The financial sector in Cyprus is continuously growing. Our company has been successfully obtaining licences for our clients for the authorisation of Investment Firms (CIFs), Investment Funds (AIFS and AIF Managers) and Electronic Money Institutions (EMIs). We fully support them in setting up their business, maintaining it operational and addressing their post-licensing challenges and requirements. We undertake, advise and support the application process from establishing an office to final approval by the Regulator.
This article presents the investment and ancillary services a Cyprus company can provide when applying for obtaining a CIF authorisation from CySEC. In our upcoming articles, we will explain the requirements for obtaining the licence in more detail and guide you through the process step by step.
CX Financia’s licencing advisory team provides a brief introduction on CIFs below:
What is a CIF?
A CIF is licensed and supervised by the CySEC under Law 87(I)/2017 regarding the provision of investment services, the exercise of investment activities and the operation of regulated markets, which is the national transposition of Directive 2014/65/EU of the European Parliament and the Council on markets in financial instruments (MiFID II).
Once licensed, a CIF can freely provide investment services through representative and branch offices across EU and EEA member states via the EU Passporting System for Investment Firms.
If you wish to learn more concerning the above, CX Financia’s advisory team is always here to help.
Which investment services does a CIF authorised by CySEC can offer?
CySEC regulates CIFs under the Investment Services Law and the relevant European Regulation. CySEC provides licenses and supervises the Firms depending on their investment activities and operations, which are:
What are the Investment Services licensed by CySEC:
- Reception and transmission of orders in relation to financial instruments
- Execution of orders on behalf of clients
- Portfolio management
- Provision of investment advice
- Dealing on own account
- Underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis
- Placing of financial instruments without a firm commitment basis
- Operating a Multilateral Trading Facility
- Operation of an Organised Trading Facility
What are the Ancillary Services licensed by CySEC
- Safekeeping and administration of financial instruments for the account of clients, including custodianship and related services such as cash/collateral management and excluding maintaining securities accounts at the top tier level
- Granting credits or loans to an investor to allow them to carry out a transaction in one or more financial instruments, where the firm granting the credit or loan is in the transaction
- Advice to undertakings on capital structure, industrial strategy and related matters and advice and services relating to mergers and the purchase of undertakings
- Foreign exchange services where these are in relation to the provision of investment services
- Investment research and financial analysis or other forms of general recommendation relating to transactions in financial instruments
- Services related to underwriting
- Investment services and activities as well as ancillary services of the type under Section A or B of Annex 1 in relation to the underlying of the derivatives under points (5), (6), (7) and (10) of Section C of MiFID II Directive where these are connected to the provision of investment or ancillary services
What are the Financial Instruments categories defined by CySEC:
- Transferable securities
- Money-market instruments
- Units in collective investment undertakings
- Options, futures, swaps, forward rate agreements and any other derivative contracts relating to securities, currencies, interest rates or yields, or other derivatives instruments, financial indices or financial measures which may be settled physically or in cash
- Options, futures, swaps, forward rate agreements and any other derivative contracts relating to commodities that must be settled in cash or may be settled in cash at the option of one of the parties (otherwise than by reason of a default or other termination event)
- Options, futures, swaps, and any other derivative contract relating to commodities that can be physically settled provided that they are traded on a regulated market or/and an MTF
- Options, futures, swaps, forwards, and any other derivative contracts relating to commodities, that can be physically settled not otherwise mentioned in point 6 and not being for commercial purposes, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are cleared and settled through recognised clearing houses or are subject to regular margin calls
- Derivative instruments for the transfer of credit risk
- Financial contracts for differences
- Options, futures, swaps, forward rate agreements and any other derivative contracts relating to climatic variables, freight rates, emission allowances or inflation rates or other official economic statistics that must be settled in cash or may be settled in cash at the option of one of the parties (otherwise than by reason of a default or other termination event), as well as any other derivative contract relating to assets, rights, obligations, indices and measures not otherwise mentioned in this part, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are traded on a regulated market or an MTF, are cleared and settled through recognised clearing houses or are subject to regular margin calls
- Emission allowances consisting of any units recognised for compliance with the requirements of Directive 2003/87/EC.
CX Financia’s advisory team is always here to help if you have any questions concerning the above.
Which categories of CIFs are currently in place, and what is their minimum capital?
CySEC CIF licenses can be categorised in accordance with their minimum capital requirement, which in turn depends on its investment services and the ancillary service of safekeeping, meaning whether the CIF will hold client funds.
Since late June 2021, CySEC introduced new capital requirements for all investment firms operating from Cyprus. This regulatory change is known as the Investment Firms Regulation and Investment Firms Directive (IFR & IFD). For a more in-depth look at the regulation, please click here.
Capital Categories of CIF licenses
Holds Client Funds
The above plus:
Any applicant must provide evidence to CySEC of holding the minimum required funds in addition to funds required to support the CIF operations, as per the submitted business plan to be authorised for a CIF license.
What else do you need to know?
The financial industry has its own major categories:
- Straight through processing (STP) brokers: where the broker transmits ALL orders to the market, without the CIF holding any market risk in its books.
- Market Maker (MM) broker: the CIF can deal on its own account and, according to its risk management mandate, can hold part or ALL of the market risk arising from clients’ orders.
The STP (Straight-Through Processing) model is used to show that the broker does not intervene in the execution of the client’s order. Therefore, all transactions are executed electronically with the highest speed, and its earnings are commission based on the orders executed. Unlike STP, Market Maker is the broker that doesn’t cover positions on liquidity providers and is obliged to pay for clients’ beneficial trades with its own money, meaning their earnings are clients losses. The general term for them is B-book brokers.
Business operations define the combination of licensed Investment Services required and therefore the minimum regulatory operational conditions and in turn the application. A clear business model describes the way the firm will engage clients, accept and process trade orders, and handle the movement of money and other financial assets. Some other business model examples widely used with CySEC are:
- Traditional Boker
- CFD or FX Brokers,
- Asset Managers and Wealth Managers,
- Portfolio Management and Investment Advisory.
How can CX Financia help you?
It is important to seek the help of experts as regulatory requirements can be exhaustive and create time delays or unexpected costs. We are experienced in supporting Investment Firms during the licensing process and provide solutions on relevant matters post-authorisation. We have undertaken, advised and supported our clients with the application process of a CIF. Furthermore, we have fully supported them in setting up their business, maintaining it operational and addressing their post-licensing challenges and requirements.
Our CIF licensing services include, amongst others:
- Advice on how to structure your business model to meet regulatory requirements.
- Guidance and advice to deliver the required documents and information for completing your CIF application package.
- Assistance with the preparation and review of all required manuals that have to be part of the application package.
- Help with locating qualified executive and non-executive directors, if needed.
- Opening of a bank account with a local bank to deposit the required initial capital of the applicant.
- Act as promoters of the application in front of CySEC and undertake to reply to any questions or requests.
We can also assist and support established CIFs with the preparation and promotion of notifications to CySEC for:
- Extending existing CIF authorisations to include additional investment and/or ancillary services.
- Establishing branches or appointing Tied Agents abroad, or the offering of services on a cross border basis.
- Effecting changes to the members of their management board and/or changes to their shareholding structure.
CX Financia’s advisory team can act as your guide and offer consultation to all of the steps of your choosing.
Do not hesitate to contact us at email@example.com