Cyprus being a member of the European Economic Area and the European Union, it falls under the Markets In Financial Instruments Directive which harmonises investment regulation throughout the 30 states of the EEA and sets a minimum regulatory framework which must be adopted. Most importantly, the Directive maintains the “passport principle” introduced by previous EU law, through which a firm regulated in one EEA country can offer its services to citizens and residents of other EEA countries. Cyprus implements the Directive through its national legislation “Law of the Investment Services and Activities and Regulated Markets 144(I)/2007”.
On 17th June 2009, the Cyprus Securities and Exchange Commission (CySEC) announced its decision that the foreign exchange trading transactions, which either do not aim to physically deliver the agreed foreign currency or are not materially settled in cash (foreign exchange spot trading), fall within the ambit of the aforementioned Law. Therefore FX Companies established in Cyprus under that Law benefit from the “passport principle” and can offer their services to citizens of any other EEA country.
The setting up of a FX Company in Cyprus depends on the applicant obtaining a licence from the Cyprus Securities and Exchange Commission. This requires the fulfilment of the conditions set by the Law 144(I)/2007, in addition to minimum capital requirements which will be discussed in the next section. According to Part III, Section B of Law, the firm’s head office must be situated in Cyprus, and the firm must be a member of the Investment Compensation Fund for Clients of Investment Firms. Furthermore, the firm must have in place Anti-Money Laundering Procedures and internal procedures so as to avoid any potential conflict of interest with its clients. The CySEC must also be satisfied that the persons who will effectively run the company are competent and suitable both in terms of professional experience and personal background. These requirements demand the submission to the CySEC of procedure manuals as well as CVs, certificates of clean criminal record, and non-bankruptcy certificates for the shareholders and management of the company. A decision is normally reached by CySEC within 6 months upon filing the application.
Minimum Capital Requirements
For an FX Company to be granted the licence by the CySEC, the minimum capital requirements set out in Article 10 of the Law must be met. These largely depend on whether the company will hold clients’ money or not. More specifically, companies which hold clients' money and/or client’s financial instruments, must have an initial capital of at least €125.000, and companies that do not, and hence do not place themselves in debt with their clients, must have an initial capital of at least €50.000. Therefore, for the most basic FX Company which offers investment advice and reception and order transmission and does not handle the clients' money, an initial capital of €50,000 will be required, and a FX Company which will handle the clients' money and which will offer trades through its own forex trading platform, an initial capital of €125,000 will be required.
Application fees to the CySEC
The fees that must accompany the application to the CySEC for a licence are a fixed charge of €3,000, plus an additional €1,000-€10,000 for each investment service depending on the service, plus €500 per ancillary service, plus €300 per other activity such as insurance intermediary services in the insurance sector.
An approximate quotation on our fees for undertaking the licencing process and/or management of FX Companies can be obtained upon request.