The Provision Of Regulated Investment Services In Cyprus


  • Charalambos G. Prountzos, Advocate Managing
    Partner at Prountzos & Prountzos LLC

What does the Law on Investment Services and Regulated Markets (no. 144(I)/2007) cover, and who is exempted from its application?

The Law on Investment Services and Regulated Markets (no. 144(I)/2007), hereinafter ‘the Law’ regulates the provision of investment and other ancillary services, which include the supply of financial and/or other related services from within or outside the Republic of Cyprus aimed at persons who live within or outside the Republic of Cyprus and the functioning of Regulated Markets. This Law constitutes the implementing legislation of the MiFiD Directive in the field of investment services. Those exempted from its application are, but are not limited to:

  • The members of the European System of Central Banks and other national organizations who exercise similar functions, as well as the remaining public sector providers who manage the national debt or are involved in its management.
  • Insurance Companies.
  • Collective Investment Organizations dealing with movable securities.
  • Those who provide financial services exclusively to their holding companies or subsidiaries.
  • Those involved in the provision of financial services dealing exclusively with the management of Worker Participation Schemes.
  • Those who provide financial services as a secondary service within their business activities, as long as this provision of services is legally permissible.
  • Persons whose main activity lies on undertaking transactions to goods for their selves or undertaking transactions in markets of future fulfillment contracts.
  • Unions comprised of Danish or Finnish pensions funds with their sole objective to manage their clients’ assets.

Those capable of providing investment services within the Republic of Cyprus are:

  • Any licensed Cyprus Investment Firms (CIFs) under s. 6 of the Law.
  • Investment Firms from EU Member States, under ss. 77 and 80 of the Law.
  • Investment Firms from third countries, not within the EU, under s. 78.
  • Banks, under s. 118.
  • Cooperative Credit Institutions, under s. 122 of the Law.

The Law on the Structure, Powers, Responsibilities and Organization of the Cyprus Securities and Exchanges Commission (“CySEC”) (Law no. 73(I)/2009 as amended), hereinafter “CySEC Law”.

CySEC (alternatively, ‘the Authority’) is responsible for the general supervision of the capital market and the investment services carried out in the Republic of Cyprus or related services carried out in the EU from Cyprus on a cross-border basis. It is vested with the authority to control the smooth operation of the capital market and the stock market, their methodical development and the overall protection of investors. The Authority has a duty to professional secrecy of any confidential information that may be requested or submitted by any party involved with the Authority. Any notification of other state authorities and/or organizations must be deemed necessary by law, necessary for the proper exercise by the Authority of its legal obligations or for reasons of public interest and protection of investors. The Authority is allowed to request and collect any necessary or useful information it deems so within defined time limits by any person or company. Any person in violation of the CySEC Law is subject to Administrative Sanctions provided by s. 37, not exceeding Euro 350,000 and for continuing violations the sum of Euro 700,000, whereas in cases where a perpetrator receives benefits as a result of this violation, administrative sanctions equal to twice the value of the proven benefit may be imposed.

What do I need to secure a CIF License?

To receive such a license, the interested person must first apply to the relevant authority (CySEC). This application must be accompanied by a relevant certificate of the applicant that it possess or will possess all necessary funds required for its principal capital (capital adequacy requirements) and that the applicant shall tether it within a bank account, if requested by the Authority. The Authority will then respond within six (6) months of the application. Furthermore:

  • The applicant provides all information necessary for the Authority to decide whether the applicant has taken all measures to comply with the Law.
  • This License is valid in all Member States and allows the CIF to provide its services throughout the EU (the so-called single passport rule).
  • Under no circumstances shall a License be granted solely for provision of ancillary services.

- The capital adequacy requirements for a CIF License amount to a principal capital of at least Euro 200,000 if:

  • A CIF will either receive and forward orders relevant to financial instruments,
  • Execute orders on behalf of clients,
  • Undertake portfolio management or
  • Function as an investment consultant/advisor.

- The capital adequacy requirements for a CIF License amount to a principal capital of at least Euro 1,000,000 if a CIF undertakes:

  • Trading for own account.
  • Underwriting of financial instruments with a firm commitment.
  • Disposal of financial instruments without a firm commitment.
  • Multilateral trading facilities (“MTF”). CIFs are obliged to retain, throughout their operation, standard capital that exceeds or equals the sum of its capital adequacy requirements.

What are the sanctions for a violation of the Law regulating CIFs?

If a CIF violates any provision of the current Law, the Authority may impose administrative sanctions not exceeding Euro 175,000 or Euro 350,000 if the violation persists.

Obligation of a CIF to keep records of transactions.

A CIF must, for a period of 5 years, keep records that contain all information relevant to the transactions on financial instruments that the CIF has conducted either for one’s self or a client as well as the rights and obligations of the CIF and its clients based on their individual contractual terms.

What are the obligations of a CIF towards its clients?

  • It must ensure that all reasonable and necessary measures have been taken so as to achieve the best possible outcome for a client, based on the price, cost, speed and possibility of execution and the nature or other feature of an instruction by the client.
  • It should apply an efficient Order Execution Policy that allows it to achieve the former obligation.
  • Provides customers all necessary information as to their instruction execution policies that must be approved beforehand.
  • If a CIF undertakes activities outside Regulated Markets, it must first obtain their clients’ unequivocal approval.
  • It should monitor the efficiency of their policies and make control checks as to whether the best possible outcome for their clients has been achieved.
  • It must be prepared to prove that it has executed all instructions as mandated by clients.
  • Maintain adequate insurance cover and contribute to the investor’s protection fund.

How can an EU Member State Investment Firm provide financial services within the Republic of Cyprus?

If an Investment Firm has secured a valid License of service provision and is supervised by the Authorities of another EU Member State, it may then establish a branch within the Republic of Cyprus and undertake any services as granted by the aforementioned License.

The relevant authority of the Investment Firm’s Member State must, inter alia, provide CySEC with the following information:

  • The branch address.
  • Those who will manage the branch as well as its organizational structure.
  • An activity list of the branch emphasis on the investment and incidental services.
  • Information with regard to the approved compensation scheme it participates in.

It may commence operations once it receives notice from CySEC or 2 months maximum after the aforementioned information have been provided.

How can an Investment Firm from a third country commence the provision of financial services in Cyprus?

As above, provided it has been granted with the relevant License by the CySEC. A License is granted if the branch is in compliance with Part III of the Law and if the ISP functions as dictated by the Law.

What does the Law on the Regulation of Open Type Collective Investment Organizations (Law no. 78(I)/2012) cover?

Law no. 78(I)/2012 (‘UCITS Law’) is the main local legislative instrument for the regulation of Undertakings for Collective Investment in Transferable Securities (UCITS). The function of UCITS should be based on the principle of ‘risk sharing’. The objective is for the market value of a UCITS’s shares not to deviate extensively from their ‘net value’, and this deviation is deemed acceptable if it does not exceed 5% of the ‘net value’ of the UCITS’s share value.

How does an interested person obtain a UCITS License?

In order to carry out activities as a UCITS, this presupposes the issuing and publication of a License by the relevant Authority (CySEC) under s. 9 of the UCITS Law. This License is valid in all EU Member States. The following must further be submitted to the Authority:

  • A declaration for undertaking the obligation to pay the original fund assets in cash,
  • The name of the management company and trustee of the original fund assets as well as information relating to the persons listed as directors in the management company and the trustee who are responsible for the management or control of the activities of the original fund.
  • Declaration by the trustee that he shall execute his duties in accordance with the Law.
  • Draft regulation of the original fund, signed by the Management Company and trustee.
  • Draft prospectus of the original fund.
  • Draft of the basic information newsletter for investors.

General requirements for Variable Capital Investment Companies.

Prior to commencing activity, these VCICs must first obtain a relevant License. The VCIC, upon its formation, must hold in cash a starting capital of Euro 200,000. This capital is divided into shares with no nominal, but a fluctuating value that is equal to the asset value after subtracting all liabilities. If no management company has been set, the VCIC requires a starting capital of Euro 300,000 instead, as well as some other requirements i.e. that the application is accompanied by a mode plan which, at least, includes the organizational structure of the VCIC, and a few other criteria under s. 34 of the UCITS Law. Obligations of UCITS in relation to their Investment policies include, but are not limited to:

  • Investments by UCITS are only undertaken in relation to transferable securities within a regulated market of the Republic of Cyprus or other Member State.
  • Transferable securities that are under negotiation in a different EU regulated market.
  • Transferable securities listed on the stock exchange of third countries.
  • May not invest over and above 10% of the value of its assets to other transferable securities

Obligations of Management Companies:

  • To ensure a starting capital of at least Euro 125,000.
  • If the Management Company also provides services under s. 109 (4) of the UCITS Law, the starting capital must reflect the limits set by the Law above on Regulated Markets.

What does the Law on Public Offers and Prospectuses (Law no. 114(I)/2005) cover?

The Law on Public Offers and Prospectuses (Law no. 114(I)/2005), hereinafter ‘the Law on Prospectuses’, prohibits the conduct of public offers of transferable securities within the Republic of Cyprus before publishing a prospectus approved by CySEC. This however is subject to a limited number of exemptions, which are strictly defined in the Law.

What must a Prospectus contain?

A Prospectus shall include all the information that is necessary in order to provide investors the ability to clearly appreciate the assets, liabilities and financial situation of the publisher, depending on the special features of every publisher and of the transferable securities involved. The Prospectus is valid for a period of 12 months after its publication. The prospectus is designed as a single document, comprised of the main body with the details of the publisher and the transferable securities which comprise the object of the public offering, and a summary note. The summary note is short in length and phrased in a non-technical language and includes the basic characteristics and dangers/risks that are related to the publisher as well as of the transferable securities. If neither the basic Prospectus nor the summary note contain the final terms of the offering, these are submitted to the Authority before the initiation of the offering if possible, otherwise this is done as soon as possible. Any deficiencies are noted by the Authority usually within 10 days of its submission for approval. After approval, this Prospectus is published by the offeror as soon as possible or within a reasonable time.

Important news, faults or inaccuracies as to the information contained in the Prospectus that may affect the evaluation of the transferable securities by the Investors is mandatorily mentioned in a complementary Prospectus.

Obligations for submitting an annual Report

Publishers whose transferable securities have been admitted for trading in a regulated market must publish an annual Report which contains all information that had been published during the preceding 12-months to one or more Member States or third counties for the regulation and control of the transferable securities.

What are my obligations in relation to advertisements or announcements?

Any forthcoming advertisement or announcement of public offerings of transferable securities entails the obligation to mention the publication of the Prospectus, the information contained therein must not be inaccurate or misleading and must conform to the content of the Prospectus.

Sanctions upon violation of the Law on Prospectuses.

The Authority in charge of imposing sanctions for violation of the Law on Prospectuses is the Authority. Whoever violates the provisions of s. 4 of the Law on Prospectuses is guilty of an offence and may be penalized either by prison sentence not exceeding 2 years or with monetary sanctions not exceeding 100,000 Cyprus Pounds (or equivalent) or both sanctions. In case of a continuous violation, these sanctions shall be double in length or monetary value. There may also be imposed Administrative Sanctions that do not exceed 100,000 Cyprus Pounds or 200,000 Cyprus Pounds (or equivalent) for a violation or continuation of a violation, respectively. These penalties may vary depending on the provisions that have been violated.

What does the Law on International Collective Investment Schemes (no. 47(I)/1999) (the “Law on ICI Schemes”) cover?

The regulating and supervisory authority for International Collective Investment Schemes is the Central Bank of Cyprus (‘the Bank’). Upon an application by any interested party, the Bank may identify a business as an international collective investment scheme if it satisfies certain criteria. These include, though not exhaustively, the capability of the directors of the applicant business to act responsibly for all relevant matters, the director and trustee must act independently of one another, and that all documentation required by the Bank has been duly submitted. There are also capital adequacy requirements which differ based on the type and the activities of the ICIS. There are 4 types of ICIS, namely:

  • International Unit Trust
  • International Variable Capital Company
  • International Fixed Capital Company
  • International Limited Partnership.

What are the benefits of establishing an ICIS?

An ICIS is easy to form, the costs and fees involved are extremely competitive and it is an EU regulated investment vehicle. Moreover, the disposal of units or shares held in an ICIS are exempted from withholding tax, thus optimizing the tax position of investors from major countries in the world, especially in cases of investors residing in countries with which Cyprus has a double-tax Treaty. This withholding tax benefit extends to the disposal of all securities as defined in the Law on Investment Services and Regulated Markets, as this has been repeatedly interpreted by the relevant circulars of the Cyprus Tax Authorities.

NB: Cyprus implements all standard insider-dealing, anti money-laundering and anti-fraud EU legislation.




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