We often get asked whether we have any CIF license for sale. Most of such inquiries are relating to a purchase of an empty shell, i.e., CIF that is already authorised but has not done any business. The nature of such questions and the manner they are asked got us thinking that the market participants or new start-ups are often confused and misinformed when it comes to buying/selling an existing and duly authorised CIF.
With this article, CX Financia wishes to provide relevant guidance in relation to CIF sale/purchase transactions and assist market participants in avoiding costly mistakes.
Furthermore, you will find below a standard checklist that will assist you to conduct due diligence and ensure that you have at least considered the key points related to the acquisition of an authorised entity
Why buy an already licensed CIF?
Usually, what motivates individuals who are interested in buying existing CIFs is time considerations. It is generally considered that buying an already licensed institution allows starting operations faster than applying for authorisation from scratch.
What is the timeframe for the approval of an already licensed CIF?
Regulators approach when it comes to the change of control transactions
If you are looking for an CIF license for sale you need to understand some simple regulatory principles when it comes to the change of ownership transactions:
- Buyer is not permitted to take over ownership of the management of the CIF until the change of ownership permission is granted, unless the directors and senior management, representing the buyer are approved by the regulators as related to the target.
- Change of ownership entails a new business model, programme of operations, and financial model, that must be submitted to the regulators alongside the change of ownership application.
- Change of ownership usually entails a change in products and services, thus a new/updated risk management framework has to be developed.
- Basically, the change of ownership is seen by the regulators as equivalent to the new authorisation.
Due Diligence-what do I need to have in mind?
If you still want to proceed, you should bear in mind that entering into the purchase-sale transaction and closing it without proper due diligence could lead to a negative outcome.
Please consider conducting in-depth due diligence of the acquisition target, with particular focus on the following points:
How can I ensure the regulatory reporting process followed by the Company is accurate, timely and reliable?
- Check carefully all regulatory reports submitted by the company, verify the accuracy of the information provided by inspecting working files of such reports, and verifying customer funds balances and balances on safeguarding bank accounts and the company’s own accounts.
- Check the correctness of the safeguarding reports (internal and external), verify several samples of the daily safeguarding reconciliations, verify directly with the bank remaining balances on the safeguarding bank accounts. Any non-compliance with safeguarding obligations can catch up with the buyer at a later stage.
How can I follow up on current issues raised by the Regulators or Competent Authorities?
- Carefully check all communication between the company and the regulators, as well as competent authorities. Quite often open-ended investigations/complaints are outstanding that could potentially damage the company and the new shareholders.
Current Agreements of the CIF-check any exit clauses?
- Check for current agreements and how a probable acquisition might affect them in the future.
Should I purchase an existing CIF or start the authorisation process from start?
Please note that the above figures do not include VAT
Key takeaways
- The change of ownership process starting from the due diligence and ending with the receipt of permission typically takes around 6 to 8 months.
- It would be better for the newly acquired CIF to commence operations following the approval by the Regulator and not before relevant permissions are granted.
- Entering into the purchase-sale transaction and closing it without proper due diligence could lead to a negative outcome
How we can help
If you still prefer to seek an CIF license for sale, and need any assistance with the due diligence, change of control applications, or new CIF authorisation, CX Financia can assist you with any task, no matter how easy or complex it is. Do not hesitate to contact us at info@cxfinancia.com