CYPRUS INVESTMENT FIRMS (CIF)

Transcription

1 CYPRUS INVESTMENT FIRMS (CIF) Following the Markets in Financial Instruments Directive (MiFID) of the EU which became effective on 1 November 2007, Cyprus has introduced legislation, Law 144(I)/2007 ( the Law ), regulating the provision of investment services by and to entities in Cyprus. Scope of the Law The Law regulates the provision of investment services and ancillary investment services (refer to Appendix A for definitions) provided by: (i) (ii) (iii) Persons outside Cyprus to persons in Cyprus. Persons in Cyprus to persons in Cyprus Persons in Cyprus to persons outside Cyprus. A company in order to be able to provide investment services to or from Cyprus must be granted a licence from the Cyprus Stock Exchange Commission (CySEC). Cyprus registered companies obtaining this licence are called Cyprus Investment Firms (CIF). A licensed CIF can provide investment services throughout the EU via branches. Investment Firms registered in other member states or third countries which are regulated may also be granted licence to operate in Cyprus via branches. Entities providing investment services to their holding companies, subsidiaries or fellow subsidiaries are outside the scope of the Law. Initial Capital A CIF providing the following services must have a minimum capital of : a. Reception and transmission of orders in relation to one or more financial instruments. b. Execution of orders on behalf of clients. c. Portfolio management d. Provision of investment consultancy services. A CIF providing only services described in a and /or d above need only have a minimum capital of or plus an indemnity insurance for at least 1,5 million of losses ( 1 million per claim). The minimum capital requirement for a CIF providing the following is 1 million: i. Trading for Own Account ii. Underwriting financial instruments or/and placing of financial instruments on a firm commitment basis. iii. Placing of financial instruments without firm commitment. iv. Operation of Multilateral Trading Facilities.

2 Application requirements The basic requirements for a company to obtain a licence to operate as a CIF are the following: 1. Have the minimum capital requirements as specified above. 2. The directors and key management personnel must have credentials for integrity of character and professional experience. There must be at least 2 persons managing the activities of the Company. 3. The ownership structure must be transparent and the ultimate beneficial owners must have credentials for integrity of character and professional experience. 4. Company staff must have appropriate experience knowledge and skills. 5. If the Company is outsourcing functions, the respective service providers must have appropriate professional experience competence and skills. The CIF remains responsible for discharging all its obligations under the Law. 6. A sound business plan should be prepared. 7. Have its headquarters in Cyprus, which should be an office with proper telecommunication and computer infrastructure and properly staffed. 8. Have in place an effective organisation chart and robust Corporate Governance policies. 9. Establish implement and maintain appropriate internal control policies for securing compliance with decisions and procedures at all levels of the CIF. (An Internal procedures manual must accompany the application). 10. Key management personnel should pass the exams of CySEC, for professional competence. After an application is submitted CySEC has 6 months before it takes a decision as to whether to grant a licence or not. Functions A CIF must establish and maintain the following independent functions: 1. Compliance Assessing and monitoring internal procedures and provide advice and assistance to relevant persons. A compliance officer must be appointed. 2. Risk Management Identifying the risks relevant to the CIF s activities and implementing policies and procedures to mitigate these risks. Compliance and Risk management may be carried out by same person without jeopardising independence of each function.

3 3. Internal audit Examining and evaluating effectiveness of internal control procedures and issuing reports with appropriate recommendations. Senior management and the Board of Directors should receive reports from these functions on a periodic basis and at least annually. Board minutes of the meetings where the reports are discussed are submitted to CySEC within 20 days from the date of the meeting. General requirements 1. A CIF should have procedures for data recovery and continuity of functions in case of system failures. 2. A CIF should have a website, the address of which should be communicated to CySEC. 3. Accounting procedures should allow timely preparation of financial reports for submission to CySEC. 4. Audited financial statements should be presented to CySEC annually within 4 months from the respective year end. 5. A CIF should establish implement and maintain a conflicts of interest policy to combat situations where such conflicts may be harmful to the clients interests. Investment or ancillary services giving rise to conflict of interest situations should be recorded separately. 6. A CIF should at all instances be in compliance with the provisions of the Law and the CySEC directives.

4 Appendix 1 Main Definitions of the Law Part I - Investment Services 1. Reception and transmission of orders in relation to one or more financial instruments. 2. Execution of orders on behalf of clients. 3. Portfolio management 4. Provision of investment consultancy services. 5. Underwriting financial instruments or/and placing of financial instruments on a firm commitment basis. 6. Placing of financial instruments without firm commitment. 7. Operation of Multilateral Trading Facilities (MTF). Part II Ancillary Investment Services 1. Safekeeping and administration of financial instruments for the account of clients, including custodianship and related services such as cash/collateral management. 2. Granting credits or loans to an investor to allow him to carry out a transaction in one or more financial instruments, where the firm granting the credit or loan is involved in the transaction. 3. Advice to undertakings on capital structure, industrial strategy and related matters and advice and services relating to mergers and the purchase of undertakings. 4. Foreign exchange services where these are connected to the provision of investment services. 5. Investment research and financial analysis or other forms of general recommendation relating to transactions in financial instruments. 6. Services related to underwriting. 7. Investment services and activities as well as ancillary services of the type included under Parts I and II related to the underlying of the derivatives included under paragraphs 5, 6, 7 and 10 of Part III where these are connected to the provision of investment or ancillary services.

5 PART ΙΙI Financial Instruments 1. Transferable securities 2. Money-market instruments 3. Units in collective investment undertakings 4. 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 5. 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). 6. 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 7. Options, futures, swaps, forwards and any other derivative contracts relating to commodities, that can be physically settled not otherwise mentioned in point 6 of Part III 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 8. Derivative instruments for the transfer of credit risk 9. Financial contracts for differences 10. 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.