There are many reasons why accessing the European Securities Markets is becoming increasingly attractive. European exchanges in recent years compare favourably with those in the United States in both IPO volume and value terms. Other than providing liquidity and access to a diverse pool of investors, European listings provide companies with the appropriate status for further European and international expansion.
With its entry into the EU in May 2004, Cyprus has become one of the most attractive countries to set up and conduct investment and financial services.
The Investment Firms Law
The Cyprus Investment Firms Law 144(I) 2007-2012 (the “Law”) provides the legal framework for the provision of investment services as well as for the registration, regulation of operations and supervision of Cypriot Investment Firms (CIF).
Under the provision of the Law, the following entities may provide investment services on a professional basis:
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CIF: investment firms operating within Cyprus, excluding credit institutions, provided that the CIF has obtained the appropriate authorization from the Cyprus Securities and Exchange Commission (CySEC)
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credit institutions established in Cyprus: provided that the credit institutions have received an authorization from the Central Bank of Cyprus (CBC) in accordance with the provisions of the Banking Acts 1997 to 2000 for the provision of investment and ancillary services
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investment firms with their registered offices outside Cyprus: whether rendering investment or ancillary services through a branch or operating on a cross border basis without a branch, provided they have been granted a licence from the regulators of an EU member state
Investment services
Investment services include any of the following services:
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reception and transmission of orders in relation to one or more financial instruments
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execution of orders on behalf of clients
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dealing on own account
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portfolio management
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investment advice
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underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis
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placing of financial instruments without a firm commitment basis
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operation of Multilateral Trading Facilities (MTF)
Ancillary services
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safekeeping and administration of financial instruments for the account of client
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granting credits or loans to an investor to allow him to carry out a transaction in one or more financial instrument
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advice to undertakings on capital structure, industrial strategy and related matters
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foreign exchange services where these are connected to the provision of investment services
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investment research and financial analysis
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services related to underwriting
Minimum share capital
An initial capital of at least two hundred thousand euro (€200.000) is required if a CIF provides one or more of the following investment services and holds clients’ money and/or clients’ financial instruments:
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reception and transmission of orders in relation to financial instruments
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execution of orders on behalf of clients
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portfolio management
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provision of investment advice
A CIF that provides investment services as stated above but does not hold clients’ money and/or clients’ financial instruments, and which for that reason may not at any time place themselves in debt with their clients, may have an initial capital of:
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eighty thousand euro (€80.000) or
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forty thousand euro (€40.000) and professional indemnity insurance covering EU member states or some other comparable guarantee against liability arising from professional negligence, that it enters into with an insurance undertaking representing an amount of at least one million euro (€1.000.000)
An initial capital of at least one million euro (€1.000.000) is required if a CIF provides one or more of the following investment services and/or performs the following investment activities:
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dealing on own account
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underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis
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placing of financial instruments without a firm commitment basis
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operation of Multilateral Trading Facility (MTF)
A CIF that is also registered under the Insurance Service Law to provide insurance intermediary services in the insurance sector must comply with the requirements of the Law, and in addition must have an initial capital of:
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forty thousand euro (€40.000) or
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twenty thousand euro (€20.000)and professional indemnity insurance covering EU member states or some other comparable guarantee against liability arising from professional negligence, that it enters into with an insurance undertaking, representing an amount of at least five hundred thousand euro (€500.000)
Procedure for licensing
The business objective of a CIF should be the provision of those investment and ancillary investment services for which it has received a licence by CySEC.
A CIF must be licensed by CySEC, which is the relevant regulatory and supervisory authority. In this respect, a written application to CySEC must be submitted and accompanied by a number of documents including:
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a business plan, which should include a description of the operations, the organizational structure, forecasts for the first two financial years and the names of at least two experienced and reliable persons who shall run the business
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draft Memorandum and Articles of Association such as they are expected to be formulated after the granting of the CIF authorization
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excerpt of the criminal record, certificates of non-bankruptcy and resumes of the members of the board of directors, the executives and shareholders possessing a qualifying holding, as well as their answers to a questionnaire issued by CySEC
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draft internal regulations (Operations Manual) depending on the investment and ancillary services which the company proposes to provide
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description of the applicant’s computer network and electronic infrastructure
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draft regulation in accordance with acceptable practices for the prevention of the legalization of the proceeds of criminal activities
CySEC reserves the right to request the submission, together with the application, of any additional documents not listed above. If the shareholders possessing a qualified holding in the applicant company (10 percent or more) are legal entities, then CySEC will also require the details for all natural persons who are the ultimate beneficial shareholders.
CySEC will reach a decision within 4 months following the submission of a duly completed application, on either granting a CIF authorisation or refusing the application. During this 4 month period CySEC may request additional information or clarifications regarding the application submitted.
CySEC must be satisfied with the paperwork submitted including:
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content of manuals
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due diligence information provided for legal and physical shareholders and personnel
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sufficiency in quantity and quality of the staff to be employed
Practical criteria required
In general, in order to grant a CIF authorisation, CySEC must be satisfied that the applicant company has and maintains throughout its operation:
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the minimum capital required under the Law
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shareholders possessing a qualifying holding or that are otherwise capable of exercising an influence over the management and business strategy, must be fit to ensure the sound and prudent running of the company
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two experienced and reliable persons to manage its business, and that the said persons are capable of fulfilling their duties. One of these two executives should be employed by the company on a full time basis and live in Cyprus. They should both be accessible and available to appear before the Commission with reasonable notice
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adequate technical and financial resources
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appropriate control and safeguarding arrangements for electronic data processing and adequate internal control mechanisms
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reliability, experience, professional skill and professional diligence of the persons who direct its business
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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
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fully-fledged office with established telecommunications and PC networks, staffed with employees on a full time/part time basis as described in the applicant’s organizational chart
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heads of the core services departments must possess relevant professional competence certificates from the Ministry of Finance of Cyprus. A CIF has a 12 month period subsequent to the issue of the license to comply with the above requirement
After the granting of the authorization, a CIF must comply with the on-going obligations provided by the law and the relevant CySEC directives.