Cyprus Investment Firms (CIFs) – All you need to know

Cyprus Investment Firms (CIFs) – All you need to know

February 1, 2022

The financial sector in Cyprus is continuously growing. Our company has been successfully obtaining licences for our clients for the authorisation of Investment Firms (CIFs), Investment Funds (AIFS and AIF Managers) and Electronic Money Institutions (EMIs). We undertake, advise and support with the application process. We fully support them in setting up their business, maintaining it operational and addressing their post-licensing challenges and requirements.

The following article is focused on CIFs, since one of the most common inquiries we receive relates to the procedure in order to set-up aCIF, through the Cyprus Security and Exchange Commission (the ‘CySEC’).

Throughout this article, the CX Financia’steam of expertsprovides a brief introduction necessary to know the main provisions of a CIF.

What is a CIF?

A CIF is licensed and supervised by the CySEC under Law 87(I)/2017 regarding the provision of investment services, the exercise of investment activities and the operation of regulated markets, which is the national transposition of Directive 2014/65/EU of the European Parliament and of the Council on markets in financial instruments (MiFID II).

Once licensed, a CIF is able to freely provide investment services through representative and branch offices across 30 EU and EEA member states via the EU Passporting System for Investment Firms.

If you wish to learn more in relation to the above, CX Financia’s team is always here to help.

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Which investment services is a CIF allowed by CySEC to offer?

Investment firms are regulated by the CySEC under the Investment Services Law and the relevant European Regulation. CySEC provides licenses and supervises the Firms depending on the Investment Services they will provide which are:

  1. Reception and transmission of orders in relation to financial instruments
  2. Execution of orders on behalf of clients
  3. Portfolio management
  4. Provision of investment advice
  5. Dealing on own account
  6. Underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis
  7. Placing of financial instruments without a firm commitment basis
  8. Operating a Multilateral Trading Facility
  9. Operation of an Organized Trading Facility

The ancillary services are:

  1. Safekeeping and administration of financial instruments for the account of clients, including custodianship and related services such as cash/collateral management and excluding maintaining securities accounts at the top tier level
  2. Granting credits or loans to an investor to allow them to carry out a transaction in one or more financial instruments, where the firm granting the credit or loan is involved in the transaction
  3. Advice to undertakings on capital structure, industrial strategy and related matters and advice and services relating to mergers and the purchase of undertakings
  4. Foreign exchange services where these are connected to the provision of investment services
  5. Investment research and financial analysis or other forms of general recommendation relating to transactions in financial instruments
  6. Services related to underwriting
  7. Investment services and activities as well as ancillary services of the type included under Section A or B of Annex 1 related to the underlying of the derivatives included under points (5), (6), (7) and (10) of Section C of MiFID II Directive where these are connected to the provision of investment or ancillary services

 The financial instruments are:

  1. Transferable securities
  2. Money-market instruments
  3. Units in collective investment undertakings
  4. Options, futures, swaps, forward rate agreements and any other derivative contracts relating to securities, currencies, interest rates or yields, or other derivatives instruments, financial indices or financial measures which may be settled physically or in cash
  5. Options, futures, swaps, forward rate agreements and any other derivative contracts relating to commodities that must be settled in cash or may be settled in cash at the option of one of the parties (otherwise than by reason of a default or other termination event)
  6. Options, futures, swaps, and any other derivative contract relating to commodities that can be physically settled provided that they are traded on a regulated market or/and an MTF
  7. Options, futures, swaps, forwards, and any other derivative contracts relating to commodities, that can be physically settled not otherwise mentioned in point 6 and not being for commercial purposes, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are cleared and settled through recognised clearing houses or are subject to regular margin calls
  8. Derivative instruments for the transfer of credit risk
  9. Financial contracts for differences
  10. Options, futures, swaps, forward rate agreements and any other derivative contracts relating to climatic variables, freight rates, emission allowances or inflation rates or other official economic statistics that must be settled in cash or may be settled in cash at the option of one of the parties (otherwise than by reason of a default or other termination event), as well as any other derivative contract relating to assets, rights, obligations, indices and measures not otherwise mentioned in this part, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are traded on a regulated market or an MTF, are cleared and settled through recognised clearing houses or are subject to regular margin calls
  11. Emission allowances consisting of any units recognised for compliance with the requirements of Directive 2003/87/EC.

If you have any questions in relation to the above, CX Financia’s team is always here to help.

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Which categories of CIFs are currently in place and what is their minimum capital?

Since late June 2021, CySEC introduced new capital requirements for all investment firms operating from Cyprus. This regulatory change is known as the Investment Firms Regulation and Investment Firms Directive (IFR & IFD). For a more in-depth look at the regulation, please click here.

The minimum capital required in order to operate a CIF with CySEC license is depended on the investment services and ancillary services the firm apply for within the application, that suit the business model and objectives.

Examples of Investment

  • Brokerages offering access to online trading of financial instruments in the form of Contracts ofDifference (CFD).
  • Asset Managers and Wealth Managers,
  • Portfolio Management and Investment Advisory.

There are two types of online brokerages, both holding clients’ funds:

  1. Straight through processing (STP) brokers: where the broker transmits ALL orders to the market,without the CIF holding any market risk in its books.
  2. Market Maker (MM) broker: the CIF can deal on own account and according to its risk management mandate can hold part or ALL of the market risk arising from clients’ orders.

The applicant entity’s representatives must provide evidence to CySEC of holding the minimum required funds in addition to funds required to support the CIF operations, as per the submitted business plan.

The minimum capital requirement for a CIF depends on the type of services offered:

  1. Full Scope CIFs: Firms which shall hold client’s funds and/or financial instruments and will be licensed for any of the above investment (1-8) services, the minimum initial capital requirement is €750,000.
  2. Limited Activity CIFs: Firms that shall not hold client’s funds and/or financial instruments and will be licensed for service 5 (as above), the minimum initial capital requirement is €750,000.
  3. Limited License CIFs: Firms which may or may not hold client’s funds and/or financial instruments and will be licensed for any services except the services 5 – 6 (as above), the minimum initial capital requirement is €150,000.
  4. Out of Scope CIFs: Firms that shall not hold client’s funds and/or financial instruments and will be licensed for the services 1 – 4 (as above), the minimum initial capital requirement is €75,000.

How can CX Financia help you?

Even though the process is easy to follow and implement, it is highly recommended to seek the help of professional advisers when establishing a CIF, as regulatory requirements can be exhaustive and create time-delays or unexpected costs.

We have an experience in supporting Investment Firms during the licensing process, from authorisation to activation and provide solutions on relevant matters post-authorisation.

Our CIF licensing services include amongst others:

  • Advise on how to structure your business model to meet regulatory requirements, while at the same time achieve cost efficiency for your intended operations in Cyprus.
  • Guidance and advice to deliver the required documents and information for completing your CIF application package to ensure your application material will meet the relevant regulatory requirements before being submitted to CySEC for assessment.
  • Assistance with the preparation and review of all required manuals that have to be part of the application package, including the business plan, internal operations manual, anti-money laundering manual as well as completion of the relevant application forms and checklists.
  • Help with locating qualified executive and non-executive directors, if needed.
  • Opening of a corporate bank account with a local bank for the applicant company to deposit the required initial capital of the applicant.
  • Act as promoters of the application in front of CySEC and undertake to reply to any questions or requests for additional information/clarifications from CySEC during the period the application file will be under evaluation, up to the final decision for the granting of the licence.

We can also assist and support established CIFs with the preparation and promotion of notifications to CySEC for:

  • Extending existing CIF authorizations to include additional investment and/or ancillary services.
  • Establishing branches or appointing Tied Agents abroad, or the offering of services on a cross border basis.
  • Effecting changes to the members of their management board and/or changes to their shareholding structure.

CX Financia’s expert advisers can act as your guide and offer consultation to all of the steps of your choosing. Our network of experts can help you minimize the bureaucracy with ease, allowing you to focus on your core business activities.

Do not hesitate to contact us at [email protected] 

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