Registration of a Cyprus Investment Firm (CIF)
Cyprus, due to its attractive tax regime, coupled with its EU Member status, its implementation of the Markets in Financial Instruments Directive (MiFid), and regulatory regime has proved the perfect jurisdiction for the incorporation and operation of FX companies.
The setting up of a Forex company is more complex than the setting up of a usual company as it is then classed as a Cypriot Investment Firm and must comply with the laws regulating such activities as well as the Cyprus Company Law.
The first step must be the incorporation of a normal company and after this an application must be made for obtaining a Licence, supervised by the Cyprus Securities and Exchange Commission (CySec).
“Despite minimum levels of initial capital as set out by EU regulations from time to time, the CySEC’s consideration of a particular applicant’s plan/information submitted will more accurately determine the funds/capital to be initially made available for each specific case. Founders of CIFs should be prepared early on with available liquid investment of at least the minimum initial capital prescribed by applicable regulation from time to time, plus a minimum of first year budget for the setup and start of the CIF.”
The client will have to provide us with further details as to the type of activities that the proposed company will be carrying out so that we can advise him as to the minimum share capital requirements. For example, the most basic Forex Company is one which offers investment advice and reception and order transmission and does not handle the clients' money. For this type of company, an up-front share capital of €50,000 will be required. However, if the clients wish to set up a Forex company which will handle the clients' money and which will offer trades through its own forex trading platform, a share capital of €125,000 will be required.
Furthermore, it will be necessary to have a business plan, an operations manual and the completion and submission of all the necessary forms and documents that need to be submitted to the CySec and other Cypriot authorities. It takes approximately 2-4 months from commencing the procedure until the issuing of the licence which will allow the company to operate.
Under the laws of Cyprus, the relevant Authorities are under an obligation to reply to the application within a period of 6 months.
Changes in the regime for Forex Companies in Cyprus
Since 2009, this form of trading and such activities requires a license. Also required is a real presence in Cyprus in terms of staff, premises, equipment, internal controls, compliance function and fit and proper management.
New Conditions and requirements for a Forex Trading Company License
In June 2009, by way of announcement from the Cyprus Securities and Exchange Commission (Cysec), it was decided that all companies wishing to provide FX trading/investing services need to apply for licensing as a CIF and comply with the minimum capital requirements set out by the Provision of Investment Services law 144(I)/2007.
A company which is granted such a license may provide its services across EU without the need to be licensed again (passporting of license); however, there may be a requirement to be registered in certain countries where the services are provided. This can be achieved by setting up representative offices or fully fledged branches in other EU states.
Key benefits of obtaining a Cyprus Investment Firm (CIF) license
- Passporting - the license granted by CySEC to operate as a CIF, provides the opportunity to the company to offer cross-border investment services or establish a branch in another EEA jurisdiction without the need to obtain any additional licenses
- Tax regime - Cyprus has an attractive tax regime for companies providing investment services and a number of double tax treaties with other jurisdictions
- Relatively low set-up and operational costs - the set-up costs for the company formation and the cost of providing services in Cyprus can be generally lower than some other EU countries (e.g. office space, staffing, professional services providers, etc)
The application package that needs to be prepared and submitted to CySEC:
In order to obtain a license from CySEC to operate as a Cypriot Investment Firm (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, managerial staff and shareholders with special participation (for example CVs, completed questionnaires as provided by CySEC etc)
- Company legal documents (certificate of incorporation, Memorandum and Articles of Association etc)
- Certificates of the registered office in Cyprus
- Certificates by the Republic of Cyprus confirming the Directors & Secretary of the Company
- Group structure
- Organizational 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 procedures manual for all activities and operations
- Together with the above document bundle, a three year business plan, and the internal procedures manual and anti-money-laundering and know-your-client procedures must be filed with the application.
It takes approximately 1-2 months for the preparation and submission of the application package. Upon submission, CySEC has a period of maximum 6 months to review the application and come back to the company asking for additional information and clarifications. Usually the Company is then given 2-3 weeks to provide CySEC with the required information and given that no additional clarifications will be required by CySEC, the Company will be given a conditional licence. This means that CySEC will give the applicant company a list of conditions/requirements that will have to be fulfilled (such conditions may include the increase of the share capital, change of memorandum, the setting up of an office for the company in Cyprus including employees for the key positions etc).
A licence should be issued around 4-5 months after submission. The time required for such licence to be granted also depends on the workload of CySec.
Conditions for the granting of a license
- Minimum issued share capital (see below)
- Setting-up of a Cypriot company
- Organization adequacy and administrative structure of the company
- Efficiency of the internal control mechanism of the company (to be described in the procedures manual)
- The structure and organization of the company should be designed to minimize the risk of conflict of interest between the client and the company or between the clients
- Proper staffing of the company (actual staff employed not required for the license to be issued) as per submitted organizational chart
- Suitability of the shareholders and directors of the company- minimum requirement is that at least one director who is resident in Cyprus to act as Executive director and who passes the fit and proper test.
- The company has physical office space in Cyprus.
- Cysec must be satisfied that the company has such internal procedures so as to avoid any potential conflict of interest with its clients.
Reporting and Compliance Requirements
Companies licensed as CIFs have ongoing reporting requirements to Cysec, and have to comply with Anti Money Laundering requirements and have a stringent Know Your Client procedure in place.
A Cyprus FX company must have at least one Executive Director, who passes a fit and proper requirement test, who is resident in Cyprus. This means that he must have an investment/financial background, has a respected reputation and has a clean criminal record. The requirement for Cyprus residency is to enable Cysec to correspond and liaise with him especially in as regards reporting as well as for clarifications and spot checks.
Furthermore, the company must have a General Manager, who is non-executive, and has no requirement to be resident in Cyprus. The requirement is that he visits Cyprus on a regular basis to oversee the functions of the company. The role of the General Manager is mainly to oversee the Executive Director and the Board of Directors in general.
Any Cyprus company wishing to conduct the business of FX trading has to apply to be licensed by Cysec.
Our firm may provide legal assistance with the preparation of the application and supporting documents to be submitted for Cyprus Securities and Exchange Commission (CySEC) for obtaining the licence to operate as an Investment Firm, as well as the preparation of the business plan and professional advice throughout the application process as well as during the operation of the company.
Other services may include:
- Acting as a Compliance Officer with regard to legislative matters, fees will be provided upon request, annually on a retainer basis.
- Audit & Tax filing requirements fees depend on the complexity of transactions and can be provided upon request.
- Internal Audit manual & schedule, fees will be provided upon request.
- Internal Audit Reviews, fees will be provided upon request.
- Provision of non-executive Directors, fees will be provided upon request.
- Provision of Executive Directors, fees will be provided upon request.
- Provision of the required by the relevant law physical office space for Forex Companies