Cyprus: Cyprus Investment Firms (CIFS)

Last Updated: 20 June 2014
Article by George Schizas

The Law which provides for the provision of investment services, the exercise of investment activities, the operation of Regulated Markets and other Related Matters (implementing MiFID) Law 144(I)/2007 provides the legal framework for the provision of investment services (including non-core services) as well as for the registration, regulation of operations and supervision of CIFs. Investment services include any of the following services:

  • Reception and transmission, on behalf of investors, of orders
  • Execution of such orders
  • Dealing for own account
  • Managing of investment portfolios
  • Underwriting

Non-core services include any of the following services:

  • Safekeeping services
  • Safe custody services
  • Granting of credits or loans to clients
  • Financial advice
  • Services connected to underwriting
  • Investment advice
  • Foreign-exchange services

CIFs must be licensed by the CySEC, which is the relevant regulatory and supervisory authority. In this respect, a written application to the CySEC must be submitted and accompanied by a number of documents. Some key documents that should accompany the application include:

  • business plan
  • Articles of Association
  • an excerpt of the criminal record, certificates of non-bankruptcy and resumes of the members of the Board of Directors, the executives and shareholders possessing a qualifying holding, as well as their answers to a questionnaire issued by CySEC
  • internal regulations (operations manual)
  • organisational structure
  • description of the computer network and electronic infrastructure
  • draft regulations for the prevention of the legalisation of the proceeds of criminal activities

After the granting of the authorization, the CIF must comply with the ongoing obligations provided in the law and the relevant CySEC Directives.

In case that a banking institution (defined as such under the Banking Law) wishes to provide investment services in Cyprus then a relevant authorization is also granted by the Central Bank of Cyprus provided that the additional criteria laid by the Central Bank of Cyprus are fulfilled.

Requirements for Ancillary services

  • At least €80,000 share capital , or
  • At least €40,000 share capital and professional compensation insurance covering all member states or equal guarantee against professional negligence with an insurance company for the amount of at least €1,000,000 per damage (loss) and collectively at least for the amount of €1 ,500,000 per year for all loss

Requirement for Cyprus Investment Firm

  • At least €1,000,000 share capital

Procedure to obtain license from CySEC:

  • The intention to provide financial services
  • Appropriate shareholders and officers for the proper management of the company
  • Sufficient funds Sufficient organizational structure and mechanisms
  • In case that a banking institution (defined as such under the Banking Law) wishes to provide investment services in Cyprus then a relevant authorization is also granted by the Central Bank of Cyprus provided that the additional criteria laid by the Central Bank of Cyprus are fulfilled.
  • In case that a banking institution (defined as such under the Banking Law) wishes to provide investment services in Cyprus then a relevant authorization is also granted by the Central Bank of Cyprus provided that the additional criteria laid by the Central Bank of Cyprus are fulfilled.
  • Sufficient funds of its own
  • Other qualifications of directors, managers
  • In case that a banking institution (defined as such under the Banking Law) wishes to provide investment services in Cyprus then a relevant authorization is also granted by the Central Bank of Cyprus provided that the additional criteria laid by the Central Bank of Cyprus are fulfilled.

Documents required for application

Governance

  • Organizational structure of the client's group of companies
  • Criminal record excerpt and bank references for the main shareholders of the applicant company and all officials of such shareholders, as well as the persons who will have positions in the structure of the new company
  • Experience and investment services qualifications of each member of the board of directors and managerial staff of the applicant company
  • Relevant questionnaires for the above persons
  • Information on the representatives and independent agents with whom the applicant company will co-operate, and a statement of responsibilities and services to be provided by the representatives or independent agents
  • Information whether the applicant company or any group company has been an administrator or custodian of a mutual fund or collective investment scheme or a member of a legal entity of private or public law engaging in credit, insurance or general financial activities anywhere in the world;
  • Information on any business conducted abroad by the applicant company and the main shareholders
  • The CySEC also requires the employment of Cyprus-based personnel in the positions of non-executive
  • Directors, back officer, money laundering compliance officer and internal auditor, and the employment of Cypriots is looked upon favourably

Corporate details

  • Information on the participation of the applicant company in any Stock Exchange Certificates of Good Standing for the main shareholders of the applicant company, the directors of the main shareholders of the applicant company (if legal persons) and the company applying for a permit
  • General information on the applicant company, the main shareholders, the shareholders of those main shareholders (if legal persons), their officers and the previous and current staff (including questionnaires and CVs)
  • Basic corporate documentation of the applicant company (if in existence) and the main shareholders

Performance

  • Consolidated group accounts of the applicant's group of companies
  • Description of how the applicant company will satisfy capital adequacy and liquidity
  • Composition and projected development of the list of clients and the method of approaching and providing services to them
  • Confirmation that the applicant possesses 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 the Commission so requests

Internal Controls / Resources

  • Regulation plan for the prevention of money laundering by the applicant company
  • Computer system description for the applicant company and description of the monitoring system of the main shareholder of the applicant company and the applicant for the good operation of the management information and all other systems
  • Business plan and plan of operations and procedures for the applicant company
  • Plan of action relating to investments to be conducted by the applicant company
  • Description of audit trail ensuring the adequate and rapid provision of information to the CySEC and how the software system will supply the CySEC with financial information
  • Description of how the applicant company will evaluate and control its representatives
  • Description of back-up systems to restore smooth operation in case of failure of the central system for recording, clearing and account processing, and in case of future considerable increase in the volume of transactions
  • Projected evolution of the applicant company's human, technical and financial resources
  • It is the policy of the CySEC to request that, once the permit is given, the company should open an office in Cyprus within a short period of time for the provision of services. Accordingly, the procedure for finding an office should begin at the early stages of the application so that the details may be presented to the CySEC

Authorisation

  • At the final stage of assessment of the application for the granting of a license, the CySeC shall demand from the applicant the submission of a confirmation by one or more credit institutions of a member state, that the entire initial capital required according to the Law is blocked in a bank account and that it will remain blocked until the permit is granted
  • Other documents as may be requested by the CySeC during the review of the application or after
  • Once all the necessary documents are prepared, an application should be filed with the CySEC
  • A fee of €3,000 plus €300 for each particular service the Company will ask to be approved.
  • The CySeC will usually take around three-six months to issue its final reply on whether a permit is given or denied, provided that all the documents are duly and promptly filed, proper co-operation exists between the clients and the professionals promoting the application, and replies to any further requests from the CySEC are prompt and direct .

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
George Schizas
 
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