relative Legislation – Cyprus Investment Firms

The Cyprus Investment Firms Law 144 (I)/2007 provides the legal framework for the provision of investment services, registration, regulation of undertakings and supervision of Cyprus Investment Firms. The CIF Law implements the provisions of the Markets in Financial Instruments Directive (‘MIFID’) into the domestic law. The Markers in Financial Instruments Directive was a novel package of measures which replaced the Investment Services Directive of 1993 in relation to the regulation of markets in financial instruments.
The implementation of this new legal framework along with a favorable tax treatment classifies Cyprus as an attractive place for establishing an investment firm (IF) offering investors one of the most significant advantages a “single passport” to provide investment services across the European Union. Regulation Is Required For the Cyprus Investment Firms. If you need info on how to register a Cyprus company follow this link where you will see a wealth of information: Registration of Cyprus Company.

The primary question that every financial services professional should be asked is this: Is regulation required? Financial Services in Cyprus are regulated by the Cyprus Securities and Exchange Commission (CySEC).
CySEC’s responsibilities are as follows. Firstly, to safeguard the investors and more particularly in retail in contrast to accredited investors. Secondly, and perhaps more important, to enhance the public’s trust in financial markets so that there is a ‘healthy’ cycle going on.

How does CysSEC achieve its duties?

a. By imposing administrative sanctions and disciplinary penalties to brokers, brokerage firms, investment consultants.
b. To supervise and control Licensed Investment Services Companies.
c. To recall these operating licenses for special reasons.
d. To grant operating licenses to investment firms, this comprises investment consultants, brokerage firms and brokers.

CySEC’s Bilateral Agreements

Cysec has established 19 agreements with a number of regulators of other foreign states which result in making Cyprus an ideal domicile of choice. These are:

  1. Hellenic Republic Capital Markets Commission
  2. Australian Securities & Investments Commission
  3. Austrian Securities Authority
  4. Comissao do Mercado de Volares Mobiliarios- Portugal
  5. Chech Securities Commission
  6. Egypt Capital Markets Authority
  7. Hungarian Financial Supervisory Authority
  8. Isle of Man Financial Supervision Commission
  9. Israel Securities Authority
  10. Jersey Financial Supervision Commission
  11. Malta Stock Exchange
  12. Polish Securities and Exchange Commission
  13. Romanian National Securities Commission
  14. Slovak Republic Financial Market Authority
  15. Dubai Financial Services Services Authority
  16. Federal Financial Markets Service of Russia
  17. China Securities Regulatory Commission
  18. Bundesanstalt fur Finanzienstleistungsafsicht (BaFIN)- Germany
  19. China Securities Regulatory Commission

E.R. Team Global Consultants Help with:

Climbing the ladder of a CIF requires experience. Our team provides assistance in conducting a preliminary regulatory review in order to establish whether you should be regulated by a CySEC.

Entities that provide regulated investment services:

Under the provisions of Cyprus Investment Firms Law 144(I)/2007, the following entities only may provide investment services on a professional basis. These are the CFIs, authorized under the Law, banks, member state Investment Firms, cooperative credit institutions and third country Investment Firms through a branch provided that an authorization has been granted by the Securities and Exchange Commission.

Services provided by a Cyprus Investment Firm:

Investment Services:

A. Portfolio Management by the Cyprus investment firm. This denotes managing portfolios in accordance with mandates given by clients on a discretionary client-by-client basis where such portfolios comprise of one or more financial statements.

B. Investment Services. The Provision of personal recommendation to a client, either after his request, or on the initiative of the Cyprus Investment Firm, in relation to one or more transactions related to financial related to financial instruments. For the purpose of this definition, a personal recommendation is one recommended the following. First, it is made to a person in his capacity as a client or potential client, or in his capacity as an agent of a client or a potential client.
Secondly, it is presented as suitable for the client, or is based on a consideration of the circumstances of the client and advises the client to take one of the following steps. To buy, sell, subscribe for, exchange, redeem, hold or underwrite a particular financial instrument. To exercise or not exercise any right conferred by a particular financial instrument to buy, sell, subscribe for, exchange or redeem financial instrument. But it includes a recommendation that is issued exclusively through distribution channels or to the public.

C. Dealing on own account. Trading against proprietary capital leading in the conclusion of transactions in one or more financial instruments. The terms “trade on own account” or “trading on own account” have a similar interpretation.

D. Execution of orders on behalf of clients. The aim of this is to end up forming agreements to buy or sell one or more financial instruments on behalf of clients.

E. Reception and transmission of orders with regards to one or more financial instruments. This covers the reception and transmission of client orders, without the need to obtain information regarding the knowledge and experience of the client. This is required in order to evaluate whether the service or the instrument for the client is suitable.

F. Operation of Multilateral Trading Facility by the Cyprus Investment firms. A multilateral system operated by a Cyprus Investment Firm or market operator, which brings together or assists in bringing together of multiple third- party buying and selling interest in financial instruments in the system and in accordance with its non-discretionary rules.

G. Underwriting of financial instruments and/ or placing of financial instruments on a firm commitment basis.

H. Placing of financial instruments without a firm commitment basis.

Ancillary Services Ancillary Services can be offered by  Cyprus Investment Firms  with the condition, and this should be stressed, that the ancillary services would run in conjunction with an investment service and/ or activity. As a result a license for providing only ancillary services cannot be given.Ancillary Services serve a number of functions which will be demonstrated below:
A. Services related to underwriting.
B. Investment services and activities as well as ancillary services related to the underlying derivatives, where these are connected to the provision of investment or ancillary services.
C. Advice to undertakings on capital structure, industrial strategy and related matters and advice and services relating to mergers and the purchase of undertakings.
D. Safekeeping and administration of financial instruments for the account of clients. This consists of custodianship and services which are related such as cash/ collateral management.
E. Granting credits or loans to an investor to allow him to carry out a transaction in one or more financial instruments, where the firm granting the credit or loan is involved in the transaction.
F. Foreign exchange services where these are connected to the provision of investment services.
G. Operation of Multilateral Trading Facilities (“MTF).

Capital Requirements for the Cyprus Investment Firms

The exchange commission points out the minimum issued and paid up share capital that  Cyprus investment firms should commit to before commencing operations. The required capital for Cyprus investment firms depends on the services that the investment firm in question intends to provide. By implication, according to the decision as to what services will be applying for authorization, it can be measured how much share capital is required. The minimum share capital requirement is intended as a tool for assessing whether the Cyprus Investment Firm has enough own capital to meet obligations.

The initial issued and paid up share capital for Cyprus investment firms required depends on the activities which will be provided.
First, the minimum initial capital for  Cyprus Investment Firms holding client’s assets and providing any of the following is €125.000:

A. Investment Advice.
B. Portfolio Management.
C. Execution of orders on behalf of clients.
D. Reception and transmission of orders.

Second, the minimum initial capital for  Cyprus Investment Firms providing reception and transmission of orders and/or investment advice without handling clients’ assets is €80.000 or €40.000 plus professional indemnity insurance covering all Members States.
Third, the minimum initial capital for a CIF providing and/or conducting any of the following is € 1.000.000:
A. Placing of financial instruments without a firm commitment basis.
B. Underwriting/placing of financial instruments on a firm commitment basis.
C. Operation of MTF.
D. Dealing on own account.

For opening a Cyprus bank account for your Cyprus investment firm our firm can assist you also and open a bank account for you in Cyprus and/or many other countries. For more information on how to open a Cyprus Bank Account follow this link. Your will find there information and advice very useful for opening a bank account in Cyprus.

Auxiliary requirements for granting  Cyprus Investment Firms a license.

Having complied with the share capital requirement, Cyprus Investment Firms head office must be situated in the Republic and must be fully staffed. Any person employed by a CIF to carry out any of the investment services must be a holder of certificate obtained after he has successfully completed the pertaining examination of the Cyprus Ministry of Finance.
Cyprus Investment Firms are bound by the same rules as any other Cyprus company (Cap113). Hence the main provisions are the following:

  1. Corporation tax rate of 12.5% for Cyprus investment firms;
  2. No capital gains tax on disposal of securities;
  3. No tax on dividend income in most cases concerning Cyprus investment firms ;
  4. No withholding tax on payments of dividend, interest and royalties to non-residents.
  5. No capital gains on sale of immovable property held outside Cyprus (or on shares in companies owning such property).

The procedure for granting a CIF authorization for Cyprus investment firms is not complicated. That said, it needs careful handling by an expert. E.R. Team Global Consultants can help you all the way.
In order to obtain a license Cyprus investment firms, the interested party should submit an application to the Securities and Exchange Commission (Commission).

The main documents attached to the application for  Cyprus investment firms license are:

a. A business plan with description of the operations and forecasts.
b. Draft Constitution and Articles of Association. This includes the names of two experienced persons so that the four eyes principle is safeguarded.
c. An operations manual which contains internal procedures for the services to be provided, money laundering procedures, description of the IT system and infrastructure of the company and so on.
d. Excerpt of the criminal record, certificates of non‐ bankruptcy, CVs for all the members of the Board of Directors, executives and shareholders with holdings of 10% or more.
e. Completed questionnaires for the above.
f. A confirmation that the applicant possess or will possess the capital required as its initial capital and that it will undertake to block it in a bank account held by a credit institution or institutions of a member state, when and if the Commission so requests.

How much time does it take for the Commission to reply?

It must be noted that the Commission must, within six months from the submission of a duly completed application for the granting of a Cyprus Investment Firm authorization, reach a decision and inform the applicant for the granting of authorization or the rejection of the application.
During this six month period the Commission may request additional information or clarifications regarding the application submitted.

Estimated Registration Time (for the whole process)

The application process usually takes about 6- 8 months to be completed:

-2 months should be given for preparation and submission of documents to the CySEC.
-CySEC will then review the application and grant license within 6 months.

What factors lead to a successful application for Cyprus Investment Firms?

The main criteria that need to be satisfied by the Commission in order to grand an authorization are the following.

First, existence of the minimum capital required under the Law Investment Firms.
Second, a minimum of two experienced and reliable executives so that the four eyes principle is satisfied. One of these two executives should be employed by the company on a full-time basis and live in Cyprus. They both should be accessible and available to appear before the Commission with reasonable notice.
Third, “Experienced and reliable persons” to be appointed as Directors of the Cyprus Investment Frm are not defined in the Law.
Fourth, Possession of the relevant professional competence certificates from the Ministry of Finance of the Cyprus Republic by departmental heads.
Fifth, adequate technical and financial resources.
Sixth, Adequate IT systems and internal control mechanisms.
Seventh, Adequate structures and mechanisms in order to guarantee the protection of investors’ assets and eliminate any conflict of interest that may arise between the company or the staff and clients’ interests
Finally, the granting of the authorization by the Commission, the CIF must comply with the ongoing obligations provided by the law and the relevant Commission directives.

E.R. Team Global Consultants from with a wealth of experience from 1979 has vast knowledge and expertise in the preparation of applications for the purpose of obtaining a CIF authorization. To be more precise, we can assist in:
The preparation and monitoring of the application for obtaining Cyprus Investment Firms authorization.

The preparation of the following manuals:

  1. Internal audit manual.
  2. Money laundering procedures.
  3. Internal procedures manual.
  4. Business Plan.
  5. The preparation of an organizational structure that will satisfy the Commission including the outsourcing of non- core functions.

The implementation of the provisions of the MiFID Directive into the domestic law contributes in Cyprus having a reliable playing role in the field of investment activities. This is because MiFID offers investors and businesses a “single passport” to provide services across the EU by establishing an investment firm in Cyprus so the investors are able to receive excellent legal, accounting and banking support and assistance.
A company in Cyprus enjoys the lowest taxation in Europe and at the same time has acquired the European “stamp of respectability”. The recent tax reform has resulted in the creation of a European jurisdiction where advantageous tax planning structures are required.
This has meant that a Cyprus company, with its European directives and the favorable tax environment make the CIF the star player in the world regime of investment services and also a valuable vehicle to the international investor for investment activities within the EU or outside the EU.

Disclaimer

This publication has been prepared as a general guide for information purposes in our website. It is not a substitution for professional advice. One must not rely on it without receiving independent advice based on the particular facts of the case. No responsibility can be accepted by the authors or the publishers for any loss occasioned by acting or retaining from acting on the basis of this publication.

 

 

 

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