PAYMENT INSTITUTION LICENSE

E-Money Institution and Payment Institution Licensing in Cyprus

As the financial technology (fintech) sector continues to grow, the demand for e-money and payment institutions is increasing globally. Cyprus, as a member of the European Union (EU) and a jurisdiction with a business-friendly legal framework, is an attractive destination for setting up E-Money Institutions (EMIs) and Payment Institutions (PIs). The country offers a stable regulatory environment, a favorable tax regime, and full access to the EU market, making it ideal for fintech businesses.

At Fiduciara, we provide comprehensive support for businesses looking to obtain E-Money Institution or Payment Institution licenses from the Central Bank of Cyprus (CBC). We help clients navigate the complex regulatory landscape and ensure compliance with both EU directives and Cyprus law.

Overview of E-Money and Payment Institution Licensing

The licensing and regulation of EMIs and PIs in Cyprus are governed by the Electronic Money Law of 2012 and the Payment Services Law of 2018, which incorporate the provisions of the EU Electronic Money Directive (2009/110/EC) and Payment Services Directive 2 (PSD2 – 2015/2366). These directives allow licensed entities to operate across the entire European Economic Area (EEA) under the principle of passporting, giving fintech companies based in Cyprus access to a large and dynamic market.

What is an E-Money Institution (EMI)?

An E-Money Institution (EMI) is a financial institution authorized to issue electronic money (e-money). E-money is a digital alternative to cash that can be stored electronically and used for payments. EMIs can offer a wide range of services, including issuing e-money, managing digital wallets, and facilitating online payments. EMIs differ from traditional banks as they do not engage in lending or accepting deposits.

Typical services offered by EMIs include:

Issuing e-wallets for storing digital currency.
Prepaid cards and virtual cards linked to e-money accounts.
Mobile payment services for transactions and money transfers.
Merchant services for e-commerce businesses to accept e-money payments.

What is a Payment Institution (PI)?

A Payment Institution (PI) is a financial institution that provides payment services as defined by the Payment Services Directive (PSD2). PIs can offer services such as money transfers, processing payments for e-commerce businesses, payment initiation, and account information services. Unlike EMIs, PIs cannot issue e-money, but they can facilitate a broad range of payment-related services for both businesses and individuals.

Common services offered by PIs include:

Money remittance and money transfer services.
Payment processing for online businesses.
Account information services (AIS) and Payment Initiation Services (PIS).
Payment gateway solutions for e-commerce platforms.

Benefits of Establishing an EMI or PI in Cyprus

Cyprus is becoming a leading hub for fintech and digital finance companies. Setting up an EMI or PI in Cyprus offers several advantages:

EU Passporting Rights: Licensed entities can operate across the European Economic Area (EEA) without needing additional licenses in each EU member state.
Business-Friendly Regulatory Framework: Cyprus offers a transparent and straightforward regulatory environment that fosters innovation in the fintech space.
Access to the EU Single Market: Cyprus’ membership in the EU provides access to over 450 million consumers and businesses.
Favorable Tax Regime: Cyprus offers one of the lowest corporate tax rates in the EU at 12.5%, with no withholding taxes on dividends paid to non-residents.
Experienced Regulatory Authorities: The Central Bank of Cyprus (CBC) is well-versed in regulating financial institutions, ensuring a smooth licensing process and ongoing supervision.
Strategic Location: Cyprus’ position as a gateway between Europe, the Middle East, and Africa makes it ideal for companies looking to expand into international markets.

Requirements for EMI and PI Licensing

To obtain a license for an E-Money Institution or Payment Institution in Cyprus, applicants must meet a range of regulatory, capital, and operational requirements. These requirements ensure that licensed entities can operate securely and effectively within the EU’s regulatory framework.

1. Capital Requirements

The capital requirements for EMI and PI licensing vary depending on the type of institution and services provided:

E-Money Institutions (EMIs):
- A minimum initial capital of €350,000 is required for EMIs.
Payment Institutions (PIs):
- The capital requirements depend on the type of services offered:
  - €125,000 for institutions providing money remittance services.
  - €20,000 for institutions providing account information services (AIS).
  - €50,000 for institutions providing payment initiation services (PIS).

Applicants must provide evidence that the required capital is available and will be maintained during the operation of the business.

2. Organizational and Operational Requirements

To obtain an EMI or PI license, the company must demonstrate that it has the necessary organizational structure, internal controls, and risk management procedures in place. The key organizational requirements include:

Corporate Governance: The company must have a Board of Directors with at least two executive directors responsible for day-to-day operations and compliance. One of the executive directors must reside in Cyprus.
Qualified Personnel: The management team and key personnel must have relevant experience in finance, payment services, and risk management. They should be able to demonstrate their ability to manage the institution responsibly and in compliance with regulatory requirements.
Internal Controls: The company must implement adequate internal control mechanisms to ensure compliance with regulatory requirements. This includes policies for anti-money laundering (AML), customer due diligence (CDD), and know-your-customer (KYC) procedures.
Risk Management: A comprehensive risk management framework must be established to identify, monitor, and mitigate risks associated with the company’s activities.

3. IT and Security Infrastructure

EMIs and PIs must demonstrate that they have the appropriate IT infrastructure and security systems to safeguard customer funds and data. This includes compliance with data protection laws such as GDPR and implementation of strong cybersecurity measures to protect against fraud and hacking.

4. Business Plan and Financial Projections

Applicants must submit a detailed business plan outlining the nature of the services to be provided, the target market, the institution’s operational strategy, and financial projections for the first three years. The business plan must include:

The types of payment services or e-money services the institution will offer.
A description of the institution’s internal control systems.
Financial forecasts, including projected profit and loss, cash flow, and balance sheets.

5. Safeguarding of Client Funds

EMIs and PIs are required to ensure that client funds are safeguarded and segregated from the company’s operational funds. This is a key requirement to protect customers’ money in the event of the institution’s insolvency.

Application Process for EMI and PI Licensing

The process of obtaining an EMI or PI license in Cyprus typically involves the following steps:

Preparation of Documents: Applicants must prepare and submit the necessary documentation, including the business plan, organizational structure, capital adequacy documents, and internal policies for compliance and risk management.
Submission to the Central Bank of Cyprus (CBC): The application, along with all supporting documents, is submitted to the CBC for review. The CBC will evaluate the application to ensure that all requirements are met.
Review and Feedback: The CBC may request additional information or clarification during the review process. Applicants must respond promptly to any requests for further information.
Decision: The CBC will make a decision within 6 to 12 months from the date of submission of the complete application. If approved, the applicant will receive the EMI or PI license, allowing them to operate in Cyprus and across the EU.

Ongoing Compliance and Reporting

Once licensed, EMIs and PIs must comply with ongoing reporting obligations and supervision requirements imposed by the Central Bank of Cyprus. This includes:

Quarterly and annual financial reporting.
Ongoing risk assessments and updates to internal control mechanisms.
Annual audits conducted by independent auditors.
Ongoing AML and KYC compliance checks.

How Fiduciara Can Help

At Fiduciara, we offer end-to-end support for businesses seeking EMI or PI licenses in Cyprus. Our services include:

Advising on the licensing process and ensuring compliance with regulatory requirements.
Preparation of the application and all required documentation, including business plans, organizational structures, and internal policies.
Liaising with the Central Bank of Cyprus throughout the application process to ensure timely approval.
Ongoing compliance support to ensure your institution remains fully compliant with all regulatory obligations post-licensing.

With nearly 25 years of experience in corporate law and regulatory compliance, Fiduciara is your trusted partner for establishing a successful E-Money Institution or Payment Institution in Cyprus.

Contact Us

For more information on obtaining an E-Money Institution or Payment Institution license in Cyprus, contact us.