The provisions of the Markets in Financial Instruments Directive 2004/39/EC (known as “MiFID”) allow companies providing brokerage and financial services to set up Cyprus Investment Firm (“CIF”) able to carry on its regulated investment business in Russia, EU markets, Asia, Africa and/or other countries. Starting from the moment of application to obtain a license the whole activity of CIF will be under regulation and supervision of Cyprus Securities and Exchange Commission (“CySEC”). The main document that regulates the establishment and operation of CIF is the Cypriot Law 144(1)2007 (with amendments) of 26 October 2007 (“the Law”).
Below we would like to provide you with the detailed information as to various procedures, requirements and benefits relating to CIF.
Benefits of using Cyprus as a set-up base for investment firm
- The tax system of Cyprus is quite stable and attractive for foreign investments, offering the lowest corporate tax rate in Europe of 12.5%. In addition, there is no tax on capital gains.
- There is no exchange control in Cyprus – the island allows to transfer abroad any gains (including capital gains), profits, dividends etc.
- You may establish FX & CFD Brokerage Company in Cyprus provided that such firm has been duly licensed by CySEC. This option includes such benefits as to passport CySEC license in order to open branches and representative offices to provide investment services in any EU country with no obligation to fulfill the capital requirements of local regulating authorities.
- You may engage your CIF into Forex and Binary Options Market as Cyprus is the only EU member state that regulates it.
- The application procedure to obtain CySEC license is moderate in comparison to the existing procedures of other EU countries.
- Cyprus provides for lower licensing and operational costs relating to companies providing investment and financial companies in comparison to the rest of EU countries.
Capital Requirements for CIF
The Law provides for the following minimum capital requirements:
- A CIF that provides one or more of the following investment services and holds clients’ money or/and client’s financial instruments, must have an initial capital of at least two hundred thousand euro (€200,000):
- The reception and transmission of orders in relation to financial instruments;
- the execution of orders on behalf of clients;
- portfolio management;
- provision of investment advice;
- A CIF that provides the investment services stated in subsection (a) or/and (d) above, and does not hold clients’ money or/and clients’ financial instruments, and which for that reason may not at any time place themselves in debt with their clients, may have an initial capital of:
- At least eighty thousand euro (€80,000); or
- at least forty thousand euro (€40,000) and professional indemnity insurance covering all member states or some other comparable guarantee against liability arising from professional negligence, that it enters into with an insurance undertaking, representing an amount of at least one million euro (€1,000,000), per claim, and in aggregate at least one million five hundred thousand euro (€1,500,000) per year for all claims.
- A CIF that provides one or more of the following investment services or/and performs the following investment activities shall have an initial capital of at least one million euro (€1,000,000):
- Dealing on own account;
- Underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis;
- Placing of financial instruments without a firm commitment basis;
- Operation of Multilateral Trading Facility
Requirements to obtain a CySEC license
- ClF should have a minimum capital satisfying the requirements stated above.
- The company should have an operational office in Cyprus.
- The Executive Director of a CIF should be a Cypriot resident that would pass the “fit and proper” test. A person to be employed to this position should have a flawless business reputation, financial and investment experience as well as criminal record.
- CIF should also appoint a General Manager and there is no requirement for him to be a Cypriot resident, though he is obliged to visit Cyprus on a regular basis. His role would be to observe and supervise the Board of Directors and Executive Director. General Manager should not have any executive powers.
- The nature of the activity of CIF should be clearly stated in its Memorandum.
- Shareholders of CIF should also pass the “fit and proper” test provided that they don’t have any criminal records and are experienced enough in order to set up and run such kind of business.
- The company should establish strict internal control procedures including provisions regulating electronic protection of information, client protection, preservation of any kind of conflict of interest with its clients, control over the potential problem areas. CySEC will thoroughly check those internal control procedures in order to verify their suitability.
CySEC Application Procedure
In general, you may need around 1-2 months in order to prepare the application together with supporting documents. Upon submission of the complete application bundle to CySEC, the latter will have up to 6 months from the date of submission to review the documents and respond accordingly. The CySEC may also reject the application therefore we strongly suggest you to verify that the documents along with the application satisfy all the prescribed requirements.
The set of documents to be submitted to CySEC
- The CIF application form (Form 144-03-01)
- Company corporate documentation – Certificate of Incorporation, Certificate of Directors and Secretary, Certificate of Registered Office, Certificate of Shareholders, Memorandum and Articles of the company etc.
- Three-year business plan
- Operational guideline on internal procedures and anti-money laundering provisions
- Manual on KYC procedures
The fees granting of CySEC authorization are 3,000 EUR increased by:
- 1,000 EUR per investment service of paragraph 1, 5 and 7 of Part I, Annex III of the Law;
- 1,500 EUR per investment service of paragraph 2 and 4 of Part I, Annex III of the Law;
- 2,000 EUR per investment service/activity of paragraph 3 and 6 of Part I, Annex III of the Law;
- 10,000 EUR for the investment activity 8 of Part I, Annex III of the Law;
- 500 EUR per ancillary service of Part II of Annex III of the Law.
- Provision of consultation in relation to preparation and drafting of application;
- Structuring of CIF as well as advising on investment services to be provided;
- Drafting Memorandum and Articles of CIF and submitting it to the ROC for a proper registration;
- Advising on three year business plan of CIF;
- Preparation of all documents supporting the application (including drafting of all required internal manuals and guidelines);
- Submission of application to the CySEC;
- Consulting on recruitment of CIF directors and officers (including auditors and compliance officers);
- Acting as external legal advisors for a CIF that has been granted the EU MiFID CySEC license.