New Conditions and requirements for a Forex Trading Company License

In June 2009, by way of announcement from the Cyprus Securities and Exchange Commission (‘Cysec’), it was decided that the foreign exchange trading transactions which: 

(a) are not materially settled in cash but the change of the position of the client is anticipated, e.g. ‘rolling spot forex contracts’ or

(b) have as an object of settlement the difference of value between two currencies, according to their differentiated exchange rates, and the object of settlement is exhausted by the client’s disbursed amount of daily security (margin, security deposit)

constitute either futures according to the meaning of paragraph 4 of Part III, Third Appendix of the Law or contracts for differences according to the meaning of paragraph 9 of the aforementioned Part of the Law. Hence, the reception and transmission of orders and the execution of orders in relation to the specific financial instruments is considered to be an investment service which can only be provided by an authorised Cyprus Investment Firm (‘CIF’).

Therefore all companies wishing to provide FX trading/investing services need to apply for licensing as a CIF and comply with the minimum capital requirements set out by the Provision of Investment Services law 144(I)/2007 (please see below).

In other words, the company, if successful in its application is granted a license. A company which is granted such a license may provide its services across the EU without the need to be licensed again (passporting of license); however, there may be a requirement to be registered in certain countries where the services are provided. This can be achieved by setting up representative offices or fully fledged branches in other EU states.

Reporting and Compliance Requirements

Companies licensed as CIF’s have ongoing reporting requirements to Cysec, and have to comply with Anti Money Laundering requirements and have a stringent Know Your Client procedure in place.

Minimum Capital Requirements (CIF in general)

In February 2014 there was an amendment of Law N.193(I)/2014 Article 10 (Law of the Investment Services and Activities and Regulated Markets), whereby the initial capital requirements of CIFs has been reduced significantly in order to attract further investments in Cyprus.

Hence the initial capital requirements were configured as below: 

• A CIF that provides one or more of the following investment services and holds clients’ money or/and client’s financial instruments, must have an initial capital of at least one hundred twenty five thousand euro (€125.000):

(a)  The reception and transmission of orders in relation to
financial instruments;

(b)  the execution of orders on behalf of clients;

(c)  portfolio management;

(d)  provision of investment advice;

• A CIF that provides the investment services stated in subsection (a) or/and (d) above, and does not hold clients’ money or/and clients’ financial instruments, and which for that reason may not at any time place themselves in debt with their clients, may have an initial capital of:

(a)  At least fifty thousand euro (€50.000); or

(b)  at least forty thousand euro (€40.000) and professional indemnity insurance covering all member states or some other comparable guarantee against liability arising from professional negligence, that it enters into with an insurance undertaking, representing an amount of at least one million euro (€1.000.000), per claim, and in aggregate at least one million five hundred thousand euro (€1.500.000) per year for all claims.

• A CIF that provides one or more of the following investment services or/and performs the following investment activities shall have an initial capital of at least seven hundred thirty thousand euro (€730.000):

(a)  Dealing on own account;

(b)  Underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis;

(c)  Placing of financial instruments without a firm commitment basis;

(d)  Operation of Multilateral Trading Facility.

Directors

A Cyprus FX company must have at least one Executive Director, who passes a ‘fit and proper’ requirement test, who is resident in Cyprus. This means that he must have an investment/financial background, has a respected reputation in business circles and has a clean criminal record.

The requirement for Cyprus residency is to enable Cysec to correspond and liaise with him especially in as regards reporting as well as for clarifications and spot checks.

Furthermore, the company must have a General Manager, who is non-executive, and has no requirement to be resident in Cyprus. The requirement is that he visits Cyprus on a regular basis to oversee the functions of the company. The role of the General Manager is mainly to oversee the Executive Director and the Board of Directors in general.

General Conditions to Grant a License

• The Memorandum of the Company must have specific clauses regarding the nature of this business.
• The applicant company must fulfill the minimum capital requirements as set out above.
• At least one director who is resident in Cyprus to act as Executive director and who passes the fit and ‘proper test’.
• The company has physical office space in Cyprus.
• Set up an internal control mechanism, namely Cysec will want to be satisfied that the company has in place internal rules and procedures to oversee potential problem areas, contingency plans, server protection, client protection etc.
• The suitability of the shareholders. As with the directors, the shareholders pass a fit and proper test, especially a background check whereby Cysec is satisfied that they have a clean criminal record as well as experience in the business.
• Cysec must be satisfied that the company has such internal procedures so as to avoid any potential conflict of interest with its clients.

Application Procedure (General Outline)

• All corporate documents of the company (incorporation certificate, certificate of directors/secretary, shareholders, Memorandum & Articles, etc) together with the CIF application form (Form 144-03-01). [The usual time frame for the preparation of the application and supporting documents is 1-2 months, depending on the prompt availability of the required documents].
• Together with the above document bundle, a three year business plan, and internal procedures manual and anti money laundering and know your client procedures must be filed with the application.
• The application and all supporting documents is filed with Cysec.
• Cysec has up to 6 months from the date of submitting all the application documents, to reply favorably or not to the application. In the event of unreasonable delay, the applicant may bring administrative action against Cysec at the Supreme Court of Cyprus.

Cysec Application Fees

Application for the granting of a CIF authorization

Three thousand (3,000) euros, plus an additional one thousand (1,000) euros per investment service or activity of Part I, Annex III of the Law, except for the operation of a Multilateral Trading Facility (MTF) the additional amount of which is ten thousand (10,000) euros, as well as five hundred (500) euros per ancillary service of Part II, Annex III of the Law

Conclusion

Any Cyprus company wishing to conduct the business of FX trading, has to apply to be licensed by Cysec.

The main requirements are:

• The Memorandum of the Company must have specific clauses regarding the nature of this business.
• The applicant company must fulfill the minimum capital requirements as set out above.
• At least one director who is resident in Cyprus to act as Executive director and who passes the fit and ‘proper test’.
• The company has physical office space in Cyprus.
• Set up an internal control mechanism, namely Cysec will want to see that the company has in place internal rules and procedures to oversee potential problem areas, contingency plans, server protection, client protection etc.
• The suitability of the shareholders. As with the directors, the shareholder pass a fit and proper test, especially a back round check whereby Cysec is satisfied that they have a clean criminal record as well as experience in the business.
• Cysec must be satisfied that the company has such internal procedures so as to avoid any potential conflict of interest with its clients.

The setting up of an FX company in Cyprus provides many advantages such as:

• Attractive, low tax regime.
• Relatively simple application procedure as well as low application fees when compared to other EU jurisdictions.
• The possibility for passporting the license to operate in other EU jurisdictions.

Additional Information

Listed below are the application documents, as well as a sample CIF authorization certificate issued by Cysec to all licensed companies:

• Application for the granting of CIF Authorisation (Form 144-03-01)
• Personal Questionnaire for shareholders and directors (Form 144-03-02)
• Regulatory Own Funds and Capital Adequacy Ratio Form
• Checklist for the internal Procedures Manual for an Applicant Company to be granted a CIF authorization (Form 144-00-05).
• A Copy of the Provision of Financial Services Law 144(I)/2007
• A Sample Cyprus Investment Firm Authorisation which is issued to an Authorised CIF

Initially, Focus Business Services (Cyprus) Ltd can provide legal assistance with the preparation of the application and supporting documents, as well as the preparation of the business plan and professional advice throughout the application process as well as during the operation of the company.

Also, our group can provide all ongoing assistance after successful authorization of the Forex company for Accounting, Tax, Internal Control, Compliance and Audit.

Our group can furthermore provide the required by the relevant law physical office space for Forex Companies

Contact one of our officers to initiate the incorporation of a Cyprus registered company and start reaping the full benefits of an onshore, low-tax, EU jurisdiction. Simply fill in the contact box below or contact us by email on [email protected]