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Cyprus Investment Firm – Regulation in Cyprus

Published:
November 10, 2022

The law-based mechanism for the supply of investing services has been set up by Cyprus law 87(I)/2017. As a result, derivatives using cryptocurrencies as their underlying asset are now expressly recognized as financial products and covered by the law. Such an amendment happened after the European Securities and Markets Authority (ESMA) recognized CFDs on cryptocurrencies as fin. products under MiFID II back in 2018 and subsequently authorized and overseen their providers across the EU.

Therefore, CySEC must specifically approve the delivery of offers regarding fin. vehicles like contracts for differences (CFDs), options, and futures with cryptocurrencies as the underlying asset, in and/or from Cyprus. This approval takes the form of a CIF.

The circular was released by CySEC to provide guidance to CIFs that invest in cryptocurrencies and give them assurance that they are abiding by relevant legislation. CIFs must fulfill three conditions to operate within the jurisdiction.

To trade in cryptocurrencies, CIFs must first obtain CySEC approval, and then they must raise enough cash to cover their bitcoin investments. In essence, CIFs are required to establish a capital adequacy ratio. Also, CIFs must properly manage the risks connected with cryptocurrency investments. The first three provisions of the Circular guidance explain how CIFs can accurately determine the capital for cryptocurrency investments. The CySEC specifically advised CIFs to frequently review their risk administration systems and make sure that all risks are properly taken into account. Additionally, CySEC mandated CIFs to reduce operational, cybersecurity, and reputational risks associated with crypto trading.

Cyprus abides by EU laws including the MiFID because it is a member of the EU. As a result, the licensed firm can use the Single Passporting EU right to advertise its services throughout the EU and open branches and representative offices there without having to pay more.

A Cyprus Investment Firm’s Registration

Below are the prerequisites for forming a CIF:

  • Have a local incorporation.
  • 4 directors, 2 of whom must be executives and 2 – non-executives; at least 3 of them must local residents; they must possess appropriate expertise and qualifications and must satisfy the CySEC’s “fit and appropriate” test.
  • To execute the essential duties of the company, full-time resident employees shall be engaged. The company must have a fully functional local office; the number of employees needed will depend on the license chosen.
  • A minimum amount of regulatory capital is also necessary to be authorized to operate by the CIF. This money must be on hand at the start of the operation and maintained throughout the licensed activity.

The capital conditions must be satisfied:

  • CIF license worth €75,000;
  • STP License worth €150,000;
  • Market Maker License worth €750,000.

Applying for a Cyprus Investment Firm (CIF) license

To apply for an authorization, an applicant is obliged to prepare:

  • An enterprise plan.
  • Clear policies and practices that guarantee adherence to all of its legal requirements.
  • An independent compliance unit staffed by qualified individuals.
  • Conflicts of interest must be avoided by careful organization and administration of a CIF.
  • A CIF is obliged to join the Investment Compensation Fund for Clients and comply with its duties;
  • A CIF is required to have a clear risk policy that must be executed and overseen by a distinct risk management unit.

If you are interested in setting up a CIF, please contact our specialists for further consultation.

You can see our current offers in the categories “Cryptocoins and licensing of cryptocurrency operations”, “Ready-made companies”, “Banks for sale” and “Licenses for sale”.

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