The Investment Services and Activities and Regulated Markets Law of 2007 – Law 144(I)/2007 regulates the following:
The Investment Services and Activities and Regulated Markets Law of 2007 – Law 144(I)/2007 regulates the following:
a) The provision of investment and ancillary services, as well as the performance of investment activities on a professional basis in Cyprus. It includes any provision or offer for the provision of investment and ancillary services:
- made from a place outside Cyprus to persons within, or resident or domiciled in Cyprus, provided the above provision or offer reaches such persons when they are within or resident or domiciled in Cyprus or where the relevant transaction is concluded within Cyprus
- which comes from inside Cyprus or from a person within, resident or domiciled in Cyprus, to persons that are within, resident or domiciled in Cyprus or outside Cyprus
- that comes from a person that is within, resident or domiciled in Cyprus and acts or purports to be acting in the capacity of an employee or in another capacity, on behalf of a third-person who is outside Cyprus, to persons that are within, resident or domiciled in the Republic or outside Cyprus.
b) the operation of regulated markets; and
c) other related matters.
The Law defines Investment Firms as companies that operate under licence from the relevant regulatory authorities which in this case is the Cyprus Securities and Exchange Commission providing to third parties investment services and activities. More specifically the law defines:
Investment Firm (I.F.) as a person that operates under an authorisation granted by the competent authority and provides one or more investment services to third parties or/and performs one or more investment activities on a professional basis, and includes a CIF but not a credit institution;
Branch as a place of business other than the head office, which is part of an IF, which has no legal personality and which provides investment services or/and performs investment activities, and which may also perform ancillary services for which the IF has been authorised; all the places of business set up in the same member state by an IF with headquarters in another member state shall be regarded as a single branch.
Investment services and activities
- 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 placing of financial instruments on a firm commitment basis.
- Placing of financial instruments without a firm commitment basis.
- Operation of Multilateral Trading Facility.
Ancillary (non-core) services
- Safekeeping and administration of financial instruments for the account of clients, including custodianship and related services such as cash/collateral management
- Granting of credits or loans to and 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
- 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 with 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
Financial instruments
- Transferable securities (which are negotiable on the capital market)
- Money-market instruments (such as treasury bills, certificates of deposit and commercial papers)
- Units in collective investment undertakings
- Options, futures, swaps, forward rate agreements and any other derivative contracts relating to securities, currencies, interest rates or yields, or other derivatives instruments, financial indices or financial measures which may be settled physically or in cash.
- Options, futures, swaps, forward rate agreements and any other derivative contracts relating to commodities that must be settled in cash or may be settled in cash at the option of one of the parties (otherwise than by reason of a default or other termination event).
- Options, futures, swaps, and any other derivative contract relating to commodities that can be physically settled provided that they are traded on a regulated market or/and an MTF.
- Options, futures, swaps, forwards and any other derivative contracts relating to commodities, that can be physically settled not otherwise mentioned in point above and not being for commercial purposes, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are cleared and settled through recognised clearing houses or are subject to regular margin calls.
- Derivative instruments for the transfer of credit risk.
- Financial contracts for differences (CFDs)
- Options, futures, swaps, forward rate agreements and any other derivative contracts relating to climatic variables, freight rates, emission allowances or inflation rates or other official economic statistics that must be settled in cash or may be settled in cash at the option of one of the parties (otherwise than by reason of a default or other termination event), as well as any other derivative contract relating to assets, rights, obligations, indices and measures not otherwise mentioned above, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are traded on a regulated market or an MTF, are cleared and settled through recognised clearing houses or are subject to regular margin calls.
The persons that are allowed to provide or to purport to provide investment services and/or to perform or to purport to perform investment activities, on a professional basis, in Cyprus are:
a) Cyprus Investment Firms (CIFs) authorised by the Commission
b) Member State IFs, through the establishment of a branch
c) Member State IFs without the establishment of a branch – free provision of services
d) Third country IFs through the establishment of a branch
e) Banks (authorised by the Central Bank or by competent authorities of other member states)
f) Cooperative credit institutions, (authorised by the Authority for the Supervision and Development of Cooperative Societies (ASDCS) Commissioner or by competent authorities of other member states)
In order to obtain a license from the CySEC to operate as a Cypriot Investment Firm (CIF Company) an application package has to be submitted for approval to the CySEC. The documents that constitute the application package include, but are not limited to, the following:
- Completed application form as provided by the CySEC
- Information by the directors, managerial staff and shareholders with special participation (for example CVs, completed questionnaires as provided by the CySEC, etc.)
- Company legal documents (certificate of incorporation, Memorandum and Articles of Association, etc)
- Certificates of the registered office in Cyprus (confirming there is a registered company in the Republic of Cyprus)
- Certificates by the Republic of Cyprus confirming the Directors and Secretary of the company
- Group structure
- Organisational structure
- Clean criminal records and Certificates of Good Standing for the shareholders with special participation, the Board of Directors and employees of the company
- Company procedures manual for all activities and operations
- Two-year business plan
- Financial statements for the past three years
Basic requirements for a CIF License
- Setting-up of a Cypriot company
- Organisational requirements (Article 18 of the Law)
- Share Capital Requirements
- Organisation and management adequacy and administrative structure of the company
- Board of directors- The Board of Directors of a CIF shall consist of at least two executive Directors and two independent non- executive Directors. Members of the board should be of sufficiently good repute and sufficiently experienced as to ensure the sound and prudent management of the CIF. The majority of the Directors of the CIF shall be residents of Cyprus.
- Efficiency of the company’s internal control mechanism (to be described in the procedures manual)
- Company’s structure and organisation designed to minimise the risk of conflict of interest between the client and the company or between the clients
- Proper staffing of the company (actual staff employed not required for the license to be issued) as per submitted organisational chart
- Suitability of the company’s shareholders and directors
- Company’s technical and financial resources
The minimum issued share capital depends on the investment services provided by the company as follows:
- Reception and transmission of orders > €200.000
- Execution of orders > €200.000
- Portfolio Management > €200.000
- Investment Advice > €200.000
- Dealing on Own Account > €1.000.000
- Underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis > €1.000.000
- Placing of financial instruments without a firm commitment basis > €1.000.000
- Operation of Multilateral Trading Facility > €1.000.000
Once the application to obtain a CIF licence is filed, it will be reviewed by CYSEC. Normally CYSEC takes around three months to come back with its comments.
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