Cyprus Investment Firms (CIF) under CySEC
The Cyprus Securities and Exchange Commission (CySEC) is the national competent authority responsible for the supervision of all investment services offered in Cyprus. The regulatory framework in the jurisdiction is aligned to the pan-EU regulation, as produced through the Lamfalussy process. Additionally, CySEC may initiate separate, specific regulatory changes, to address or facilitate separate, specific requirements of the investment firms, investment funds, and crypto-businesses it supervises. A noticeable example has been the introduction of the much-anticipated Crypto-Asset Services Providers (CASP) registry regime.
While this article is focused on investment firms, known as Cyprus Investment Firms (CIF), CySEC’s regulatory mission remains to ensure investor protection by all regulated entities, including investment funds, fund managers, crypto-assets services providers and administrative service providers.
Throughout this commentary, the SALVUS Investment Firms Licensing team provides the information necessary to know when it comes to setting up a CIF. In particular:
- What are the investment services, ancillary services and financial instruments supervised by CySEC?
- What about crypto-assets services providers?
- What are the CIF application fees required by CySEC?
- What are the mandatory fees required by the Investor’s Compensation Fund?
- How can we help set up an investment firm in Cyprus?
1. What are the investment services, ancillary services, and financial instruments supervised by CySEC?
Investment firms offer varying business models, and for each line of business, an authorisation of a combination of investment and ancillary services by CySEC will be needed. An additional dimension that is crucial in the authorisation process is the chosen financial instruments, for which these investment and ancillary services relate to.
All these, the investment services, the ancillary services, and the financial instruments, as listed below are defined under the pan-European Markets in Financial Instruments Directive (MiFID II).
The investment services are:
- 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 (MTF)
- Operation of an Organised Trading Facility (OTF)
The ancillary services are:
- Safekeeping and administration of financial instruments for the account of clients, including custodianship and related services such as cash/collateral management and excluding maintaining securities accounts at the top tier level
- Granting credits or loans to an investor to allow them 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 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
- Investment services and activities as well as ancillary services of the type included under Section A or B of Annex 1 related to the underlying of the derivatives included under points (5), (6), (7) and (10) of Section C of MiFID II Directive where these are connected to the provision of investment or ancillary services
The financial instruments are:
- Transferable securities
- Money-market instruments
- 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 6 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
- 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 in this part, 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
- Emission allowances consisting of any units recognised for compliance with the requirements of Directive 2003/87/EC.
The majority of investment firms in Cyprus are online CFD brokerages, wealth and asset managers, investment advisors and portfolio management firms. Thus, most of the CIF offer all or a combination of the investment services from 1 to 5, and similarly the ancillary services from 1 to5. In regard to the financial instruments, 1, 4,5,6 and 9 are the most commonly authorised.
2. What about crypto-asset services providers?
CySEC created a registry for Crypto-Asset Services Providers (CASP) operating in and out of Cyprus. This registry in essence acts as an antechamber for existing and new entrepreneurs interested in being regulated and supervised. The CASP registration under CySEC has defined this new asset class and providers are able to offer a variety of services including but not limited to:
- Crypto-asset portfolio management
- Exchange between crypto-assets and fiat currency
- Exchange between crypto-assets
- Administering, holding, safekeeping of crypto-assets or cryptographic keys
Learn more about Crypto-Asset Services Providers here.
CySEC has chosen to protect Cyprus Investment Firms (CIF) and does not allow for one to apply for a registration and to operate as Crypto-Asset Services Providers. This may change in the future, yet at the moment a separate entity needs to be incorporated to apply for a CASP registration.
3. What are the CIF application fees required by CySEC?
Since late June 2021, CySEC introduced new capital requirements for all investment firms operating from Cyprus. This regulatory change is known as the Investment Firms Regulation and Investment Firms Directive (IFR & IFD). For a more in-depth look at the regulation, please click here.
The investment services applicant must provide evidence to CySEC of holding the minimum required funds in addition to funds required to support the CIF operations, as per the submitted business plan.
Minimum capital required per CIF category:
- 750,000 EUR is required if the investment firm offers underwriting of financial instruments or Dealing on Own Account (investment services No. 3 or 6)
- 150,000 EUR is required if the investment firm does not offer the services mentioned above however, does hold client funds (ancillary service No 1.)
- 75,000 EUR is required if the investment firm does not offer any of the services mentioned above
The following table depicts the relevant fees that an applying investment firm will need to pay to CySEC. These fees are dependent on the investment and ancillary services the applicant aims to provide.
| Investment Services | Application Fees |
|---|---|
| Reception and transmission of orders in relation to one or more financial instruments | €7,000 |
| Execution of orders on behalf of clients | |
| Dealing on own account | |
| Portfolio management | |
| Provision of 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 an MTF | €25,000 |
| Application fee for each ancillary service | €500 |
The following table involves other application fees dependent on the business model of a CIF payable to CySEC.
| Other Applications | Application Fees |
|---|---|
| Application of the provision of Cryptocurrencies or CFDs on Cryptocurrencies | €5,000 |
| Application of registration in the public register of tied agents | €3,000 |
| Application for the establishment of a CIF branch in another EU member state and/or a third country | €3,000 |
4. The Investor Compensation Fund fees
The upgraded ICF framework, as introduced by CySEC in March 2019, refers to the investor compensation fund established, as per the regulator, for “the purpose of the ICF is to secure the claims of covered clients against the ICF members through the payment of compensation”.
Furthermore, all Cyprus Investment Firms must join and contribute to the Investor Compensation Fund (ICF). Since the upgraded ICF framework came into play, the initial contributions a Cyprus Investment Firm is required to pay are the following:
- 2,000 EUR per investment service
- 35,000 EUR for the safekeeping ancillary service
Additionally, since CySEC implemented the changes to the ICF framework the following have been imposed:
- Any new applicant member to the Investor Compensation Fund is required to pay a fee for their registration to the ICF. The applicant is required to pay a fee only after having received written communication by CySEC regarding the final steps for authorization.
- If the application is rejected by CySEC, the initial contribution is reimbursed although the application transaction fees are not.
- If CySEC revoke an ICF member’s license the initial contributions made to the ICF are not repaid, therefore the ICF fee is no longer considered as an Asset of the Company
- Extraordinary contribution is introduced to cover material excessive claims. As per the Directive DI87-07, the ICF members must keep an independently audited and client-segregated minimum cash buffer of 3‰ of their clients’ eligible funds and financial instruments as of the previous year. Additionally, the ICF members shall submit Form 87-07-05 signed by the Board of Directors and the internal auditor, which attests to the fulfilment of the obligation, by the 20th of May each year.
To read more about the ICF annual and additional contribution fees please visit this article.
5. How we can help set up an investment firm in Cyprus
Our Investment Firms Licensing team has a consistent track record of obtaining investment services licenses under CySEC and as such, we possess a unique experience in dealing with a variety of different business models.
Through our project management approach, we assist in a hands-on manner in regard to your investment firm objective, identifying the most suitable investment services combination to be licensed for your unique business needs. We collate the necessary documentation required by CySEC and submit the application on your behalf. Throughout the entire process, we act as the liaison between your investment firm and the Cypriot regulator until your license has been granted. At this stage, our Compliance team takes over and ensures your investment firm remains compliant with CySEC’s regulatory framework, supporting your investment firm post-licensing.
Please contact us at info@salvusfunds.com or call us at +357 7000 7898 if you would like additional information regarding how to set up your investment firm in Cyprus; we remain at your disposal.
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The information provided in this article is for general information purposes only. You should always seek professional advice suitable to your needs.
