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Cyprus Investment Firm – Cryptocurrency Derivatives and Spot Trading Exchange – Set Up and Licensing

Cyprus Investment Firm & Cryptocurrency Derivative Trading  – License & Regulation in Cyprus

Our law firm can assist with the incorporation, legal support and regulatory licensing of  Cyprus Investment Firms. Our experience and competence allows your business to comply with EU Laws. 

We have deep knowledge of Cypriot and European legislation and are happy to share with you our unique experience in obtaining licenses for Forex Trading, Portfolio Management, Investment Advice, Brokerage Services & Cryptocurrency Derivatives.

Cyprus Investment Firm (CIF)

The Cyprus Investment Firms Law 87(I)/2017 provides the legal framework for the provision of investment services and activities.

Derivatives whose underlying asset are cryptocurrencies are now explicitly regarded as financial instruments and fall under the “Investment Services Law”.

Such a development took place following the recognition of CFDs on cryptocurrencies as financial instruments under MiFID II by the European Securities and Markets Authority (ESMA) back in 2018 and subsequently the authorisation and supervision of their providers across the European Union.

Subsequently, the provision of investment services in relation to financial instruments such as contracts for differences (CFDs), options and futures with cryptocurrencies as underlying asset, in and/or from Cyprus, requires specific authorisation by the Cyprus Securities and Exchange Commission (CySEC) in the form of a Cyprus Investment Firm (CIF).

CySEC issued the circular to guide CIFs that invest in cryptocurrency and provide them confidence that they are complying with Cyprus laws. There are three requirements that CIFs must satisfy to operate within Cyprus.

  • First, CIFs must receive authorization from CySEC to trade in cryptocurrencies.
  • Second, CIFs must acquire sufficient capital to cover their cryptocurrency investments. Essentially, CIFs must determine a capital adequacy ratio. The Circular guide’s first three provisions guide how CIFs can adequately calculate the capital needed for cryptocurrency investments.
  • Third, CIFs must carefully manage the risks associated with cryptocurrency investments. Specifically, the CySEC urged CIFs to revisit their risk management procedures periodically and ensure that all risks are duly considered.

Additionally, CySEC charged CIFs with the duty to mitigate trading risks in cryptocurrency, including operational, cybersecurity, and reputational risks.

Being a member of the European Union, Cyprus follows the EU laws such us the Markets in Financial Instruments Directive (MiFID).  This enables the use of the Single Passporting EU right, meaning the licensed investment firm can promote its services across the EU and establish branches and representative offices within the EU without additional capital requirements.

A Cyprus Investment Firm, depending on its license, can offer the below services:

  • Forex Trading.
  • Portfolio Management.
  • Investment Advice.
  • Brokerage Services.
  • Cryptocurrencies Derivatives.

Cyprus Investment Firm - Crypto Derivatives and Spot Trading Exchange - Set Up and Licensing

Requirement for Registering a Cyprus Investment Firm

The basic requirements for setting up a Cyprus Investment Firm (CIF) are:

  • Be incorporated in Cyprus.
  • Four (4) directors; two directors acting as executives and two non-executives; at least three (3) of them must be Cyprus residents; Directors must demonstrate knowledge and experience and must pass the “fit and proper” test of the CySEC.
  • Local resident staff members shall be hired on a full-time basis to fulfill the key functions of the Company. Depending on the license selected, minimum number of personnel must be hired.
  • The Company must have a fully operational office in Cyprus.

The CIF, also requires a minimum regulatory capital to be authorised to operate. This capital must be available at the beginning of the process and kept throughout the licensed activity.

The Capital Requirements for a CIF License are:

  • €75,000 for Reception & Transmission, Execution of orders on behalf of clients, Portfolio management, Investment advice without being authorised for holding clients’ funds.
  • €150,000 STP License (Reception & Transmission, Execution of orders on behalf of clients, Portfolio management, Investment advice).
  • €750,000 Market Maker License (Reception & Transmission, Execution of orders on behalf of clients, Portfolio management, Investment advice, Underwriting and placing of financial instruments on a firm commitment basis, Dealing on Own Account, Operation of Multilateral Trading Facility).

Cyprus Investment Firm (CIF) Application Procedure

For the preparation of an application to CySEC for a CIF license, the below are needed:

  • A business plan.
  • Internal operation manual which will include the Anti-Money Laundering Procedures.
  • Defined policies and procedures that ensure compliance with all its legal obligations.
  • Independent compliance unit staffed with eligible persons.
  • The organisation and administration of a CIF must be designed in such way that it prevents conflicts of interest.
  • A clear risk policy that must be implemented and controlled by a separate risk management unit.
  • A CIF is required to join the Investment Compensation Fund for Clients and comply with its obligations.

Any other employees who will provide investment services and act as the Compliance Officers of the CIF must:

  • Have the necessary knowledge and expertise for performing their assigned responsibilities.
  • Be registered in the public register maintained by CySEC.

Time Frame For The CIF Licensing Procedure

CySEC has six months from the date of submission of a duly completed application to reply. The reply will either grant a CIF license or deny the application.

Cyprus Investment Firm (CIF) Application Fees

CySEC’s application charges:

  • €7000 with the submission of the CIF’s application.
  • €3500 with the submission of an application for the license extension. Depending on the license type and the license extension, charges may vary.

CySEC’s annual fees (euro):

a) A fixed charge from €5000 to €10,000 depending on which services are provided
b) A charge depending on the turnover, provided that the turnover exceeds €500.000, as below:

  • 0.75% – between €500.001 – €1.000.000
  • 0.1875% – between €1.000.001 – €5.000.000
  • 0.1125% – between €5.000.001 – €10.000.000
  • 0.0975% – if exceeding €10.000.001.

The above is calculated based on the annual audited financial statements.  CIFs that provide services in relation to CFDs shall pay an additional €3.000.

The Services We Offer

At Chambers & Co, we offer you a complete package for the set up, registration and operation of your Cyprus Investment Firm (CIF).

Our service include:

  • Cyprus Company Registration;
  • Advisory on the optimum set up of your Cyprus Investment Firm (CIF), addressing your business objectives and at the same time ensuring compliance with regulatory requirements;
  • Serving as Promoter for your Cyprus Investment Firm (CIF) application to CySEC, preparing internal policies and procedures, gathering the information required, and guiding you all the way until your receive your license.

Our post licensing services include:

  • On-going support by assuming the role of the control functions of the Risk Manager and /or Internal Auditor, and by rendering support services to your in house appointed Compliance Officer and Anti-Money Laundering Compliance Officer.
  • In addition, we provide our clients with ongoing compliance support on implementing regulatory changes as well as changes of management or ownership.

Registration of a Cyprus Investment Firm (CIF)

See how our lawyers can help you with your Cyprus Investment Firm License.