Provision of Financial Services in EU Markets using Cyprus as a Base: The Cyprus Investment Firm (CIF)
Introduction
The Cyprus Investment Firms Law 144 (I)/2007 (“the Law”) provides for the provision of investment services, the exercise of investment activities, the operation of regulated markets and other related matters.
Investment services
Investment services include any of the following services:
• Reception and transmission of orders in relation to one or more financial instruments;
• Execution of orders on behalf of clients;
• Dealing on own account;
• Portfolio management;
• Investment advice;
• Underwriting of financial instruments and/or practising of financial instruments on a firm commitment basis;
• Placing of financial instruments without a firm commitment basis;
• Operation of Multilateral Trading Facility.
Ancillary services
• Safekeeping and administration of financial instruments for the account of clients, including custodianship and related services such as cash/collateral management;
• Granting credits or loans to an investor to allow to carry out a transaction in one or more financial instruments, where the firm granting the credit or loan is involved in the transaction;
• Advice to undertakings on capital structure, industrial strategy and related matters and advice and services relating to mergers and the purchase of undertaking;
• 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.
Minimum share capital
A CIF that provides one or more of the following investment services and holds clients’ money and or clients’ financial instruments, must have an initial capital of at least two hundred thousand Euro (€200,000):
• Reception and transmission of orders in relation to financial instruments;
• The execution of orders on behalf of clients;
• Portfolio management;
• Provision of investment advice.
A CIF that provides the investment services stated above and 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:
• At least eighty thousand Euro (€80,000);
• At least forty thousand Euro (€40,000) and professional indemnity insurance covering all 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) per claim, an in aggregate at least one million five hundred thousand Euro (€1,500,000) per year for all claims.
A CIF that provides one or more of the following investment services and or performs the following investment activities shall have an initial capital of at least one million Euro (€1,000,000):
• Dealing on own account;
• Underwriting of financial instruments and or placing of financial instruments on a firm commitment basis;
• Placing of financial instruments without a firm commitment basis;
• Operation of Multilateral Trading Facility.
Procedure for licensing
A CIF must be licensed by Cyprus Securities and Exchange Commission (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 the following:
• A business plan;
• Draft memorandum and articles of association to be submitted at the Registrar of Companies upon receiving the license;
• Draft of internal regulations (Operations Manual);
• Draft of organisational structure of the firm;
• Excerpt of the criminal record, certificates of non-bankruptcy and curriculum vitae of the board of directors and shareholders of the company, including a questionnaire issued by CySEC;
• Computer network description;
• Draft regulation with acceptable practices for the prevention of the legalisation of the proceeds of criminal activities.
CySEC will reach a decision for the granting of the license within approximately 4 months from the date of submission of the application.
Advantages
The following are the main advantages for the establishment of a CIF:
• CIFs are subject to taxation in the same manner as any Cyprus company. Therefore, the favourable Cyprus tax regime, such as the corporation tax rate of 10%, which is the lowest in the EU;
• A CIF can offer its services in any EU member state simply by pass porting its license;
• Setting up a CIF is relatively easier than in most other EU countries;
• Hence, Cyprus can act as a gateway for Investment Firms to the other 26 member states;