Legal framework

Cyprus investment firm law is a direct adaptation of the European commissions Markets in Financial instruments Directive (MiFID), which is the core pillar underlying EU financial markets integration. The Directive facilitates harmonized regulation for investment services across thirty European nations. Its main objective is to increase competition and consumer protection in investment services; and is considered the most significant piece of legislation pertaining to financial services hitherto introduced in Europe.

 

The following discussion intends to underline some of the highlights of the EU Directive. The MiFID classifies clients into retail, professional (accredited) and eligible counterparties. This facilitates the tailoring of regulatory requirements according to the knowledge and experience of clients. Therefore different levels of regulatory protection pertain to each category.

 

The client categories, emphasizing the level of legal and regulatory protections, are summarized in the following table:

 

Category Protection Description
Retail HIGH Retail clients are afforded the most regulatory protection.
Professional MEDIUM

Professional clients are considered to be more experienced, knowledge-able and sophisticated and are able to assess their own risk and are thus afforded fewer regulatory protections.

A client can be classified as professional if he or she meets the following three criteria:

1. The client has carried out transactions, in significant size, on the relevant market at an average frequency of i0 per quarter over the previous four quarters.

2. The size of the client's financial instrument portfolio, defined as including cash deposits and financial instruments exceeds € 500,000.

3. The client works or has worked in the financial sector for at least one year in a professional position, which requires knowledge of the trans» actions or services envisaged. it is worth mentioning that the above criteria are in line of the industry's definition of an accredited investor [standard Industry convention]. An Accredited investor pertains to an individual that has a Net Worth of at least one million US$, not including the value of ones primary residence, or has income of at least $200,000 each year for the last two years [or $300,000 together with his or her spouse if married] and has the expectation to make the same amount this year. 

Eligible Low Eligible

Counterparties are investment firms, credit institutions, insurance Counterparties companies, UCITS and their management companies, other regulated financial institutions and in certain cases, other undertakings.

MiFlD provides a light-touch regulatory regime when investment firms bring about or enter into transactions with the Cyprus Investment firm (it should be noted that this category does not include pension funds and other employee benefit plans, which enjoy a high degree of regulatory protection). 

In addition to the categories in the above table, the EU directive also distinguishes between discretionary and non-discretionary clients (or discretionary verses non-discretionary investment services).

When an investment firm executes transactions for non-discretionary clients, the directive stipulates that the firm should seek "best execution" as opposed to selecting the option that has the lowest transaction costs. More explicitly, in order to ensure a high quality of execution of investors transactions and to uphold the integrity and overall efficiency of the financial system, the EU Directive imposes an effective "best execution" obligation to ensure that investment firms execute clients orders on terms that are most favorable to the clients This obligation applies to firms which owe contractual or agency obligations to their clients.

In assessing best execution the investment manager should consider a number of criteria, such as the availability of pre- and post-trade transparency data, as well as transaction costs. Nevertheless, other information such as the number of orders cancelled prior to execution or the speed of execution can also be relevant.

Take the next step, we are here to help.

Register a Cyprus investment firm company.
Open a Cyprus investment firm bank account.

  Resources:

Inward re-domiciliation: changes to the Singapore Companies Act allowing foreign firms to re-domicile to Singapore

Inward re-domiciliation: changes to the Singapore Companies Act allowing foreign firms to re-domicile to Singapore

In order to ensure that the regulatory regime of Singapore continues to be robust, relevant and in line with international norms, on the 30th of March 2017, the Companies (Amendment) Act 2017 of Singapore was gazetted. Among the number of amendments to the Companies Act, the provisions for the inward re-domiliation regime are arguably the most important in further boosting Singapore’s character as a business hub.

Inward re-domiciliation: Key changes to the Singapore Companies Act make company relocation to Singapore easier than ever

Inward re-domiciliation: Key changes to the Singapore Companies Act make company relocation to Singapore easier than ever

Last March, the Singapore Government amended the Singapore Companies Act 2017 which introduced an inward re-domicile (or relocation) regime in an effort to boost Singapore’s attractiveness as a business hub.

Cryptocurrencies: technical and legal overview

Cryptocurrencies: technical and legal overview

In this article, we will try to succinctly describe the technical and legal characteristics of Cryptocurrencies. The understanding of Cryptocurrencies is crucial for today’s modern payment services and investment opportunities around the world. We have seen the increasing importance that this topic has acquired in the last few months and the rise of the price of the most popular type of Cryptocurrency, the Bitcoin, from $0.06 cents of a dollar in 2010 to $5,518.85 by the 25th of October, 2017.[1]

The Belize IBC Amendment Act 2017: 3 notable changes for businesses

The Belize IBC Amendment Act 2017: 3 notable changes for businesses

Belize has amended its International Business Companies Act. These changes were to maintain its financial services industry in the increasingly regulated international market & meet the OECD white list requirements.

Cryptocurrency & ICOs as securities & virtual commodities as per Hong Kong law

Cryptocurrency & ICOs as securities & virtual commodities as per Hong Kong law

The Hong Kong Securities and Futures Commission has remarked upon the growth and popularity of Initial Coin Offerings (ICOs) for raising money not only in Hong Kong but other Asian countries. This article confirms and explains how digital tokens that are offered or sold may be defined as "securities" and as such are therefore governed by the relevant securities legislation of Hong Kong.

New licensing regulations for Trusts & Service Providers in Hong Kong

New licensing regulations for Trusts & Service Providers in Hong Kong

As per new regulations, all Hong Kong businesses providing Trustee Services, including Corporate Service Providers will not be able to operate without a valid trading license after March the 1st 2018. The new scheme is designed to better regulate individuals carrying out services within the financial sphere in Hong Kong and will be overseen and administered by the Hong Kong Companies Registry.

The terms of Hong Kong's new register of significant controllers and what it means for companies

The terms of Hong Kong's new register of significant controllers and what it means for companies

As per new legislation, from March 1st 2018, every company incorporated in Hong Kong will be required to keep and maintain a register of all persons who have significant control of the company. The record must be updated as required and kept at the registered company address, even if there are no persons of significant control.

The pros & cons of European Passport-by-Investment schemes

The pros & cons of European Passport-by-Investment schemes

In a bid to rebuild the dwindling economy in Cyprus shortly after the financial crisis four years ago, the government launched a passport-by-investment program to temp wealthy foreigners with citizenship in exchange for an investment of no less than €2 million into the Cyprus economy.