What are the basic requirements for establishing a Cyprus Investment Firm (CIF)?

August 23, 2022

A Cyprus Investment Firm (CIF) is considered any legal entity offering professional investment services established in the Republic of Cyprus and licensed by the Cyprus Securities and Exchange Commission (CySEC).

Over the past two decades, Cyprus has developed as a hub for investment firms with an ever-growing number of licensed entities under CySEC’s supervision. To meet the stringent regulations set by CySEC, an entity must meet basic requirements and operational standards, which will be discussed throughout this article.

What is a CIF?

What are the investment and ancillary services supervised by CySEC?

What are the financial instruments supervised by CySEC?

What are the requirements for establishing a CIF?

The process of setting up a CIF

What about Crypto-Asset Service Providers (CASPs)?

How can we help you establish an investment firm in Cyprus?

What is a CIF?

A Cyprus Investment Firm (CIF) is licensed and supervised by the Cyprus Securities and Exchange Commission (CySEC) under Law 87(I)/2017, which provides for the provision of investment services, and the exercise of investment activities, and the operation of regulated markets. This is the national transposition of Directive 2014/65/EU of the European Parliament and of the Council on markets in financial instruments (MiFID II). Depending on its license, a CIF can offer forex trading, portfolio management, brokerage services, investment advice, and other investment services.

What are the investment and ancillary services supervised by CySEC?

Without a doubt, CIFsprovide a valuable structure for providing and performing investment services and activities in Cyprus or abroad. These investment services need to be authorised and regulated by CySEC, in addition to the European Union (EU) legislation.

Investment services

A CIF must apply for at least one of the below investment services:

  1. Reception and transmission of orders in relation to one or more financial instruments
  2. Execution of orders on behalf of clients
  3. Dealing on own account
  4. Portfolio management
  5. Provision of investment advice.
  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. Operation of Multilateral Trading Facility (MTF)
  9. Operation of an Organised Trading Facility (OTF)

Ancillary services

In addition to the above, a CIF may also apply for the following non-core ancillary services and activities:

  1. Safekeeping and administration of financial instruments
  2. Safe custody services
  3. Granting credits or loans to an investor for transaction purposes
  4. Advice on capital structure, industrial strategy and related matters
  5. Foreign exchange services
  6. Investment research and financial analysis
  7. Services related to underwriting.

What are the financial instruments supervised by CySEC?

Financial instruments

  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.

What are the requirements for establishing a CIF?

The attractive tax regime, the strategic location, and the highly skilled workforce make Cyprus an attractive location for setting up an investment firm. Let’s look at the basic requirements to establish a CIF in Cyprus.

Initial capital requirements

The initial capital that a CIF is required to maintain to obtain and operate a CySEC authorisation is the following:

Capital Requirement Holds Client Funds Licensed Activities
€75,000 No 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

€150,000 Yes 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

€750,000 Yes The above plus:

1.    Dealing on own account

2.    Underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis

3.    Placing of financial instruments without a firm commitment basis

4.    Operating a Multilateral Trading Facility

5.    Operation of an Organised Trading Facility

 

Board of Directors and Management

CySEC states that a CIF must have at least two executive and independent non-executive directors.

Directors have to comply with CySEC’s requirements and must prove knowledge, experience, and integrity to ensure professional and prudent management of the company.

Although there are no restrictions on appointing foreign nationals as directors, the decisions affecting the management and control of the CIF must be taken in Cyprus.

Head Office and Organisation

The head office of the CIF must be located in the Republic of Cyprus, and the majority of the board must also be Cyprus residents.

The CIF must comply with a number of organisational provisions at all times, such as taking reasonable steps to ensure continuity in the performance of investment services and arranging for records to be kept for all services provided and transactions undertaken.

If you require further information about a CIF’s licensing process, speak to one of our advisors today. Our team at CX Financia is always ready to support you in finding solutions for your business needs.

The process of setting up a CIF

Setting up a CIF requires the formation of a company and the acquisition of a license under CySEC.Let’s look at the steps for registering a company and setting up a CIF.

 Step 1: Registration of the firm’s name

Step 2: Incorporation of the firm

Step 3: Registration to the local authorities, including Value Added Tax (VAT), Social Insurance (SI) and Income Tax.

Step 4: Application for a CIF license to CySEC, the regulator of investment firms in Cyprus.

Step 5: Activation of the license by meeting the following requirements.

  • Establish fully operational offices in Cyprus
  • Have in place policies and procedures in order to comply with the applicable laws and regulations
  • Have key personnel in place and provide evidence of their knowledge and expertise as well as license to perform their duties for the departments required under the law

Although the process is simple, the bureaucracy and ever-changing regulatory requirements can make the process complex and multifaceted. That’s why our expert advisors at CX Financia remain by your side to offer tailored advice according to your business plans.

“As services become more sophisticated and the business landscape continues to evolve, we take an integrated approach to CIF licensing in order to deliver the expectations of our clients. Our team provides continuous support and guidance to help you stay compliant with the ever-changing regulatory framework, even after the acquisition of the license.”

Xenia Neophytou, Managing Director of CX Financia

What about Crypto-Asset Service Providers (CASPs)?

A Crypto Asset Service Provider (CASP) is an entity that provides services related to crypto assets. These services include the exchange between crypto assets, trading between crypto assets and fiat currencies, and the management and safekeeping of crypto assets.

CySEC created a registry for Crypto-Asset Service Providers (CASPs) operating in and out of Cyprus. The CASP registration under CySEC concerns a variety of crypto-business models, including but not limited to:

  • Crypto-asset portfolio management
  • Crypto wallet businesses
  • Portfolio management
  • Execution of orders on behalf of clients

To apply for a CASP registration, CySEC requires that a separate entity is incorporated. The AML regulatory framework of the competent authorities aims to mitigate and prevent the risks arising from cryptocurrencies, especially concerning money laundering and terrorist financing. Hence, CASPs are required to adhere to the AML rules and fulfil their financial obligations.

Check out our blog post section to learn more about Crypto-Asset Service Providers and what you need to do to stay compliant.

How can we help you establish an investment firm in Cyprus?

With more than 10 years of experience and extensive know-how in the industry, we help clients plan and structure their investment firms in Cyprus and worldwide.

From company registration to the submission and activation of the license, we provide complete services for your CIF application or purchase of a ready-made license. Our client base includes a diverse range of financial services firms such as Electronic Money Institutions (EMIs), Asset Managers, and Wealth Management companies.

Most importantly, our team at CX Financia, works shoulder to shoulder with you to help you structure your business in order to meet regulatory requirements while achieving cost efficiencies.

Visit our website to find out more about our services or get in touch to book a consultation.

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