Foreign exchange operations

Posted on 12 Feb 2013, by Ioanna Solomou

In order to be able to provide foreign exchange operations in Cyprus, the interested company must apply to the Cyprus Securities and Exchange Commission (“CySec”) to obtain the necessary license by fulfilling a certain number of requirements. Once the company owns the relevant license it will be able to offer several investment and ancillary services, depending on the license it is granted.

To begin with, the company will be allowed to receive and transmit orders in relation to financial instruments or execute orders on behalf of its clients. If it wishes to be considered as a market maker, there is a number of further requirements that need to be fulfilled. However, the advantages of dealing on its own account will be vouchsafed in combination with other services. Furthermore, the company will be given the right to preserve and administrate the financial instruments on behalf of its clients and to grant credits or loans to an investor, depending on the license it will be granted by CySec. Additionally, several foreign exchange services where these are connected to the provision of investment services will be granted followed by a series of other important advantages.

An application package must be completed and submitted to CySec for approval in order to obtain the particular license. This package of documents includes a completed application form as provided by CySec, information by the directors, managerial staff and shareholders with special participation, the legal documents of the company and the relevant certificates issued by the Cyprus Registrar of Companies confirming the directors and secretary of the company. Moreover, the group and organizational structure will be required and clean criminal records and certificates of good standing for the shareholders with special participation, the board of directors and employees of the company. In addition, financial statements for the past three years and a two-year plan must be provided. It is estimated that with no unreasonable delays a license can be issued about 4 or 5 months after the submission of the application.

Some of the conditions and requirements that need to be fulfilled in order for CySec to approve the granting of the license include, but are not limited to, the minimum issued share capital of the company depending on the license it wishes to be granted and that its head office must exist and be situated in Cyprus. Similarly, the organization adequacy and administrative structure of the company will be evaluated, as well as the efficiency of the company’s internal control mechanism and its technical and financial resources. Furthermore, the company needs to have a suitable strategy for minimizing the risk of conflicts and competent staff, especially when it comes to the shareholders and the directors of the company.

Getting a CIF license is not a cheap investment and because of this exact reason a person who requests the particular license usually is absolutely sure of his capability. Due to the high cost of the procedure people who are not enough experienced and competent remain out of the plan leaving more space for those who take their job seriously and who will not fool with their client’s money. Further than the fees required by CySec, there are some standards that have to be reached in accordance with the share capital. The minimum issued share capital depends on the investment services provided by the company. For the execution, reception and transmission of orders, for portfolio management or investment advice the share capital must be at an impaired amount of €200.000 (Euro Two Hundred Thousand). On the other hand, for the company to become a market maker and be able to deal on its own account, to underwrite financial instruments and/or place financial instruments on a firm basis, to place financial instruments without a firm commitment basis or to operate Multilateral Trading Facilities, the share capital must be €1.000.000 (Euro One Million). However, in the occasion where a company does provide certain services, but does not hold client’s money or financial instruments the company is required to have an initial capital of at least €80.000 (Euro Eighty Thousand).

Once the interested company fulfills the above mentioned requirements then the procedure of requesting the license may begin. Once all relevant documentations and requirements are sent to CySec, CySec will notify the applicant of its final decision within six (6) months. In the rare occasion where CySec fails to notify the applicant about its decision the right to take the issue to the Supreme Court is given to the applicant. Nevertheless, CySec may request any additional information or details necessary at any time for the assessment of the application.