In our previous article, we have talked about the main provisions of a CIF. One of the most common inquiries we receive relates to the procedure in order to set-up a CIF, through the Cyprus Security and Exchange Commission (the ‘CySEC’) and the fees payable, accompanied by the CIF application of a new license and the initial contributions to the Investor Compensation Fund (ICF). Let’s look at the process followed as explained by our licensing team:
CIF Application package documents
In order to obtain a license from CySEC and to operate as a CIF, an application package has to be submitted for approval. The documents that are included in the application package are, but not limited to, the following:
- Completed application form as provided by the CySEC.
- Information about the directors, key personnel and shareholders with special participation (for example CVs, completed questionnaires as provided by CySEC, etc.);
- Company legal documents and Registrar Certificates (Certificate of Incorporation, Memorandum, and Articles of Association, etc.).
- Group structure.
- Organisational structure.
- Clean criminal records and Certificates of Good Standing of the shareholders with special participation, the Board of Directors and employees of the company.
- Company’s Internal Operations Manual for all activities and operations.
- Together with the above document package, a three-year business plan and anti-money-laundering and know-your-client procedures must be filed with the application.
In addition to the above the following provisions should be taken into account:
- The Board of Directors of the CIF shall consist of at least two executive members and two independent non-executive members. The majority of the members shall be Cyprus residents.
- The Memorandum of Association of a CIF must state that the firm operates as an investment firm following the provisions of Law 87(I)/2017. Furthermore, it must state that the company offers or performs investment and ancillary services within the scope of its license.
License activation conditions
To activate the license CySEC has in place additional conditions to make sure the firm is fully capable of operating and will allow for a timeframe up-to six months for the firm to set-up. CySEC then will perform inspections and interviews to activate your license. The activation requirements are:
- Establish fully operational offices in Cyprus.
- Have in place policies and procedures to be in compliance with the applicable laws and regulations (i.e., follow the Internal Operations Manual and the AML Manual);
- Have key personnel in place and provide evidence of their knowledge and expertise as well as to hold the CySEC’s required certificate to perform their duties for the departments required under the law.
- Pay the amount required to the Investor’s Compensation Fund (“ICF”) of CySEC, which is a non-redeemable amount.
Capital Categories of CIF licenses
Holds Client Funds
The above plus:
CySEC’s application charges and annual fees
CySEC’s application charges:
- €7000 with the submission of the CIF’s application.
- €3500 with the submission of an application for the license extension.
Depending on the license type and the license extension, charges may vary.
CySEC’s annual fees (euro)
- a) A fixed charge from €5000 to €10,000 depending on which services are provided
- b) A charge depending on the turnover, provided that the turnover exceeds €500.000, as below:
- 0.75% – between €500.001 – €1.000.000
- 0.1875% – between €1.000.001 – €5.000.000
- 0.1125% – between €5.000.001 – €10.000.000
- 0.0975% – if exceeding €10.000.001.
The above is calculated based on the annual audited financial statements.
CIFs that provide services in relation to CFDs shall pay an additional €3.000.
Initial contribution payable to the ICF
The legal framework of the investor compensation fund (ICF) was upgraded in March 2019, introducing many changes including on the initial contribution payable to the ICF.
The initial contribution is changing, and the following applies to CIFs;
- €2.000 per investment service,
- €35.000 for the safekeeping ancillary service.
Changes concerning the initial contribution are;
- The new applicant members of the ICF must pay the initial contribution for their registration to the ICF, once they receive (and not before) the written direction on the final steps for authorization from CySEC.
- The initial contribution (excluding the costs of the transaction) is returned to the applicant only if the application is rejected by CySEC and in light of any new information.
- The initial contribution made to the ICF will not be returned after the member renounces its license.
* For the members that entered the ICF prior the issuance of the directive in March 2019, the funds will be kept under the members account and the unutilized balance will be returned upon the member renouncing its license and after resolving of any pending claims.
The time frame of the CIF licensing procedure
Based on our experience, the application package preparation usually takes up to 2 months; however, if the client provides us with the necessary documents in a timely manner the process can be a lot faster.
Upon submission of the application and examination, CySEC usually reverts with clarification questions. If necessary, requests additional documents designating a timeframe within which to reply. When CySEC is satisfied with the overall information, the application is considered completed and successfully submitted.
Following the successful application, the Laws stipulates that the CySEC must revert within three months from the date of the application. However, the three months begin to lapse once and if the application is complete. In other words, if the CySEC reverts with follow up questions, the timeframe will start counting only after they are fully satisfied with the answers.
For this reason, the usual position in practice is that the timeframe for the licence approval is approximately 6-9 months and will largely depend on the approval of the ultimate beneficial owner(s) of the entity.
How can CX Financia can help?
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 licensing.
- 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 advisory team can act as your guide and offer consultation to all of the steps of the licensing process. 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]