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.
The Cyprus Securities and Exchange Commission (CySEC) is the regulator of the investment services and activities conducted in Cyprus. In order to operate as a Cyprus Investment Firm (CIF), authorisation from CySEC is required. The main criteria that need to be satisfied by the firm in order to obtain an authorisation are: (1) the existence of the minimum capital required by law; (2) a minimum of two experienced and reliable executives; (3) possession of the relevant professional competence certificates from the Ministry of Finance of the Republic of Cyprus by departmental heads; (4) obtain a license from CySEC for the provision of the desired investment services; (5) adequate technical and financial resources; (6) adequate IT systems and internal control mechanisms; and (7) adequate structures and mechanisms in order to guarantee the protection of investors’ assets and eliminate any conflict of interest that may arise between the firm or the staff and clients’ interests. In addition, the firm’s head office must be situated in Cyprus and it is prohibited from conducting any other business beyond the services or activities stated in its authorisation, unless (1) their exercise leads to or contributes to the achievement of the provision of all or some of the services or/and the performance of the activities permitted by its authorisation; or (2) it has received the Commission’s permission, which is granted at its absolute discretion, in exceptional circumstances.
The main criteria that need to be satisfied by the Commission to grant an authorisation are:
- As the vehicle for your ICO/IEO project, as coin offerings involving tokens classified as utility tokens in Cyprus are unregulated.
- A Company with the appropriate license may be used for Crypto Exchange Platform or Forex exchange platform projects, providing the passport for the European Union market.
- A Company may be used to launch an STO Security Token Offering fully regulated by Cyprus Security Exchange Commission (CySEC) with no VAT on the Token Sale
- Existence of the minimum capital required by law.
- A minimum of two experienced and reliable executives so that the four eyes principle is satisfied. One of these two executives should be employed by the company on a full-time basis and live in Cyprus. They both should be accessible and available and appear before the Commission with reasonable notice.
- “Experienced and reliable persons” to be appointed as Directors of the CIF are not defined in the law.
- Possession of the relevant professional competence certificates from the Ministry of Finance of the Republic of Cyprus by departmental heads.
- Obtain a license from CySEC for the provision of the desired investment services;
- Adequate technical and financial resources
- Adequate IT systems and internal control mechanisms
- Adequate structures and mechanisms in order to guarantee the protection of investors assets and eliminate any conflict of interest that may arise between the company or the staff and clients’ interests.
- Procedure: In order to apply for CySEC licence, the following documents are needed:
- Fully completed CySEC application form.
- Information documents such as CVs or CySES questionnaires.
- Company’s legal documents, i.e., Articles and Memorandum of Association, Certificate of Incorporation etc.
- Certificates by the Republic of Cyprus confirming the Directors & Secretary of the Company.
- Group structure.
- Organisational structure.
- Clean criminal records and Certificates of Good Standing of the shareholders with special participation, the Board of Directors and employees of the Company.
- Company procedures manual for all activities and operations.
- CySEC has a legal department that deals with various legal issues such as legislation in the securities market, amendments for relevant legislation, issuance of directives, managing cases in courts, offering legal support in internal legal opinions and investigations
- Requirement for CIF authorisation: (Article 5- Page 45)
- The provision of investment services and the performance of investment activities as a regular occupation or business is subject to prior authorisation following this Chapter. In relation to CIFs, such authorisation is granted by the Commission.
- Irrespective of the subsection, market operators of the Republic may operate an MTF or an OTF, subject to the prior verification by the Commission of their compliance with this Chapter.
- The Commission registers all CIFs in a register. The register shall be publicly accessible all contain information on the services or activities for which the CIF is authorised. The Commission updates the register and notifies every authorisation to ESMA.
- Every CIF’s head office must be situated in the Republic.
- A CIF is prohibited from conducting any other business beyond the services or/and activities stated in its authorisation, except if –
- (a) their exercise leads to or contributes to the achievement of the provision of all or some of the services or/and the performance of the activities, permitted authorisation.
- Or (b) it has received the Commission’s permission, which is granted, at its absolute discretion, in exceptional circumstances.
- A physical office with a minimum of 3 local directors is a strict requirement. All appointed directors must demonstrate a solid background in finance. In addition to paid-up capital, all licensed brokers must allocate a certain amount of funds to the Investor Compensation Fund (ICF).
FORMS SUBMITTED:
https://www.cysec.gov.cy/en-GB/legislation/services-markets/epey/
NOTIFICATION FORM:
01. Application for the granting of CIF Authorisation/Extension to the authorisation (Form 87-00-01)
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 of the European Union as well as third countries CySEC has an agreement with.
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 placing financial instruments on 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, consists of various Directives, Laws and Regulations. Therefore, firms applying for Forex Broker Trading and Exchange must comply with complex rules and requirements. 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 its clients.
Our lawyers understand that our services do not stop at the point of obtaining the license but goes beyond that point to running of the firm after the license is granted. 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.
We will assist you in opening a corporate bank account to hold the capital using our broad network of banking partners. The last stage is for us to develop the required license application paperwork, including the business plan and manuals, and to get you ready for any interview questions they might have. Following this, we will submit your application to CySEC and deal with any information requests that may come up later.
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 review of the company’s business plan and corporate group structure.
- Assistance in hiring adequate and knowledgeable staff (key personnel) and providing 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, or any other legal matters under the sun, our law firm, Simon Zenios & Co LLC, is dedicated to providing comprehensive assistance and support and we are always available. Whether you need assistance with the obtaining the license, taxation for CIFs, fees and timeline of Application or require any other legal advice, our firm is here to help.
