Setting up an EMI – Electronic Money Institution
EMI or Electronic Money Institutions (EMIs) are the digital alternative of a bank where the client funds are stored in an ‘electronic wallet’. The funds are considered electronic money stored on a technical device which is widely used for making payments online.
The EMIs operate through an online platform while having the licence to manage transactions and issue debit cards. EMIs’ clients can carry out payment transactions either by using the platform or the issued debit card.
Legal Infrastructure of EMI in Cyprus
E-money services in Cyprus are regulated by the provisions of “The Electronic Money Laws” of 2012 and 2018. These were transposed into national law the EU Directive 2009/110/EC on the prudential supervision of the business of EMIs; and the (EU) 2015/2366 on payment services in the internal market.
The Cyprus lawyers of Michael Chambers & Co. LLC are able to help you with all the procedures needed to properly set up an EMI in Cyprus. Contact us for details.
Any legal person (company) which intends to provide e-money services must receive approval from the Central Bank of Cyprus (CBC). The CBC shall grant authorisation to an institution which has been incorporated and has its head office in the Republic. Licence to an institution can also be granted by any other Member State of the European Union. The authorisation process usually takes place within 3 months of receiving a duly completed application from the applicant institution. The CBC provides an adequate justification in case of a rejection.
It usually grants licences when it’s satisfied that the applicant maintains an adequate organisational framework for its e-money service business. It may request companies to provide letters of recommendation from banks or government authorities demonstrating high rates of return business.
Institutions offering e-money services in Cyprus include:
- Banks licenced either by the CBC or any other competent supervisory authority in the European Union,
- Cooperative credit institutions,
- Institutions providing postal payment services and issuing electronic money by virtue of relevant legislation,
- The European Central Bank and national central banks, when not acting in their capacity as monetary or other public authorities,
- Member states or regional or local authorities, when not acting in their capacity as public authorities,
- Electronic money institutions, holding a valid authorisation to operate by competent supervisory authorities in the EU.
Process Summary
The applicants must complete the Application for authorisation as an electronic money institution – (EMI) and submit it to the CBC. If legal or natural persons wish to hold a shareholding of 10% or more in the share capital of the applicant, they must complete either the Application by a legal person wishing to hold a qualifying holding – (QHL) or the Application by a natural person wishing to hold a qualifying holding – (QHN) respectively.
There is also the Application by a natural person wishing to be appointed as a member of the management body or key function holder (MMB/KFH). The applications must include all the required data and documents.
Legal Persons or Companies interested in setting up an EMI need to follow a licencing process as defined by the Central Bank of Cyprus.
Documents to accompany the application
- Program of operations (including the type of possible payment services)
- Business plan, including a forecast budget calculation for the first 3 financial years (demonstrating that the applicant is able to employ the appropriate systems and resources)
- Evidence that the applicant holds the required initial capital of at least €350,000.00 (three hundred and fifty thousand euros)
- Description of the measures taken to safeguard the funds of e-money users
- Description of governance arrangements and internal control mechanisms (such as administrative, risk management and accounting procedures)
- Description of the internal control mechanisms established to comply with the Prevention and Suppression of Money Laundering Activities Laws of 2007 and 2010
- Description of the applicant’s participation in a national or international payment system (specifying the intended arrangements of outsourcing operational activities, the intended use of agents and branches and the intended use of natural or legal persons for the distribution and redemption of e-money)
- Identities of the persons who have, directly or indirectly, control of the applicant institution
- Evidence of good repute (a clean criminal record report, no bankruptcy report, a description of professional and academic qualifications, managerial or board positions held in other legal persons, previous employment and experience in the issue of e-money and the provision of payment services)
- Identity of statutory auditors
- The applicant’s legal status and articles of association
- The address of the applicant’s head office
- Framework contract between the e-money issuer and the e-money holder
- Process of filing, monitoring, tracking and restricting access to sensitive payment data
- Procedure for monitoring, handling and following up on security incidents and security-related customer complaints
- A security policy document, describing the IT systems and a detailed risk assessment of the EMI
Activities and Services of EMIs
The services may vary from one Electronic Money Institution to another. In general terms, they offer
- provision of payment services;
- operation of payment services;
- granting of credit facilities related to payment services;
- and engaging in commercial activity or business.
Furthermore, they may issue prepaid cards and create e-wallet accounts for a fast and secure flow of funds; offer currency conversion; execute wire payments, such as SWIFT or SEPA; and issue unique IBAN numbers which allow clients to send or receive funds from or to their own legal entities’ name.
The Republic of Cyprus has a favourable jurisdiction for holding and investment services companies, as well as an attractive tax regime. The EU membership and the execution of the EU E-Money Directive by Cyprus allow conducting activities regarding provisions of electronic payment system services throughout the European Union.
Other specified services EMI can offer include:
- Maintain a readily available electronic device in which e-money is stored and distributed;
- Receive monetary value in exchange for the distribution of e-money;
- Sell or resell e-money products;
- Renew the value of an electronic money product already in the hands of an e-money holder;
- Redeem e-money held by a holder;
- Acting in the capacity of an employee or other capacity on behalf of a third party, approach persons who are holders or potential holders of e-money.
Why Cyprus? Setting up an EMI in Cyprus
Setting up an Electronic Money Institution in Cyprus bears many advantages. The Republic has a favourable jurisdiction for holding and investment services companies, as well as an attractive tax regime. There is no need to convert capital in Cyprus since the circulation of any currency is possible. The EU membership and the execution of the EU E-Money Directive by Cyprus allow conducting activities regarding provisions of electronic payment system services throughout the European Union.
There is a certificate for using virtual funds, which accelerates and simplifies the execution of a variety of financial transactions. Operating an EMI, it is also easier to monitor financial turnovers of virtual currency, which have lower tax rates than material resources.
Furthermore, the EMI licence allows for development in the field of creating new instruments for working with interactive money, providing support for clients, grant credits on electronic wallets, etc. Licenced institutions can obtain the monetary equivalent of transactions in e-money, resell products use electronic means of payment.
If you wish to receive more information about the procedures you need to follow in order to set up an Electronic Money Institution in Cyprus and enjoy all the benefits submit your interest here or contact us at info@chambers.law
