The Cyprus Investment Firm (CIF) is the regulated special purpose vehicle used by Investment Advisors, Portfolio Managers, Foreign Exchange Brokers and Market Makers as well as Binary Options companies to operate in Cyprus. Such firms obtain authorization and are regulated by the Cyprus Security and Exchange Commission (CYSEC) who in turn reports to the European Securities and Markets Authority (ESMA).
Why register an Investment Firm in Cyprus?
The advantages of setting up such a firm in Cyprus are:
1. Ability to operate throughout the EEA (European Economic Area). As Cyprus has transposed the relevant EU Directives into local law, the Cyprus Investment Firm may operate in any EU state through the EU passporting process. Furthermore, it can also provide services to third countries provided any local legal requirements are met.
2. Low registration and operating costs. Registration and operating costs (rental, staff, legal and administrative) compare favourably to other EU jurisdictions.
3. High standard infrastructure. IT infrastructure such as telecommunications, internet and hardware are of very high standard allowing such companies to set up systems to distribute services throughout the world.
4. High standard professional services. Cyprus provides a high standard of professional services such as IT Consulting, Accounting, Legal, Compliance enabling IF to outsource such services.
5. Good place to live and work. Cyprus provides affordable housing, international schools, and a safe and friendly community, while being well connected via regular flights to major EU, Middle Eastern, Asian and Russian major cities.
Background
Cypriot Law 144(I)/2007 transposes the EU MIFID Directive 2004/39/EC and hence facilitates Investment Firms to provide financial services within the 30 countries comprising the European Economic Area (EEA). This process is known as EU passporting and allows the provision of Financial Services either cross border, through the establishment of a branch or a subsidiary). At the same time they are obliged to apply strict rules for
1. clear segregation between client and own money
2. avoiding conflict of interest
3. providing best execution for the best possible terms for the clients
Services that can be offered by a CIF.
An investment Firm is a firm that is authorized and regulated can provide any the following investment and ancillary services in relation to specific financial instruments:
1. Reception and Transmission of client orders.
2. Execution of orders on behalf of clients
3. Dealing of the investment firm 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
Ancillary services include:
1. Safekeeping and administration of financial instruments for the account of clients
2. Granting credits or loans to an investor to allow him to carry out a transaction in one or more financial instruments
3. Foreign exchange services where these are connected to the provision of investment services
Conditions for Authorisation
A CIF must obtain the relevant licenses prior to starting operations. Usually the process is either by
1. Registration of a new CIF with qualified Managers and suitable shareholders, or the
2. Establishment of a branch or subsidiary in Cyprus by a member state IF or by a third country IF;
A CIF has the following rights
3. Access to regulated markets;
4. Access to central counterparty, clearing and settlement facilities.
Conditions include:
5. Initial capital. The initial capital for an IF providing reception and transmission of orders, execution, portfolio management and investment advice is set to €200.000. If the CIF will not hold client money or financial instruments then this is set to €80.000 or €40.000 with professional indemnity insurance of at least 1mln per claim and in aggregate at least 1.5mln per year for all claims. An IF that deals on its own account, underwrites financial instruments or places financial instruments or operates an MTF then should have an initial capital of 1.5mln. An IF that is registered under the Insurance Services Law to provide insurance intermediary services must have €40.000 initial capital or €20.000 and professional indemnity insurance for €500.000 per claim or €750.000 per year for all claims.
6. Directors and managers. Persons who effectively direct the business of the IF must demonstrate sufficiently good repute and experience. The management of the IF must be undertaken by at least 2 persons. These must be approved by CYSEC.
7. Shareholders. Shareholders, natural or legal, must be disclosed to the ultimate beneficial owners. Shareholders that possess qualifying holdings (10% or more voting tights) must satisfy CYSEC of their suitability.
8. Employees. Must have sufficiently good repute and have the necessary knowledge, skills and experience. They must also hold the relevant certification form CYSEC for the duties performed.
9. Head Office. A CIF must have its registered office situated in the Cyprus.
10. Participate in the ICF. A CIF must be a member of the Investment Compensation Fund (ICF) for clients of IFs.
Organisational Requirements
CYSEC will require that the applicant will have in place proper organizational procedures. These include:
1. Establish adequate policies and procedures sufficient to ensure its compliance.
2. Maintain and operate effective organizational and administrative arrangements.
3. Take reasonable steps to ensure continuity and regularity in performance of investment and ancillary services and activities.
4. Ensure performance of outsourced services.
5. Have robust governance arrangements.
6. Sound administrative and accounting procedures. Arrange for records to be kept of all services provided and transactions undertaken by it.
7. Apply appropriate client identification procedures.
8. Record maintenance and internal reporting.
9. When holding financial instruments belonging to clients to make adequate arrangements so as to safeguard clients’ ownership rights especially in case of insolvency of CIF.
10. If an MTF, establish transparent and non-discretionary rules and procedures for fair and orderly trading and objective criteria for the efficient execution of orders.
Authorization process and conditions thereof
The authorization process takes approximately 6-9 months from the time of submission of a complete application form. CYSEC may have inter-authority consultations prior to CIF authorization. Once authorized, the CIF must abide to its
1. Operating Conditions
2. Its continuous obligations with CYSEC
3. Provisions to ensure investor protection
4. Provisions to ensure Market transparency and integrity

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