The relevant regulatory bodies established in Cyprus for the licensing, supervision and control of legal entities carrying on banking, investment and ancillary services and insurance business are the Central Bank of Cyprus, the Securities and Exchange Commission and the Insurance Companies Control Service of the Ministry of Finance (the Insurance Companies Control Service) respectively.
The Central Bank of Cyprus (CBC) was established in 1963 as an autonomous institution. Its main functions today include the implementation of the European Central Bank's (ECB) monetary policy decisions, holding and managing the official and international reserves, supervising financial institutions, safeguarding the stability of the financial system, promoting, regulating and overseeing the smooth operation of payment and settlement systems, acting as banker for the government, preparing statistical data for the ECB and participating in the international monetary and economic organisations.
The CBC has the sole responsibility for the regulation of financial institutions established or registered in Cyprus, for branches or representative offices of those financial institutions abroad and of representative offices in Cyprus of financial institutions established abroad carrying on banking activities and investment and ancillary services and activities.
The Authority for the Supervision and Development of Cooperative Societies (OCS) was established in 1985 as a public corporate body. Until 2014 it was responsible for regulation and supervision of cooperative credit institutions but this responsibility has now been transferred from the OCS to the CBC. The OCS remains responsible for registration issues and matters relating to prudent management of cooperative companies operating outside the financial sector, as well as the general promotion of cooperative institutions in Cyprus.
The Cyprus Securities and Exchange Commission (CYSEC) was established in 2001 as a public corporate body. CYSEC is responsible for supervision and control of:
- the operation of the stock exchange and other regulated markets that operate in the Republic of Cyprus and the transactions carried out on them;
- the issuers of securities listed on the stock exchange or other regulated markets of the Republic of Cyprus as well as any financial instruments traded therein;
- licensed investment services companies and administrative service providers; and
- collective investment schemes.
CYSEC has powers to grant operating licenses and to inspect companies that have securities listed on the stock exchange, brokers, brokerage firms, investment consultants, administrative service providers and mutual fund management companies, and to impose sanctions and disciplinary penalties.
CYSEC has the sole responsibility for the regulation of the provision of investment and ancillary services in Cyprus in accordance with MiFID I and MiFID II Directives for which a license is required to be granted under existing legislation and for the operation of regulated markets and other related matters.
General capital reserve requirements
In order for a credit institution (bank or cooperative society) to be granted a licence to carry on business in Cyprus it must have own funds of at least 5 million euros as calculated in accordance with EU Regulation 575/2013, as amended. Thereafter, the credit institution is subject to the CBC Directive on calculation of capital requirements as implemented in accordance with the Directives of the ECB.
A Cyprus Investment Firm (CIF) must have own funds equivalent to the minimum requirements set out in EU Regulation 575/2013, as amended by EU Regulation 2019/2033 taking into account the nature of the specific investment services or activities being provided.
Public companies registered in Cyprus must have an authorised share capital of at least 25,629 euros and in the case of public companies listed in a regulated market the authorised share capital must be available when they commence of business.
In the field of securities and banking Cyprus has taken active measures and enacted numerous legislative instruments implementing and harmonising the domestic legal status with applicable European directives and regulations.
Domestic laws and European legislation applicable to Cyprus
In the field of incorporation in Cyprus as a legal person carrying on business
The Companies Law, Cap. 113 of 1951 to 2019 (the Companies Law), sets out the provisions under which any legal entity may be registered in the register of companies in Cyprus either as a private company limited by shares, private company limited by guarantee, public company, public company listed in a regulated market, branch or SE.
The Companies Law has been harmonised with all relevant significant European directives, including:
- First Council Directive 68/151/EEC on coordination of safeguards which, for the protection of the interests of members and others, are required by member states of companies with a view to making such safeguards equivalent throughout the Community;
- Fourth Council Directive 78/660/EEC on the annual accounts of certain types of companies;
- Sixth Council Directive 82/891/EEC concerning the division of public limited liability companies;
- Seventh Council Directive 83/349/EEC on consolidated accounts;
- Eleventh Council Directive 89/666/EEC concerning disclosure requirements in respect of branches opened in a member state by certain types of companies governed by the laws of another state;
- Directive 1999/93/EC on a Community framework for electronic signatures;
- Directive 2003/6/EC on insider dealing and market manipulation (market abuse);
- Directive 2003/51/EC on the annual and consolidated accounts of certain types of companies, banks and other financial institutions and insurance undertakings;
- Directive 2004/25/EC on takeover bids;
- Directive 2004/109/EC on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market;
- Directive 2005/56/EC on cross-border mergers of limited liability companies;
- Council Directive 2006/99/EC;
- Directive 2006/43/EC on statutory audits of annual accounts and consolidated accounts as amended by Directive 2008/30/EC;
- Directive 2006/46/EC on the annual accounts of certain types of companies;
- Directive 2007/36/EC on the exercise of certain rights of shareholders in listed companies;
- Council Regulation (EC) No 2157/2001 on the statute for a European company (SE);
- Directive 2007/63/EC as regards the requirement of an independent expert's report on the occasion of merger or division of public limited liability companies;
- Directive 2009/49/EC as regards certain disclosure requirements for medium-sized companies and the obligation to draw up consolidated accounts;
- Directive 2009/101/EC on coordination of safeguards which, for the protection of the interests of members and third parties, are required by member states of companies with a view to making such safeguards equivalent;
- Directive 2009/102/EC in the area of company law on single-member private limited liability companies;
- Directive 2009/109/EC as regards reporting and documentation in the case of mergers and divisions;
- Directive 2011/35/EU concerning mergers of public limited liability companies;
- Directive 2012/30/EU on coordination of safeguards which, for the protection of the interests of members and others, are required by member states of companies, in respect of the formation of public limited liability companies and the maintenance and alteration of their capital, with a view to making such safeguards equivalent;
- Directive 2013/24/EU adapting certain directives in the field of company law, by reason of the accession of the Republic of Croatia;
- Directive 2013/34/EU on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings;
- Directive 2013/36/EU on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, as amended;
- Directive 2014/95/EU amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups;
- Directive 2014/102/EU adapting Directive 2013/34/EU of the European Parliament and of the Council on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, by reason of the accession of the Republic of Croatia;
- Directive (EU) 2017/1132 of the European Parliament and of the Council relating to certain aspects of company law, as amended.
In the field of securities
The Cyprus Securities and Exchange Commission Law, Law 73(I) of 2009 to 2019 regulates the structure, responsibilities, powers and organisation of CYSEC and other related issues. Relevant EU pieces of legislation have been Regulation (EC) No 1060/2009 on credit rating agencies, as amended, Regulation (EU) No 236/2012 on short selling and certain aspects of credit default swaps, as amended, Regulation (EU) No 648/2012 on OTC derivatives, central counterparties and trade repositories, as amended, Regulation (EU) No 345/2013 on European venture capital funds, as amended, Regulation (EU) No 346/2013 on European social entrepreneurship funds, as amended and Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms, as amended.
The Public Offer and Prospectus Law, Law 114(I) of 2005 to 2019 was enacted to harmonise domestic legislation with Directives 2003/71/EC, 2010/78/EU, 2010/73/EU, 2014/51/EU, and 2013/50/EU.
- European Regulation 2019/979 supplementing Regulation 2017/1129 with regard to regulatory technical standards on key financial information in the summary of a prospectus, the publication and classification of prospectuses, advertisements for securities, supplements to a prospectus, and the notification portal.
- European Regulation 2019/980 supplementing Regulation 2017/1129 as regards the format, content, scrutiny and approval of the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market.
- Regulation (EU) 2017/1129 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market.
- Regulation (EU) 2019/2115 of the European Parliament and of the Council of 27 November 2019 amending Directive 2014/65/EU and Regulations (EU) No 596/2014 and (EU) 2017/1129 as regards the promotion of the use of SME growth markets.
The Establishment and Operation of an Investor Compensation Fund of Clients (ICF) of CIFs Regulations of 2004 were enacted for the purposes of harmonisation with Directive 97/9/EC on investor compensation schemes. These regulations have now been replaced by the Directive DI87-07 of 2019, as amended for the operation and the functions of the ICF as regards its member investment firms and their clients.
The Takeover Bids Law, Law 41(I) of 2007 to 2015, transposes Directive 2004/25/EC on takeover bids and Directive 2014/59/EU into domestic law.
The Transparency Requirements (Securities Admitted to Trading on a Regulated Market) Law, Law 190(I) of 2007 to 2017, transposed into domestic legislation Directive 2004/109/EC on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and Articles 2, 5, 9 and 11 of Commission Directive 2007/14/EC laying down detailed rules for the implementation of certain provisions of Directive 2004/109/EC.
The main legislation in the area of AML is the Prevention and Suppression of Money Laundering Activities Law of 2007-2018 (L188(I)/2007) (the 'AML Law'), which sets out comprehensive measures against money laundering. The AML Law established a Unit for Combating Money Laundering (in Greek, MOKAS) which is responsible for money laundering and terror financing investigations.
Over the ensuing years, the AML Law has undergone amendments to give effect to new international initiatives and standards in the anti-money laundering field. The AML Law is in full conformity with the EU Directives on the prevention of the use of the financial system for the purpose of money laundering, with the Council of Europe's 1990 Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime, and the 40 Recommendations and 9 Special Recommendations of the Financial Action Task Force.
Cyprus's anti-money laundering (AML) legislation criminalizes money laundering from all crimes punishable with imprisonment in excess of one year and requires 'obliged entities' (such as credit institutions, investment firms, and insurance companies as well as lawyers (in respect of financial business) and accountants, real estate agents, and dealers in precious metals and stones) to implement procedures for preventing the use of their services for money laundering.
Persons carrying out relevant business must put in place proper 'know your customer' procedures and maintain appropriate records to identify, investigate, trace, and document suspect transactions. They must institute and maintain adequate systems to identify and report suspect transactions, ensure that their employees are aware of their obligations under the Law, and provide adequate training in this regard. They must appoint an appropriately qualified Money Laundering Compliance Officer to co-ordinate activities in this field and act as liaison point with the authorities.
The CBC is the supervisory authority for banks and persons licenced to provide money transmission services. For accountants and lawyers, the relevant professional bodies are responsible for members' compliance with the AML Law. Investment firms, alternative investment funds and their managers, UCITS and other regulated entities in the securities and capital markets fall within the scope of competent of CYSEC as regards their AML obligations. Finally, professional providers of trust, fiduciary, and company management services are regulated by CySEC under the Law Regulating Companies providing Administrative Services and Related Matters, Law 196(I) of 2012 as amended.
The Cyprus Securities and Cyprus Stock Exchange Laws, Law 14(I) of 1993 to 2017 regulate the operation of the Cyprus Stock Exchange, the powers of the Council of the Cyprus Stock Exchange and trading in transferable securities in general.
The Council of the Cyprus Stock Exchange has issued a number of Regulatory Decisions regarding inter alia the Registration of Members — Organisation and Qualification of Employees of 2010 to 2012, Decisions on the Members' Code of Conduct of 2005, Regulatory Decisions regarding the Stock Exchange's Markets of 2014, a Regulation regarding the conditions, obligations and other related matters concerning market makers of financial instruments against own funds in the markets of the Stock Exchange of 2011.
The Securities and Cyprus Stock Exchange (Central Securities Depository and Central Registry) Laws, Law 27(I) of 1996 to 2019, the Regulatory Decisions of the Council of the Cyprus Stock Exchange on the Operation of a Central Securities Depository and Central Registry of 2006, as amended.
The Cyprus Stock Exchange has also created a Central Registry of Stock Exchange Securities — Investors' Manual by Regulatory Administrative Acts of 2006 to 2010.
Finally, the Cyprus Stock Exchange has created and maintains a register of non-listed securities by virtue of a Regulatory Administrative Act of 2012.
Originally published by Thomson Reuters.
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