Cyprus Forex License

Advantages of the Cyprus Forex License

Cyprus has a long history of forex trading, since it was among the first countries to recognize it as a viable part of the financial industry by starting to create an infrastructure and legalizing the activities. With all the accumulated experience and honed infrastructure, Cyprus remains one of the most reputable and popular jurisdictions for forex traders. Although Cyprus’s forex activities are subject to strict EU regulations, the country has managed to establish a streamlined forex licensing process, allowing applicants to save time and money and simultaneously focus on a robust business model.

The application requirements and mandatory steps are clear, transparent, usually feasible with the help of such legal advisors as Regulated United Europe (RUE), and constantly evolving to accommodate business needs, as well as protect the financial industry and maintain security across all levels. This means that by submitting a quality application in line with the relevant regulations, you’ll most likely be able to obtain a forex license in a timely manner without having to keep returning to the application to fulfil additional, unforeseen requirements. Besides, a fast-track option for application processing is also available.

Cypriot forex businesses are subject to such EU regulations as the Markets in Financial Instruments Directive II (MiFID II) which ensures the application of basic standards. CySec is responsible for enforcing the standards and is one of the most prominent and essential regulators of forex businesses and dealing centres that provide services in international financial markets, although it doesn’t force excessive regulations. The regulatory environment is mostly easy to comply with and at the same time allows the offering of reliable services which means that you will have a smaller regulatory and financial burden but will be trusted and respected just as traders licensed in such prestigious jurisdictions as the UK, Switzerland, or the US.

The Cyprus forex license grants EU passporting rights which allow licensees to offer financial services in other jurisdictions of the European Economic Area (EEA) which means that you won’t have to establish physical office branches or apply for a new license in every EEA country where you intend to conduct business – once the Cyprus forex license is granted, notifying relevant national financial authorities will suffice. Obtaining a license in such a less costly jurisdiction as Cyprus and conducting business in the wealthiest countries is a common practice due to the opportunity to optimize operational costs. It also adds an extra layer of security for investors, as such companies are monitored by the authorities of their home and host countries, and they regularly exchange relevant information.

Another notable advantage is that the Cypriot banking system is one of the most reliable banking systems in the entire world, as it’s regulated by the Central Bank of Cyprus in line with the EU standards. Cypriot banks are innovation-oriented and offer a variety of services in English and other languages, which makes them accessible to international entrepreneurs. In Cyprus, you can expect banks to facilitate international transfers, offer various loans and business cards, provide insurance products, internet banking, and more. Cypriot banks can also be trusted due to their confidentiality, as they don’t share information about their clients with third parties without clients’ consent or a court order. If you value privacy and security, as well as want stability offered by the EU-based banks, Cypriot banks are among the most suitable options.

The taxation system in Cyprus is undoubtedly among the most favourable ones in Europe. The Corporate Income Tax rate is only 12.5% and there’s no Withholding Tax. Dividends received from other Cyprus tax resident companies, interest, profits arising from the sale of securities, and several other types of profits are tax-exempt in many instances. Moreover, Cyprus has over 65 international agreements on the elimination of double taxation, promoting cross-border investments, and reducing the tax burden for international entrepreneurs, provided that they’re tax-resident companies.

FOREX LICENSE IN Cyprus

Tiers of Cyprus Forex Licenses

Depending on the scope of your business activities, you can choose from 3 main tiers of forex licenses in Cyprus, grantable by CySEC under Law 87(Ι)/2017. The authority supervises forex brokers by demanding reports on capital adequacy, enforcing financial compliance of the company, and the professional competencies of employees. Whichever license is granted, the licensee is obligated to maintain the share capital at least at the required minimum level.

The main tiers of Cyprus forex licenses are as follows:

• The basic license (minimum capital – 50, 000 EUR) enables forex businesses to either provide investment advice and execute orders, or provide investment advice and portfolio management services; this license doesn’t permit holding clients’ money or other financial instruments
• The standard, or Market Making, license (minimum capital – 125,000 EUR) enables forex businesses to pass customers’ orders directly to the liquidity pool as opposed to dealing directly with them by employing the Straight-Through Processing (STP) model which, unfortunately, makes clients more vulnerable to lower liquidity; the licensee is authorized to hold clients’ money or other financial instruments
• The full, or Dealing On Own Account, license (minimum capital – 730,000 EUR) authorizes licensed businesses to process customers’ trades in-house by acting as a counterparty to their trades which allows clients to trade directly with the broker and this way be entitled to more liquidity and be protected from market fluctuations since such brokers charge a fixed spread; the licensee is authorized to hold clients’ money or other financial instruments

Forex Regulations in Cyprus

The forex market in the EEA is subject to a harmonized set of regulations laid out in the aforementioned Markets in Financial Instruments Directive II (MiFID II), the basic provisions of which came into effect in Cyprus in 2018. While such countries as Switzerland and the UK have gone way above the basic MiFID II requirements, Cyprus has decided to only meet the basic requirements, which leaves room for more flexibility while also ensuring safety and security within the financial market. Overall, this law facilitates increased competition, and investor protection, as well as makes the financial market more resilient, and transparent.

One of the most significant MiFID II rules is funds segregation. Forex brokers are required to separate their clients’ funds from the company’s funds and place them in separate bank accounts. This approach enables the protection of clients’ funds, as the broker can’t use these funds in case of financial setbacks. However, while certain EU countries are strict about enforcing this rule, Cyprus has chosen a more relaxed approach which our team here at Regulated United Europe (RUE) can advise you on in a personalised consultation which you can request by clicking the link.

The categorization of clients is another MiFID II rule worth taking note of. Forex brokers are obligated to establish clear principles for categorizing their clients into retail traders and professional traders or investors, and do so in line with the established principles. After categorizing their clients based on their relevant knowledge, the brokers can evaluate risks, offer appropriate products and services, and this way prevent inexperienced traders from engaging in high-risk activities.

The investor compensation rule is crucial in terms of protecting clients from losses incurred by the bankruptcy of a broker. Pursuant to MiFID II, in such cases clients in the EEA, including Cyprus, are covered up to 20,000 EUR, while clients residing outside the EEA are eligible for 1,160 EUR. In Cyprus, the function is performed by the Investor Compensation Fund (ICF), provided that a broker is a member of the fund. All non-professional investors-clients of an ICF member who are covered by the ICF for claims against such member, arising out of the covered services provided by the member, can apply for compensation, regardless of their legal status, nationality, or place of residence.

Cyprus

Capital	Population	Currency	GDP
Nicosia	1,244,188	EUR	$29,535

How to Establish a Cyprus Investment Firm (CIF)

Due to the above-mentioned advantages, a great number of international businesspeople view Cyprus Investment Firm (CIF) as a valuable means to conduct forex business across the EEA. The process of establishing a new company in Cyprus is straightforward but vigorous, as a forex company must also meet the EU’s rules for anti-money laundering/countering the financing of terrorism (AML/CFT).

To establish a CIF, you must meet the following requirements:

• Hire at least four – two executive and two non-executive – directors, among which three of them must reside in Cyprus
• Establish a Board of Directors, the members of which must demonstrate excellent reputation and relevant professional competencies
• Open a physical office in Cyprus with CySEC-approved key employees
• Transfer the authorized minimum capital to the local bank account

Recall that the amount of the authorized minimum share capital is dependent upon the tier of the forex license you intend to apply for. Applicants for a basic license are obligated to transfer 50,000 EUR, applicants for a standard license must transfer 125,000 EUR, and the full license applicants must transfer 730,000 EUR. Additionally, all licensed brokers must allocate a certain amount of funds to the aforementioned ICF.

For the incorporation, you should prepare the following documents:

• Memorandum and Articles of Association
• A clear and detailed business plan
• A financial plan
• Proof of deposited authorized minimum share capital
• Certified passport copies of the directors and secretary of the company
• Proof of the company’s registered address in Cyprus
• Certified copies of passports and proof of good standing of the ultimate beneficial owners of the company

The company’s business plan should include:

• Management plan
• Description of services to be provided by the company
• Organizational structure, including a background of key office holders
• Operational guide
• AML/CFT policies and procedures in line with national and EU regulations
• Risk management and compliance procedures
• Marketing plan
• Market analysis report
• Market segmentation and distribution channels
• Details of payment transactions

The financial plan should include the following information:

• Profit and loss statement
• Balance sheet
• Cash flow statement
• Capital requirements
• Capital source
• Revenue and cost projections
• Quarterly budget forecasts for the next 3 years under target and stress scenarios
• Any other essential information, assumptions, and explanations

Once all the documents are prepared, the application must be submitted to the Registrar of Companies (RCOR) in Cyprus. However, recall that a freshly registered company isn’t yet permitted to offer financial services without being licensed by CySEC first.