In the last few years the Cyprus Regulated Market has grown to the maximum due to the increase of Companies who wish to provide investment and ancillary services. According to the Law 144(I)/2007 the scope of the Law is limited to foreign and local firms that provide, or offer to provide, investment and ancillary services to persons who stay, reside, or are domiciled in Cyprus or where the relevant transaction is concluded within Cyprus or persons that stay, reside, or are domiciled in Cyprus who act on behalf of a third party based outside of Cyprus in providing investment and ancillary services, whether as an employee or in another capacity.
A Cypriot investment Firm (CIF) is a company that is established in Cyprus and authorised by the Cyprus Securities and Exchange Commission (CySEC)[i] to provide one or more investment services to third parties and/or perform one or more investment activities which can be the reception and transmission of orders, execution of orders on behalf of clients, dealing on own account, portfolio management etc.
A CIF is not allowed to provide professional investment services without prior authorisation from CySEC. In order to obtain authorisation, the applicant needs to provide all necessary information to satisfy CySEC and once approved by CySEC the license is valid through all EU member states. A result of that is that the CIF can operate through EU via a branch or directly once approved by CySEC, for the services and activities the CIF is entitled to operate. The register of CySEC is open to the public and it contains the CIF’s name and license number, the registration date, the investment and ancillary services which is authorised to provide and the investment activities which it is authorised to do. A CIF must have a website in order to have its license number and the name of the regulator on the website and all official documents.
The initial capital requirement for granting a license to a CIF depends on the investment services that the CIF offers. There are four different types of CIF (Cypriot Investment Firm) that require different initial capital in order to fulfil the conditions for approval to operate.
(1) 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)
(2) A CIF that does not hold clients’ money or/and clients’ financial instruments, resulting not to put 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 for 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.
(3) A CIF that is also registered to provide insurance services, may have an initial capital as half as the above and if the CIF is covered by professional indemnity insurance covering all member states then the initial capital requirement is twenty thousand euro (€20.000).
(3) A CIF that is dealing on own account, underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis and/or placing of financial instruments without a firm commitment basis and/or operation of multilateral trading facility shall have an initial capital of at least one million euro (€1.000.000).
The Law prescribes a number of organisational requirements. A CIF must:
- Establish adequate policies and procedures to comply with its legal obligations, and the appropriate rules governing personal transactions, of its managers, employees, tied agents and other relevant persons.
- Maintain and operate effective organisational and administrative arrangements to prevent conflicts of interest from adversely affecting clients’ interests.
- Ensure continuity and regularity in performance of services and activities, by employing appropriate and proportionate systems, resources and procedures.
- Ensure avoidance of undue additional operational risk when outsourcing functions to third parties.
- Ensure robust governance arrangements are in place including clearly organised organisational structures with well-defined, transparent and consistent lines of responsibility.
- Have sound administration and accounting procedures, internal control mechanisms, effective risk-assessment procedures, and effective control mechanisms in place.
- Keep records of all services and transactions in line with the Cyprus and EU legal requirements.
- Apply appropriate client identification procedures in line with the Prevention and Suppression of Money Laundering Activities Law and relevant EC directives.
- Make adequate arrangements to safeguard clients’ ownership rights when holding cash or financial instruments belonging to clients, particularly in the event of insolvency of the CIF, and prevent the use of these clients’ funds and investments for its own account.
[i] Cyprus Securities and Exchanges Commission (CySEC) is the supervisory authority of the investment firms and it has the responsibility to establish, maintain and regularly update a public register of all persons acting on behalf of a CIF or an IF of another member state.