Cyprus is a long-established international business center that provides security, stability and prosperity to foreign investors for a number of reasons. To name a few, there are:
The advanced commercial infrastructure of the island;
Its stable economy;
The robust and transparent legal system;
Its political stability;
The favorable environment for foreign investors, and
The Republic of Cyprus is a full member of the EU.
Together, they have made the island an attractive destination for investors from CIS countries, the Middle East, China and, lately, the United States. If you add to this the country’s strategic location, and of course its attractive tax regime offering many incentives and benefits to foreign natural and legal persons, you have the perfect recipe for investment growth.
Furthermore, Cyprus has become a port for investment firms. A Cyprus Investment Firm (CIF) is one of the most useful tools in the EU, and not only for those who intend to provide and carry out investment services and activities in Cyprus or abroad on a professional basis.
Cyprus has managed to put in place a solid regulatory framework which is constantly monitored by the Cyprus Securities and Exchange Commission (CySec). CySec is the financial sector regulator in Cyprus. Its mission is to exercise effective supervision in order to ensure the protection of investors and the prosperous development of the securities market, the collective investment market and the asset management industry. The CySec also regulates the establishment of all financial services companies and in particular fund management companies that have been established by hedge fund managers.
Obtaining a CySec license
There is a certain process to follow, and there are strict criteria and conditions that must be met, in order to obtain the appropriate CySec license for the provision of “investment services”.
The review of the application can take up to six months depending of course on various factors, the most important of which is the range of services to be provided by the applicant company. Some of the basic criteria would include the company having local offices and a minimum number of native directors. Of course, additional key personnel may also be required. This can be a compliance officer, an AML officer as well as an officer authorized and licensed to provide the respective “investment service”. Additionally, depending on the “investment services” to be provided and whether or not the firm will hold client funds, there is a minimum capital requirement (for more information and guidance on how you can register a CIF, please contact the author or any member of our dedicated financial services team).
Investor protection is taken very seriously by CySec and investors in general should be confident that their complaints, if any, against CIFs will be thoroughly investigated. Although the CySec itself does not have restitution powers, it has implemented a three-step procedure complaints procedure for investors.
In short, each complaint is assigned a unique reference number by CySec. The CIF must respond and position itself in relation to the investors’ complaint within a certain period (maximum three months from the date of the complaint). If the investor is not satisfied with the CIF’s response, he can contact the Financial mediator (FO). The FO provides an independent service to resolve disputes between CIFs and their clients, however, its decisions are not binding. It is therefore open to the investor to take the case to court if he is not satisfied with the PO’s decision.
CySec has also put in place procedures for receiving and following up on reports of breaches pursuant to Article 32 of Regulation (EU) No 596/2014 on market abuse and has even set up a specific email address to this effect (whistleblowing @cysec.gov.cy).
Finally, the segregation of client and corporate funds is a must for CySec which has also set up the ICF (Investors Compensation Fund). In summary, the mission of the ICF is to compensate investors, provided of course that the conditions for compensation are met.
It could be argued that the last 10 or so years have shown that Cyprus is the ideal place for investment firms and investors because, unlike other jurisdictions, it offers a stable and secure environment for investment. Although there have been isolated instances in the past where some investors have lost funds, these incidents have generally been limited to unregulated companies.
However, there is no room for complacency. The fact that this activity is indeed flourishing and that the volume of funds invested daily is by all means massive, calls for a diligent approach on the part of the regulatory authority. CySec is committed to constant monitoring and supervision of the sector. However, at the same time, investors must also act responsibly. They are advised to be extremely careful and diligent when choosing an investment firm and to ensure that they act quickly when they suspect foul play on the part of the firm.
Partner, Elias Neocleous & Co
Email: [email protected]