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Payment Institution (PI) License in Cyprus

Payment Institution (PI) License in Cyprus

A Cyprus Payment Institution (PI) license offers numerous benefits, including access to the European market, a competitive tax environment, a skilled workforce and a stable regulatory framework. These factors make Cyprus an attractive destination for businesses looking to establish a Payment Institution within the European Union.

Cyprus Payment Institution (PI) License

The financial services sector in Cyprus has been growing rapidly over the past years, with the island nation positioning itself as an attractive destination for companies seeking to establish a presence within the European Union. Among the many financial services available, the establishment of a Payment Institution (PI) in Cyprus is becoming increasingly popular. In this article, we provide a detailed overview of the rules, regulations and requirements for obtaining a PI license in Cyprus.

Regulatory Authority

The Central Bank of Cyprus (CBC) is the main regulatory authority responsible for the licensing and supervision of Payment Institutions in the country. As a member of the European Union, Cyprus has implemented the EU’s Payment Services Directive (PSD2) into its national legislation, which governs the operation of PIs within its jurisdiction.

Legal Framework

The key pieces of legislation governing the licensing and operation of PIs in Cyprus are:

  • The Business of Electronic Money Law (2012) as amended.
  • The Provision and Use of Payment Services and Access to Payment Systems Law (2018) (implementing PSD2).
  • The Central Bank of Cyprus Directive on the Authorisation and Supervision of Payment Institutions (2019).

Eligibility Criteria

To be eligible for a PI license in Cyprus, an applicant must meet the following criteria:

  • Be a legal entity incorporated in Cyprus or another EU member state.
  • Have a minimum initial capital of at least €125,000, which must be maintained throughout the PI’s operation.
  • Have a comprehensive business plan, including a description of the proposed payment services, target market and risk management procedures.
  • Have a suitable management team with proven experience in the financial services sector and the provision of payment services.
  • Establish and maintain an effective governance structure, including a board of directors and senior management with appropriate knowledge, experience and integrity.
  • Implement adequate risk management, anti-money laundering (AML) and counter-terrorism financing (CTF) policies and procedures.
  • Implement a secure and reliable IT system capable of supporting the proposed payment services.
  • Obtain professional indemnity insurance or a comparable guarantee to cover potential liabilities arising from the provision of payment services.
Payment Institution (PI) License in Cyprus

Benefits of a Cyprus Payment Institution (PI) License

Obtaining a Payment Institution (PI) license in Cyprus offers various benefits for businesses looking to establish a presence in the financial services sector. Some of the key advantages of a Cyprus PI license include:

  1. Access to the European Single Market: As a member of the European Union, a licensed PI in Cyprus can take advantage of the EU’s passporting regime, allowing them to provide their services across all EU member states without the need for separate licenses. This facilitates business expansion and access to a broader customer base within the European market.
  2. Competitive Tax Environment: Cyprus boasts one of the lowest corporate tax rates in the European Union, currently set at 12.5%. This competitive tax rate, combined with a wide network of double tax treaties, makes it an attractive jurisdiction for businesses looking to optimize their tax structures.
  3. Skilled Workforce and Professional Services: Cyprus has a well-educated and skilled workforce, with a high proportion of English speakers. The country also has a robust professional services sector, including legal, accounting and consulting firms that can support the establishment and operation of a PI.
  4. Stable Legal and Regulatory Framework: Cyprus has adopted EU directives and regulations, including the Payment Services Directive (PSD2), ensuring a stable and harmonised legal framework that aligns with international best practices. This provides a secure and predictable environment for businesses to operate in.
  5. Efficient Licensing Process: The Central Bank of Cyprus (CBC) is responsible for the licensing and supervision of PIs, and although the licensing process is thorough, it is considered relatively efficient compared to some other jurisdictions. This allows businesses to enter the market in a more timely manner.
  6. Reputable International Financial Centre  Cyprus has established itself as a reputable international financial centre, attracting businesses and investors from around the world. This reputation enhances the credibility and attractiveness of Cyprus-based PIs.
  7. Excellent Infrastructure and Connectivity: Cyprus has modern infrastructure, including advanced telecommunications networks and high-quality transportation systems. Its strategic location at the crossroads of Europe, Africa and Asia also provides excellent connectivity for businesses looking to operate across multiple regions.

Application Process

The application process for obtaining a PI license in Cyprus consists of the following steps:

  • Prepare a comprehensive application package, including all required documentation and information, as specified in the CBC’s Directive on the Authorisation and Supervision of Payment Institutions.
  • Submit the application package to the CBC along with the non-refundable application fee.
  • The CBC will review the application and may request additional information or clarification as necessary.
  • If the CBC deems the application complete and satisfactory, it will grant a PI license, subject to the fulfilment of any conditions it may impose.
  • The applicant must pay the annual license fee and fulfil any conditions imposed by the CBC within three months of the license being granted.

Ongoing Compliance and Supervision

Once a PI license is obtained, the licensee must comply with ongoing regulatory requirements, including:

  • Submitting periodic reports to the CBC, including financial statements and information on the PI’s risk management, AML and CTF measures
  • Ensuring continuous compliance with the minimum capital requirements
  • Notifying the CBC of any significant changes to the PI’s governance, management, or business operations
  • Cooperating with the CBC’s supervision and inspection activities

What services can a Payment Institution (PI) offer and how do they differ from an Electronic Money Institution (EMI)?

A Payment Institution (PI) and an Electronic Money Institution (EMI) are both regulated financial entities within the European Union, but they differ in the scope of services they can offer.

Payment Institution (PI) Services:

A Payment Institution (PI) is primarily focused on providing payment services, which can include:

  1. Execution of payment transactions, including credit transfers and direct debits.
  2. Money remittance services, facilitating the transfer of funds between individuals or businesses.
  3. Payment initiation services, enabling the initiation of a payment order on behalf of the payer with the payer’s account-holding payment service provider.
  4. Account information services, providing consolidated information on payment accounts held by a payment service user with different payment service providers.
  5. Foreign exchange services related to payment services.
  6. Ancillary services, such as operational and technical support for payment services or activities.

Electronic Money Institution (EMI) Services:

An Electronic Money Institution (EMI), on the other hand, is authorised to issue electronic money (e-money) in addition to providing payment services. E-money is a digital representation of fiat currency stored electronically, usually on an electronic device or through an online platform. EMI services include:

  1. Issuance, distribution and redemption of electronic money.
  2. Execution of payment transactions using electronic money, including credit transfers and direct debits.
  3. Issuing and acquiring payment instruments linked to electronic money, such as e-wallets and prepaid cards.
  4. Money remittance services using electronic money.
  5. Payment initiation services and account information services, similar to PIs.
  6. Foreign exchange services related to electronic money services.
  7. Ancillary services related to the issuance and management of electronic money.

The main difference between a PI and an EMI lies in the ability to issue electronic money. While both entities can provide payment services, only EMIs are allowed to issue, distribute and redeem electronic money. This allows EMIs to offer additional services related to e-money, such as prepaid cards and e-wallets, which can be used for online and offline transactions.

Services related to obtaining a Payment Institution (PI) license in Cyprus

Chambers & Co, is dedicated to assisting companies in obtaining a Payment Institution license in Cyprus. We offer a comprehensive range of services to ensure a smooth and successful application process, including:

  • Guidance on the regulatory framework and eligibility criteria for PIs in Cyprus.
  • Assistance in the formation of the legal entity and corporate structure.
  • Preparation of the application package, including the business plan, governance structure and risk management policies.
  • Liaising with the Central Bank of Cyprus and addressing any queries or concerns during the application process.
  • Guidance on the ongoing compliance and reporting requirements for licensed PIs.
  • Legal and regulatory advice on expanding your PI business within the European Union.

Our team of experienced legal and financial professionals at Chambers & Co is committed to providing personalised and efficient support throughout the licensing process. By leveraging our expertise and extensive knowledge of the Cypriot financial services sector, we can help your company successfully navigate the complex regulatory landscape and obtain a Payment Institution license in Cyprus.

Payment Institution (PI) License in Cyprus

See how our lawyers can help you with your PI License in Cyprus.