Cyprus is now established as a popular destination for setting up companies, as the business world is aware of the several and significant advantages it has, compared to other European and non-European jurisdictions. In addition to being a Common Law jurisdiction, Cyprus is also a Member of the EU. The Regulation of investment firms in Cyprus therefore falls under the auspices of Markets in Financial Instruments Directive 2004/39/EC (known as "MiFID") as subsequently amended by Directive 2014/65/EU, Regulation (EU) No.600/2014 on Markets in Financial Instruments amending Regulation (EU) No.648/2012, as well as all other EU Directives and Regulations, applied and implemented by the European Union.

The European Directive 2014/65/EU amending MiFID to Markets in Financial Instruments Directive II (known as "MiFID II"), was adopted by the European Parliament and the Council on 12 June 2014 and was entered into force on 2 July 2014. MiFID II will be transposed into national law of Member States until July 2016.

MiFID II amends existing provisions on authorisation, conduct of business and organisational requirements for providers of investment services. These rules aim at strengthening the protection of investors, through the introduction of new requirements on product governance, independent investment advice and cross-selling, the extension of existing rules to structured deposits and the improvement of requirements in several areas, including on the responsibility of management bodies, inducements, information and reporting to clients, remuneration of staff and best execution.

It also specifies requirements in relation to the authorisation and the organisational rules applicable to different types of trading venues, among them a specific new type of trading venue, designed to cater specifically for SME issuers, and to providers of market data and other reporting services, as well as the powers to be granted by Member States to national competent authorities, including the sanctions for breaches of the rules.

In addition, MiFID II contains the new regulatory tools intended to improve supervision of commodity derivatives markets.

Of the relevant Cypriot legislations, Law 144(I)/2007 on the Provision of Investment Services, the Exercise of Investment Activities, the Operation of Regulated Markets and Other Related Activities Law, (the "Law") which transposed MiFID I into Cyprus legislation, is of particular importance, along with its subsequent amendments.

Additionally, very important legislation in relation to the Regulation of Cyprus Investment Firms ("CIFs") is Law 118(I)/2007 on the Prevention and Suppression of Money Laundering Activities Law, (the "AML Law").

The relevant Cypriot Authority responsible for approving and regulating CIFs is the Cyprus Securities & Exchange Commission ("CySEC"), through which a license must be obtained prior to operating a CIF in Cyprus. In addition to its regulatory role, the CySEC has rights to inspect, impose fines, amend and suspend licenses.

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.