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”) highlight 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.
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.
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 on some of the services provided by CIFs and in some cases, it is possible to apply for a return.
Fees and Timeline of Application
The fees are paid with the submission of the application. They vary depending on the type of investment services and activities applied for, the starting price is €7.000.- Under the Cyprus Law, CySEC is obligated to reply within 6 months from the submission of the application.
Simon Zenios & Co. LLC assists you in obtaining the license from a to z
Our lawyers 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 Forex Broker and Exchange 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 and corporate structure.
- Company name search & application.
- Company incorporation in compliance with the licensing requirements.
- Appropriate Memorandum & Articles of Association.
- First minutes and Resolutions.
- Cyprus resident nominee directors (individuals)
- Nominee Shareholder (corporate or individual shareholder).
- Registered office and arrangements for actual office premises for the Firm.
- Drafting of corporate documents.
- Fiduciary Services.
- Assistance in day to day Governance and Administration.
Preparation of CIF Application to CySEC (Part B)
- Preparation and submission of the license application with all the accompanying questionnaires and documents.
- Preparation of group and organizational structure.
- Preparation and/or review of the operations manual and business plan
- Preparation of Know Your Client procedures and Anti-Money Laundering compliance policies
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.