Many well-established forex brokers and crypto trading platforms for CFD’s operating in Europe and internationally, are licensed under the Cyprus Securities and Exchange Commission (“CySEC”), which is the regulatory authority in Cyprus for investment firms. Because of CySEC’s strict compliance with the Market in Financial Instruments Directive (“MiFID II”) which established the rules for licensing and supervision of investment firms operating in Europe, Cyprus is considered as a reputable and trusted jurisdiction by investors. In addition, forex brokers licensed in Europe and internationally, have the ability to establish a branch in Cyprus.
The First Steps to Regulation for Crypto Trading Platforms
While the laws and regulations regarding cryptocurrencies are still emerging internationally, the European Securities and Markets Authority (“ESMA”) highlights the necessity for exchange and trading Blockchain platforms which deal with cryptocurrencies qualifying as financial instruments (securities) to obtain a license. It is argued of course that whereas the cryptocurrencies do not qualify as financial instruments under the definition established by MiFID II, the platform requires no regulation. However, it is wise to request from your Legal Advisors an Opinion Letter on the operation of your trading or exchange platform and the regulations applying to it, to avoid any penalties or liabilities in the future.
As a matter of fact, in 2018, the Financial Conduct Authority in answering to a question put forward by TRADE Crypto subject to the Freedom of Information Act confirmed that among the applications they received for investment firms licensing, one of them was submitted by a cryptocurrency exchange for license to operate a Multilateral Trading Platform (MTF) pursuant to MiFID II. Moreover, there are already several blockchain exchange platforms operating as subsidiaries of regulated institutions under MiFID II. The licensing under the MiFID II widens the investment opportunities in Europe and worldwide.
In 2019, CySEC has drafted an Investment-based Crowdfunding Directive under MIFID II that is under wraps. When the Directive is enacted, Cyprus licensed investment firms may apply to CySEC to establish a crowdfunding platform that will bring together business funding interests for investors and project owners. It is specified by CySEC that the Directive is intended to apply to project owners who are small and medium-sized businesses seeking financing from investors either through borrowing from investors (debt instruments) or the issuance of shares in the project (equity).
Licensed Investment Firms in Cyprus (“CIF”)
In Cyprus, a company applying for an investment firm license must be incorporated and maintain offices in Cyprus. It is also required that the company’s Memorandum and Articles of Association state that its sole purpose is the provision of investment services and activities. In addition, it is required that the company’s board of directors consists of two executive and two non-executive directors, the majority being Cyprus residents.
CIF Passporting
The term passporting describes the ability of a CIF licensed under CySEC to provide cross-border investment services to investors in the EU Member- States and the ability to set up EU branches with a simple procedure established by MiFID II.
Investment Services and Activities under the Law
Under of Appendix A Part I of the Law, a company may apply to provide any of the following investment services and activities:
(1) Reception and transmission of orders in relation to one or more financial instruments
(2) Execution of orders on behalf of clients
(3) Dealing on own account
(4) Portfolio management
(5) Provision of investment advice
(6) Underwriting of financial instruments and/or placing financial instruments of a firm commitment basis
(7) Placing of financial instruments without a firm commitment basis
(8) Operation of a Multilateral Trading Facility (MTF)
(9) Operation of an Organised Trading Facility (OTF)
Under Appendix A Part II of the Law, a company may also apply to provide any of the following ancillary services:
-Safekeeping and administration of financial instruments for the account of clients
-Granting credits or loans to an investor to allow him to carry out a transaction in one or more financial instruments, where the firm granting the credit or loan is involved in the transaction
-Provision of advice to undertakings on capital structure, industrial strategy and related matters and advice and services relating to mergers and the purchase of undertakings
-Foreign exchange services where these are connected to the provision of investment services
-Investment research and financial analysis or other forms of general recommendation relating to transactions in financial instruments
-Services related to underwriting
Initial Capital Requirement
Depending on the type of investment services and activities a company is applying for, the following initial capital requirements apply:
(a) A license that allows the CIF to provide all the investment services and activities listed in Appendix A Part I requires an initial capital of at least €730.000. The CIF will also be allowed to hold the client’s funds and/or financial instruments.
(b) A license that allows the CIF to provide the services and activities at points (1), (2) and (4) listed in Appendix A Part I, while holding client’s funds and/or financial instruments, requires an initial capital of at least €125.000.
(c) A license that allows the CIF to provide the services and activities at points (1), (2) and (4) listed in Appendix A Part I, but does not allow holding client’s funds and/or financial instruments, requires an initial capital of at least €50.000 and professional indemnity insurance covering an amount €1,500,000 annually for all Member States and €1,000,000 per claim.
Other Important Requirements
The application for the CIF license must be accompanied by information such as the following:
- The company’s business plan for the next 3 years and internal manual of operations
- The organisational structure of the company or the group of companies, if the applicant company belongs in a group
- Information on the shareholders with a direct or indirect qualified holding in the company
- Information on the director’s reputation and qualifications
Taxation for CIFs
- Corporation tax is applicable on the profits at the rate of 12.5%, one of the lowest in the European Union. Additionally, benefits arise from the fact that there is a full exemption from tax on dividend income, no withholding tax for dividends paid to non-residents and no capital gains tax.
- Value-added tax is applicable to some of the services provided by CIFs and in some cases, it is possible to apply for a return.
Fees and Timeline of Application
Under the Cyprus Law, CySEC is obligated to reply within 6 months from the submission of the application. The fees are paid with the submission of the application. The fees are paid in advance and vary depending on the type of activities and services applied for:
(a) For any of the services listed as 1 to 7 above the fee is €7,000
(b) For the services listed as 8 and 9 above the fee is €25,000
(c) Plus, ancillary services the fee is €500 for each service applied
(d) For algorithmic transactions, the fee is €2,000
(e) Plus €2,500 for any other business activity
(f) Plus €5,000 for investment services related to crypto
(g) To enter the fast-track procedure €25,000 must be paid with the application.
For more information on the fees see the link below:
https://www.cysec.gov.cy/CMSPages/GetFile.aspx?guid=80ccefe0-a712-401c-a857-6edbb3421a7e
Simon Zenios & Co. LLC assists you in obtaining the license from A to Z
Our lawyers and legal consultants understand the complexities forex brokers are faced with when it comes to cryptocurrencies and blockchain trading. At Simon Zenios & Co LLC our lawyers have been closely following the developments in this area and have acquired the specialized legal knowledge in order to be able to advise and assist their clients on regulatory and licensing requirements.
Our team of Security Corporate lawyers will be able to advise and assist you throughout the process which will begin with an introductory call with our team of experts, the point of which is for our team to understand your requirements and objectives. Following this, we can then provide you with a quote for our legal services. If the quote is accepted and you decide to engage our legal services, the next step will be for us to collaborate with your team and come up with a detailed legal services plan.
The legal framework for the licensing and supervision of investment firms in Cyprus consists of various Directives, Laws and Regulations. Therefore, companies applying for Forex Broker license must comply with complex rules and requirements.
We offer all the required Legal Services for licensing including:
Corporate & Accounting Services (Part A)
- Selection of the appropriate license features, corporate structure and initial capital.
- Company name search & application.
- Draft appropriate Memorandum & Articles of Association for preliminary submission for approval by CySEC.
- Introduction to Cyprus resident qualified nominee directors (individuals).
- Nominee Shareholder (corporate or individual shareholder).
- Registered office and arrangements for actual and adequate office premises.
- Company incorporation in compliance with the licensing requirements.
- Drafting of corporate documents and Fiduciary Services.
Preparation of CIF Application to CySEC (Part B)
- Preparation of the Programme of initial Operations about the compliance, internal control and risk management systems of the company.
- Preparation and/or review of the company’s business plan and corporate group structure.
- Assistance in hiring adequate and knowledgeable staff (key personnel) and provision of training programs.
- Advice on the outsourced functions, services and activities and review of relevant contracts.
- Preparation and/or review of the business continuity plans (key personnel).
- Application to become a member of the Investor’s Compensation Fund.
- Arrangement of Professional Indemnity Insurance.
- Preparation of Anti-Money Laundering and Combating Terrorist Financing risk management and procedures manual.
- Advice on any other documents which may be required according to the situation.
- Preparation and submission of the license application with all the accompanying questionnaires and documents.
- Communication with CySEC for all matters relating to the application which may arise after the submission.
Accounting and Audit Services (Part C)
- Tax Registration & Services
- VAT registration & Services
- Internal & Statutory Audit Services
For any queries regarding any aspect of Forex Broker, Crypto/Blockchain Trading and Exchange License in Cyprus for Europe in general, or any other legal matter under the sun, we are always available.
