Setting Up a Cyprus Investment Firm (CIF) – Establishment and Licensing Process

Cyprus has established itself as a hub for investment firms within the European Union (EU) due to its favorable regulatory environment, attractive tax regime, and strategic location. The establishment of a Cyprus Investment Firm (CIF) offers companies the opportunity to provide a wide range of investment services within the framework of EU regulations, benefiting from Cyprus’ competitive business environment.

At Fiduciara, we provide comprehensive support for the setup and licensing of Cyprus Investment Firms, ensuring compliance with all legal and regulatory requirements under the supervision of the Cyprus Securities and Exchange Commission (CySEC). Below is a detailed guide on the steps required to establish a CIF and the associated regulatory requirements.

Establishment of a Cyprus Investment Firm (CIF)

In order to provide investment services in Cyprus, a company must obtain a license from CySEC and be classified as a Cyprus Investment Firm (CIF), according to the provisions of Law 87(I)/2017, commonly known as the Investment Services and Activities and Regulated Markets Law. The law is aligned with the EU Markets in Financial Instruments Directive (MiFID II), ensuring that CIFs can operate across the EU.

Investment Services Offered by a CIF

To operate as a CIF, a company can offer the following investment services:

  1. Reception and transmission of orders related to one or more financial instruments.
  2. Execution of orders on behalf of clients.
  3. Dealing on own account.
  4. Portfolio management.
  5. Investment advice.
  6. Underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis.
  7. Placing of financial instruments without a firm commitment basis.
  8. Operation of a multilateral trading facility (MTF).

In addition to the core investment services, a CIF may also offer one or more of the following ancillary services:

Ancillary Services

  • Safekeeping and administration of financial instruments, including custodianship and related services such as cash/collateral management.
  • Granting credits or loans to investors to enable transactions in financial instruments, provided the firm granting the credit is involved in the transaction.
  • Advising businesses on capital structure, industrial strategy, and mergers.
  • Foreign exchange services connected to the provision of investment services.
  • Investment research and financial analysis or general recommendations related to transactions in financial instruments.
  • Services related to underwriting.
  • Investment services related to derivative contracts.

Financial Instruments Covered

The law defines the following types of financial instruments that can be managed by a CIF:

  1. Transferable securities (e.g., shares, bonds).
  2. Money-market instruments.
  3. Units in collective investment undertakings.
  4. Derivatives: options, futures, swaps, forward rate agreements, and other contracts relating to securities, currencies, interest rates, and commodities.
  5. Credit risk transfer instruments and financial contracts for differences (CFDs).
  6. Other derivative contracts linked to climatic variables, freight rates, inflation rates, and other economic indicators.

Capital Requirements for CIFs

The initial capital required to set up a CIF depends on the nature of the investment services the firm will provide:

  • €200,000: Required for providing services such as order execution, portfolio management, investment advice, and reception and transmission of orders.
  • €1,000,000: Required for firms providing dealing on own account, underwriting, or operating a multilateral trading facility (MTF).

The capital must be blocked in a bank account held with a credit institution in Cyprus or another EU member state, subject to CySEC’s approval.

Organizational Requirements for CIFs

A CIF must meet strict organizational and operational standards to ensure compliance with CySEC regulations. Key organizational requirements include:

  • Internal Controls: CIFs must establish a documented organizational structure with clear reporting lines and decision-making procedures to allocate responsibilities efficiently.
  • Risk Management Policies: CIFs must implement effective risk management policies to identify, monitor, and manage risks related to their activities.
  • Conflict of Interest Management: CIFs must have mechanisms in place to prevent conflicts of interest from negatively impacting clients.
  • Adequate Staffing: The firm must employ qualified personnel, including two executive directors (one of whom must be a Cyprus resident), and three non-executive directors. The heads of investment services, such as portfolio management, must be registered with CySEC and have relevant experience.
  • Internal Audit and Compliance: A compliance officer and an internal auditor must be appointed to ensure adherence to CySEC regulations. Compliance reports must be submitted to senior management annually.
  • Accounting and Reporting: CIFs must establish robust accounting policies to enable the submission of financial reports to CySEC.

Outsourcing of Certain Functions

CIFs may outsource the following functions to third parties, subject to CySEC approval:

  • Accounting.
  • Information Technology (IT).
  • Human Resources (HR).
  • Compliance and Risk Management, including the appointment of a compliance officer for AML and legislative matters.
  • Internal Audit.

However, certain core functions, such as investment services and management, must remain within the CIF.

Head Office and Compliance

The head office of the CIF must be located in Cyprus, and the firm must have a physical presence in the country, with adequate office space and resources. The firm must also ensure that its operations and systems meet the standards required for regulated investment firms in the EU.

Application Process for CIF Licensing

The application process for obtaining a CIF license from CySEC involves the following key steps:

  1. Preparation of Documents:
    • Business Plan: Detailing the services to be offered, target markets, and operational strategies.
    • Organizational Chart: Outlining the reporting structure and roles within the firm.
    • Internal Policies: Including compliance policies, internal audit procedures, and risk management strategies.
    • Personal Questionnaires: For all directors and key personnel.
    • Memorandum and Articles of Association: The company’s constitution must specify that it operates as a CIF within the scope of the law.
  2. Submission to CySEC: The completed application, along with all supporting documents, must be submitted to CySEC. The standard application fee is €4,000, with additional fees for each investment service requested (€500 for each ancillary service).
  3. Review by CySEC: CySEC will review the application and may request additional information. The review process typically takes between 6 to 12 months depending on the complexity of the application and the promptness of responses.
  4. Approval: Upon approval, CySEC will issue the CIF license, enabling the firm to begin operations.

Ongoing Compliance and Reporting

Once the CIF is licensed, the firm must comply with ongoing reporting obligations and maintain adequate systems for client protection, capital adequacy, and risk management. This includes regular submissions of financial statements and compliance reports to CySEC.

How Fiduciara Can Help

At Fiduciara, we provide full support throughout the entire CIF licensing process, from initial consultation and application preparation to ongoing compliance and regulatory reporting. Our services include:

  • Preparation of all required documents for CySEC submission.
  • Legal and regulatory advice on the establishment of a CIF.
  • Guidance on capital requirements and blocking of funds.
  • Assistance with CySEC application submission and communication.
  • Ongoing compliance support, including internal audit, accounting, and reporting services.

With nearly 25 years of experience in corporate law and investment firm licensing, Fiduciara is your trusted partner for establishing a successful Cyprus Investment Firm.

Contact Us

For more information about establishing a Cyprus Investment Firm or to begin the application process, contact Fiduciara at office@fiduciara.com or call us at +357 99196411. Our team is ready to assist you with every aspect of setting up your CIF.