BASIC REQUIREMENTS TO SET UP A CYPRUS INVESTMENT FIRM

Cypriot investment firms (CIFs) provide investment services on a professional basis inside or outside Cyprus.  A CIF cannot offer professional investment services without being licenced by Cyprus Securities and Exchange Commission (CySEC). Generally, CySEC authorises and supervises investment firms and activities in Cyprus based on the provisions of Law 144 (I)/2007.  In order to obtain authorisation, the investment firm needs to provide all the necessary information to CySEC and comply with the provisions of Law 144 (I)/2007 regarding capital requirement, the establishment of branches, directors and shareholders, a.o.

A CIF authorised by CySEC is allowed to provide investment services in all EU member states either directly or by establishing a branch as the authorisation is valid in all EU member states.  The authorisation outlines the services and activities the CIF is allowed to provide. It should be clarified that no authorisation will be provided merely for the provision of ancillary services. Furthermore, a CIF cannot offer any services or undertake any activities beyond its authorisation. Among the primary obligations of CySEC is to maintain and updated all CIF authorisations in a register that is accessible to the public.  Find more information about CySEC operations and duties in our article “Regulations of Investment Services in Cyprus”.

Capital Requirements:

In order to obtain an authorisation a CIF need to have a minimum level of capital requirements as outlined below:

Directors and Shareholders

The directors of a CIF must be individuals of good reputation and sufficiently experienced so that to guarantee the accurate and prudent management of the CIF. CySEC may refuse to authorise a CIF in one of the following cases:

• If CySEC considers, that the directors are not of sufficiently good reputation or experience.
• If CySEC considers, that the directors may pose a threat to CIF’s accurate and prudent management.

Note that at least two members of the management of a CIF must be classed as directors.

Before the authorisation of CIF, CySEC must be informed of the identity and the amount of each of the (in)direct shareholders with a qualifying holding[1], regardless if they are natural or legal persons. If the shareholders are legal persons, then the identity of their managers and the names of ultimate physical shareholders need to be provided. CySEC may reject the application if it considers one or more qualifying shareholders unsuitable.

Memorandum of Association:

The Memorandum of Association of a CIF must state that the firm operates as an investment firm following the provisions of Law 144 (I)/ 2007.  Furthermore, the Memorandum of Association must state that the company offers or performs investment and ancillary services within the scope of its licence.

Organisational Requirements:

Following the provisions of Law 144 (I)/2007 a CIF is obliged to:

• Establish adequate policies and procedures to comply with its legal obligations, and the appropriate regulations governing personal transactions, of its managers, employees, tied agents and other relevant persons.
• Maintain and operate effective organisational and administrative arrangements to avoid conflicts of interest that influence clients’ interests.
• Ensure continuity and regularity in the performance of services and activities, by establishing proper and proportional systems, resources and procedures.
• Ensure avoidance of undue additional operational risk when outsourcing functions to other parties.
• Ensure that governance arrangement is in place, including clearly organised structures with transparent and consistent lines of responsibility.
• Have adequate administration and accounting procedures, internal control processes, risk assessment procedures and effective control mechanisms.
• Maintain records of all services and transactions based on Cyprus and EU legal requirements.
• Implement proper client identification procedures in line with the Prevention and Suppression of Money Laundering Activities Law and relevant European directives.
• Make adequate arrangements to ensure clients’ ownership rights when holding cash or financial instruments belonging to customers, particularly in case of insolvency of the CIF, and prevent the use of these customers’ funds and investments for its own account.

Branches:

A CIF may establish a branch in the Republic of Cyprus and offer its services given that the services it provides are covered by its licence. Moreover, a CIF may provide investment and ancillary services in another country as long as it is covered by its authorisation. Note that ancillary services can be provided only in combination with investment services.  In order to establish a branch in Cyprus, a CIF should inform CySEC through a written notification. CySEC will decide to authorise or not the establishment of the branch within three months after the receipt of the written notification.

In addition, an investment firm authorised and supervised by the competent authorities of another country may offer its services in Cyprus by establishing a branch. Specifically, if an investment firm from another country wishes to launch a branch in Cyprus, then the equivalent foreign regulator should send the following information to CySEC: address, the person who is responsible for management, organisational structure and description of investment firm’s operations. Nevertheless, CySEC may require additional information from the foreign regulator.  CySEC will authorise a foreign investment firm to launch a branch in Cyprus as long as it complies with the relevant regulations. Note that the branch of a foreign investment firm is subject to the same regulations as a branch of a CIF.

Our services:

Setting up a CIF requires an adequate legal support. The lawyers of Michael Chambers & Co. LLC may assist you with all the necessary legal and administrative procedures. If you wish to speak to one of our lawyers, then please contact us: info@chambers.law

Author: Michael Chambers, Founding Partner of Michael Chambers & Co. LLC