ARTICLE
14 January 2021

Electronic-Money Institution (EMI) And Payment Institution Licensing In Cyprus

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The licensing Procedure and the operation of E-Money (EMI) and Payment (PI) institutions are currently regulated by the EU Directive 2009/110/EC
Cyprus Finance and Banking

The licensing Procedure and the operation of E-Money (EMI) and Payment (PI) institutions are currently regulated by the EU Directive 2009/110/EC and harmonized in Cyprus by the Electronic Money Law of 2012 AND 2018 which transposed into national law as per the directives of the European Parliament and of the Council. The Regulatory body for the licensing and supervision of EMI's in Cyprus is the Central Bank of Cyprus (CBC).

Fees and Duration

The Central Bank of Cyprus does not currently impose any fees on the submission of the application for a license, however, it has the power to impose fees retrospectively or issue directive determining the fees of future applications. It takes three months from the submission of application for the Central Bank to respond whether the license is given.

Initial Capital Requirements

Payment Institution

A company applying for a license to provide the payment service number 6 (please see Appendix 1), must have an initial capital of at least ?20.000. A company applying for a license to provide payment service number 7, must have an initial capital of at least ?50.000. A company applying for a license to provide the payment services numbers 1 to 5, must have an initial capital of at least ?125.000.

Electronic-Money Institution

A company applying for a license to provide e-money services must have an initial capital of at least ?350.000.

Apart from the amount of initial capital of EUR350.000 an EMI must maintain:

  • Capital requirements for the issue of electronic money shall be equal to 2% of the average value of electronic money in circulation.
  • Capital requirements for the provision of payment services not connected with the issue of electronic money are defined by the Central Bank in one of the following three methods:

METHOD 1

  • The electronic money institutions own funds shall amount to at least 10 % of its fixed overheads of the preceding year.
  • This amount may be adjusted in the event of a material change in an electronic money institution's business since the preceding year.
  • Where an electronic money institution has not completed a full year's business by the date of the calculation, the requirement shall be that its own funds amount to at least 10 % of the corresponding fixed overheads as projected in its business plan, subject to any adjustments at the request of the Central Bank.

METHOD 2

Where payment volume (PV) represents one twelfth (1/12) of the total amount of payment transactions executed by the electronic money institution in the preceding year:

  • 4,0 % of the slice of PV up to EUR 5 million, plus
  • 2,5 % of the slice of PV above EUR 5 million up to EUR 10 million, plus
  • 1 % of the slice of PV above EUR 10 million up to EUR 100 million, plus
  • 0,5 % of the slice of PV above EUR 100 million up to EUR 250 million, plus
  • 0,25 % of the slice of PV above EUR 250 million
  • The electronic money institution's own funds shall amount to at least the sum of the above elements multiplied by the scaling factor k which is defined as 0,5 , 0,8 or 1 according to the payment services provided.

METHOD 3

The electronic money institution's own funds shall amount to at least the relevant indicator (refer to point a below), multiplied by the multiplication factor (refer to point b below) and by the scaling factor k which is defined as 0,5 , 0,8 or 1 according to the payment services provided.

  1. The relevant indicator is the sum of the following:
  • interest income less interest expenses,
  • commissions and fees received, and
  • other operating income.
  1. The multiplication factor shall be:
  • 10 % of the slice of the relevant indicator up to EUR 2,5 million;
  • 8 % of the slice of the relevant indicator from EUR 2,5 million up to EUR 5 million;
  • 6 % of the slice of the relevant indicator from EUR 5 million up to EUR 25 million;
  • 3 % of the slice of the relevant indicator from EUR 25 million up to 50 million;
  • 1,5 % above EUR 50 million.

Required Documentation/Information for Submission

  1. a program of operations, setting out in particular the issue of electronic money and the type of any possible payment services envisaged
  2. a business plan including a forecast budget calculation for the first three financial years, which demonstrates that the applicant is able to employ the appropriate and proportionate systems, resources and procedures to operate soundly
  3. evidence that the legal person applying for authorisation holds the required initial capital of at least EUR 350.000
  4. a description of the measures taken to safeguard the funds of electronic money users
  5. a description of the applicant's governance arrangements and internal control mechanisms, including administrative, risk management and accounting procedures, which demonstrates that these governance arrangements, control mechanisms and procedures are proportionate, appropriate, sound and adequate
  6. a description of the internal control mechanisms which the applicant has established in order to comply with obligations in relation to the Prevention and Suppression of Money Laundering Activities Laws of 2007 and 2010 on information on the payer accompanying transfers of funds, as amended or replaced
  7. a description of the participation of the applicant in a national or international payment system as well as the intended arrangements for outsourcing of operational activities, the intended use of agents and branches and the intended use of natural or legal persons for the distribution and redemption of electronic money
  8. the identity of the persons that have, directly or indirectly, control of the applicant, including the identity of the natural persons that hold, directly or indirectly, shares or voting rights in one or more legal persons that have control of the applicant, as well as details on the size of the actual participation of these persons and their suitability, taking into account the need to ensure the sound and prudent management of an electronic money institution
  9. the identity of directors and persons responsible for the management of the electronic money institution and, where relevant, persons responsible for the management of the issue of electronic money and the provision of payment services activities, as well as evidence that they are of good repute and possess appropriate knowledge and experience to issue electronic money and perform payment services, and in particular copy of clean criminal record report, no bankruptcy report, description of professional and academic qualifications, managerial or board positions held in other legal persons, previous employments and experience in the issue of electronic money and the provision of payment services Licensing and supervision of Electronic Money Institutions
  10. the identity of statutory auditors
  11. the applicant's legal status and articles of association
  12. the address of the applicant's head office
  13. a draft contract between the electronic money issuer and the electronic money holder and the draft framework contract
  14. the process for filing, monitoring, tracking and restricting access to sensitive payment data
  15. the procedure for monitoring, handling and following up on security incidents and security-related customer complaints and
  16. a security policy document, including a description of the IT systems and a detailed risk assessment of the electronic money institution.

Passporting to the EUROPEAN UNION

In accordance with the amended legislation, any Cypriot PI or EMI wishing to expand business in the EU either under the freedom of establishment or under the freedom to provide services, shall notify its intention to the CBC providing the required information as stipulated by the relevant legislation. On the other hand, PIs /EMIs duly authorised in their home member state and acting though a branch, an agent or free provision of services do not need formal authorisation from CBC as they benefit from EU rule on freedom of provision of services.

APPENDIX 1

Services provided by a Payment Institution (PI)

1. Execution of direct debits, including one-off direct debits.

2. Services enabling cash to be placed on a payments account as well as all the operations required for operating a payment account.

3. Services enabling cash withdrawals from a payment account as well as all the operations required for operating a payment account.

a) Execution of payment transactions, including transfers of funds on a payment account with the user's payment service provider or with another payment service provider:

b) Execution of payment transactions through a payment card or a similar device.

c) Execution of credit transfers, including standing orders.

4. Execution of payment transactions where the funds are covered by a credit line for a payment service user:

a) Execution of direct debits, including one-off direct debits.

b) Execution of payment transactions through a payment card or a similar device.

c) Execution of credit transfers, including standing orders.

5. Issuing and/or acquiring of payment instruments.

6. Money remittance.

7.Payment initiation services

8. Account information services

Services provided by an Electronic Money Institution (EMI)

A company that wishes to issue electronic money will require to apply for an EMI license to the Central Bank of Cyprus. Therefore, with an EMI license, a company shall be able to provide the services provided by licensed PI plus issuing electronic money. Electronic money is defined as a digital equivalent of cash stored on an electronic device or remotely at a server. The scope of the e-money definition excludes prepaid goods/services and a limited network of goods/services subject to an agreement with the issuer. An EMI license is granted only if the applicant company has its incorporated in Cyprus and provides at least part of its e-money services and/or payment services which are not related to the issuing of e-money in Cyprus.

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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