In the Republic of Cyprus (in accordance with EU law) only certain persons and companies are permitted to undertake investment services and activities (for a full list of such regulated activities please refer to the end of this article)[i] and such entities are tightly regulated in order to ensure high standards and full consumer protection. The Cyprus Securities and Exchange Commission (“CySEC”) is the body responsible for the issuing of licenses and for overseeing the operation of such entities.
The primary legislation governing the regulation of Investment Firms in Cyprus is Law 114 (I)/2007 which provides for the provision of investment services, the exercise of investment activities, the operation of regulated markets and other activities. However, this field of law is also heavily influenced by applicable European Directives and ongoing directives and circulars issued by CySEC itself.
The fundamental tenet of the regulations is that only certain persons are permitted to provide investment services and activities in Cyprus and these will be (i) those Cypriot investment firms authorised by CySEC, (ii) Member State investment firms (through establishment of a branch), (iii) third country investment firms (through authorised establishment of a branch), (iv) banks (authorised by the Central Bank or equivalent competent authority of another Member State) and (v) Cooperative Credit Institutions (authorised by the ASDCS or equivalent competent authority of another Member State).
Criminal sanctions can be brought against any person providing unauthorised investment services and a company which is not authorised is strictly forbidden from using any wording in its name which suggests authorisation (“CIF”, “investment services” or
“broker” for example).
A Cypriot Investment Firm (“CIF”) needs to obtain the authorisation of CySEC and this will be granted when CySEC is fully satisfied that the company is established in the Republic of Cyprus and that it complies with all of the legal requirements. The CIF authorisation will then be valid throughout all European Member States through the establishment of a branch there or through free provision of services/performance of activities. CySEC maintains a public register listing all of the authorised entities and their authorised employees undertaking regulated activities.
Certain matters need to be addressed upon incorporation of the investment firm. For example, the CIF will need to comply with
minimum initial capital conditions (which are set according to the type of investment firm activity undertaken) and will need to stipulate in its memorandum that it is operating as a Cypriot Investment Firm. In order to qualify as a CIF the company must also have its head office in Republic of Cyprus.
Other obligations to be fulfilled by a CIF in order to gain the operational license are ongoing, for example the persons who
are directing the business must be of good repute and sufficiently experienced in order to ensure sound management of the entity and the firm must maintain membership of the Investor Compensation Fund. Moreover organisational requirements must be maintained and all policies and procedures of the company must accord with the governing regulations in order to ensure complete legal compliance.
In order to obtain a license, a full application (which requires complete details of the potential CIF, including full business plan, organisational structure and internal regulations for the company) must be submitted to CySEC together with confirmation that the capital requirements will be fulfilled. Further into the application, CySEC will request that initial capital requirements are moved into a blocked account for the purpose of the firm. A decision as to whether to grant or reject an application will be made by CySEC within six months of receiving the completed application.
Once licensed, a CIF remains under regulation by CySEC and must undergo regular internal reviews and takes steps to avoid conflicts of interests. The business of a CIF must be undertaken honestly, professionally and fairly and always in the best interests of the client.
Michael Chambers and Co. LLC are experts in the law of investment firms and can assist clients with incorporating a CIF as well as establishing a branch of an existing investment firm in Cyprus. We are also able to help with the ongoing compliance aspects of investment firms. If you wish to speak to one of our lawyers, then please contact us.
[i] Regulated investment
services and activities are as follows:
- Reception
and transmission of orders in relation to one or more financial instruments; - Execution
of orders on behalf of clients; - Dealing on
own account; - Portfolio
management; - Investment
advice; - Underwriting
of financial instruments and/or placing of financial instruments on a firm
commitment basis; - Placing of
financial instruments without a firm commitment basis; and - Operation
of Multilateral Trading Facility.
