Financial licensing

An intermediary is required to have a valid license in order to conduct financial services regulated activities. There are different vehicles to choose from based on your jurisdiction of choice.

Eltoma Corporate Services can prepare the application in accordance with the regulatory requirements of the relevant jurisdiction and monitor the application until the approval stage. Considering obtaining a license? The regulated activities for fund management & investment companies include:

  • Asset management.
  • Investment.
  • leveraged foreign exchange trading.
  • Advising on corporate finance.
  • Stock & bonds dealing.
  • Securities margin financing.
  • Providing automated trading services
  • Providing credit rating services.
  • Securities based crowd-funding.
Cyprus

There are 3 categories of CIF licence available in Cyprus:

  1. Eligible: Low regulatory protection for clients: To deal with regulated institutions.
  2. Professional: Medium regulatory protection for clients: To deal with Professional Clients.
  3. Retail: Highest level of regulatory protection for client: To deal with all types of clients.
  4. An application is made to the Cyprus Securities and Exchange Committee (“CySEC”) to review, approve and grant the license for the provision of services as specified therein.

There are 3 categories of CIF licence, namely:

Eligible — Low regulatory protection for clients: To deal with regulated institutions

Professional — Medium regulatory protection for clients: To deal with Professional Clients

Retail — Highest level of regulatory protection for client: To deal with all types of clients

CIF General Information and Requirements for license:

(a) Total Timeframe: 6-8 months (up to 2 months preparation 4-6 months CySEC review/decision)

(b) CIF Location: Head office in Cyprus fully and appropriately staffed

(c) Board of Directors: at least two executive and two independent non-executive members; all with appropriate professional knowledge, industry experience, and good reputation

(d) Summary of Documents required: Organisational Chart, Group Structure, Business Plan, Outsourced Services and Counterparties, Anti-money laundering manual, internal controls and procedures manual, Executive Directors’ CVs, Clean Criminal record certificates and non-bankruptcy certificates, Consents to act as Director)

(e) Minimum Capital Requirements: The CIFs total accounting equity [retained earnings + shareholders’ capital] cannot fall under the initial share capital requirement as described below:

CIF does Not hold Clients’ money and /or Clients’ financial instruments:

Reception and execution of orders €50,000.00
Provision of Investment advice €50,000.00

CIF holds Client’s money and/or Client’s Financial Instruments (FIs):

Reception and transmission of orders in relation to FIs €125,000.00
Execution of orders on behalf of clients €125,000.00
Portfolio Management €125,000.00
Provision of Investment Advice €125,000.00

CIF Provides one or more of the following investment services or activities:

Dealing on own account €730,000.00
Underwriting of FI and/or placing on FI basis €730,000.00
Placing of FI without a firm commitment basis €730,000.00
Operating of Multilateral Trading Facility (MTF) €730,000.00

Minimum Capital Requirements:

CIF does not hold Clients’ money and /or Clients’ financial instruments: EUR €50,000
CIF holds Client’s money and/or Client’s financial instruments: EUR €125,000
CIF Provides one or more of the following investment services or activities: EUR €730,000

There are two types of Variable Capital Companies in Cyprus; UCITS and AIFS. An ‘Alternative Investment Fund’ refers to any collective investment undertaking, including investment compartments thereof, which collectively:

(A)    raises capital from a number of investors, with a view to investing it in accordance with a defined investment policy for the benefit of those investors, and

(B)   does not require authorisation pursuant to section 9 of the Open-ended Undertakings for Collective Investments Law of 2012 or pursuant to the legislation of another Member State which harmonises the article 5 of the Directive 2009/65/EC.

For an AIF to operate as a Variable Capital Investment Company it shall take the legal form of a limited liability company, its name shall include the term: “Variable Capital Investment Company”, and it shall be in compliance with the provisions/requirements of the Law 131(I)/2004, outlined below:

  1. Main characteristics of a Private Company Limited by Shares:
  2. Main characteristics of the Variable Capital AIF:

General Characteristics of an AIF:

  • It is prohibited to an AIF that falls within the scope of the 131(I)/2004 Law to convert, in any way, to an entity that does not fall within the scope of the Law 131(I)/2004.
  • AIF management includes, at least, the service of the portfolio management of the AIF, meaning:
    • The management of the investments of the AIF and the management of the risks associated with the operations of the AIF.
    • The administration of the AIF and
    • Any marketing activities.
  • The AIF may be self-managed or externally managed, subject to certain conditions, and both are subject to registration in accordance with the provisions of the Alternative Investment Fund Managers Law, and CySEC regulations.
  • The units of an AIF may be admitted for listing in a stock market that operates in the Republic or in another EU member state or in a third country (where certain conditions are satisfied).
  • The shares of a retail investor AIF, established in the form of an investment company, may be admitted to trading in a stock market that operates in the Republic or in another EU member state or in a third country (where certain conditions are satisfied).
  • An AIF must comply with CySEC directives issued from time to time.
  • An AIF may consist of more than one investment compartments, each of which is subject to the provisions of the Law as a separate AIF. An AIF that consists of more than one investment compartments constitutes a single legal entity. Even if the AIF initially operates as a single scheme, it may convert to an AIF with multiple investment compartments, after a relevant amendment of its rules or instruments of incorporation.

Special characteristics for Variable Capital Investment Companies, under AIF legislation:

  • The variable capital investment company shall either be self-managed or appoint an external manager to manage its portfolio in accordance with Law 131(I)/2004.
  • Its sole purpose is the collective management of its portfolio, carrying out the relevant transactions to the benefit of its shareholders, either by itself where it shall be self-managed, or through the appointment of an external manager.
  • The procedure of increase and reduction of its capital shall be determined in its instruments of incorporation (without prejudice to the Companies Act).
  • Unless requested, the investment companies are not required to make available to their shareholders the full set of financial statements, which include the relevant auditors’ and directors’ reports.
  • The provisions of the Company Law regarding the convocation and conduct of general meetings of listed companies on a regulated market shall apply to investment companies mutatis mutandis, irrespective of whether they are listed on a regulated market or not.
  • Investment companies are not required to create reserves.

(C) Registration of VCC under AIF legislation, Procedure Outline:

The commencement of operations of a Variable Capital AIF requires the prior authorisation and communication of the authorisation by the Securities and Exchange Commission in accordance with the provisions the 131(I)/2004 law.

The commencement of operations of a self-managed Variable Capital AIF requires the prior authorisation and communication of the authorisation by the Securities and Exchange Commission, in accordance with sections 7 and 8 of the Alternative Investment Fund Managers Law.

Where the AIF shall take the legal form of an investment company, as it is required for Variable Capital Investment Companies, whether self-managed or externally managed, the relevant applicant, in addition to the application for authorisation, shall submit to CySEC the following:

  • The name and the address of the registered office and of the central headquarters of the investment company.
  • Sufficient information, including a resume, for the members of the board of directors of the company and the persons managing its operations for evaluation by CySEC.
  • In case an external manager is appointed, its name and any other information that can identify and certify its appropriateness, as well as information about the person or persons of the external manager, that will be responsible for the management of the portfolio of the company.
  • In case an external manager is appointed, a statement confirming that it agrees to exercise the portfolio management of the company.
  • A statement from the Depositary confirming that it agrees to exercise the depositary duties for the portfolio of the company, in accordance with provisions of this Law, unless the exception where a depositary is not required to be appointed under section 23(4) applies.
  • The identity of the person or persons appointed by the depositary as responsible for monitoring the activity of the company.
  • The company’s draft instruments of incorporation.
  • The company’s draft prospectus.
  • The company’s draft key investor information document. and
  • Any additional or clarifying information.
  • Within three months of the submission of a complete application file CySEC will notify whether or not authorisation has been granted.

Furthermore, in the case where a Variable Capital Investment Company has not designated a Management Company, as per the provisions of the law, CySEC will grant their authorisation, only where it is satisfied that:

  • The application for authorisation is accompanied by the operations manual, which includes, at least, the organisational structure of the investment company.
  • At least two (2) of the persons who effectively direct the business of the investment company are of sufficiently good repute and experienced.
  • Where the existence of close links between the investment company and other natural and legal persons does not prevent the effective exercise of its supervisory duties.
  • The investment company has the appropriate shareholding structure, the required organisational structure and staff and the appropriate economic and technical resources to be in the position to provide its services.
  • The Board of Directors shall undertake the duties and responsibilities of the external manager, which shall appoint, at least, a duly certified person responsible for the portfolio management.
  • The company shall establish and maintain internal control and regulatory compliance functions which are independent from its other functions and activities, where justified.
  • The VCC is subject to the provisions of sections 20 to 22 of the Alternative Investment Fund Managers Law and to sections 75 to 82 of the Regulation (EU) No. 231/2013, respectively.

(D) Other key information relevant to VCCs under AIF law:

Minimum initial Capital:

  • Self-managed investment company: Three hundred thousand (300.000) euros.
  • All other cases of investment companies: one hundred and twenty five thousand (125.000) euros.
  • Multiple investment compartments in one company: the above amounts respectively for each compartment.

The registered office of the investment company is located in the Republic.
The initial capital of an investment company shall be divided in shares with no nominal value, which are nominal and fully paid. Fractions of shares shall not be recognised.

Legislation:

  1. Open-type Collective Investment Firms Law of 2012 (78(I)/2012) (GR)
  2. Alternative Investment Funds Law of 2014 (131(I)/2004) (GR)
  3. Companies Act, CAP. 113 (GR)
  4. CySEC regulatory framework: UCITS (EN), AIF (EN)

Cyprus legislation provides for two types of Alternative Investment Funds (AIFs), the first is without investor limitations and the second type of AIF has a limited number of persons. Choosing to incorporate an AIF has a number of significant advantages:

  • The types of available investments are free from Regulator restrictions.
  • Subject to Regulator approval, AIFs can be self-managed.
  • AIFs can be set-up as umbrella funds with numerous different sections.
  • AIFs can be listed on Cyprus Stock Exchange and other EU stock exchanges with no limit on the number of investors.
  • Services supplied by the Fund Investment Manager are VAT exempt.
  • the ‘‘Company’’ legal form of an AIF can take advantage of the double tax treaty network of Cyprus.
The Initial Capital of the AIF, as appropriate, shall be consisted of cash or assets relevant to the investment policy of the AIF, free from any kind of charge, as follows:
  • Common Fund: €125,000 minimum
  • Investment Company (Fixed/variable capital):
    • Externally-Managed: €125,000, or
    • Self-Managed: €300,000.
    • Limited Liability Partnership: €125,000.
  • The AIF must maintain and apply appropriate risk management systems to monitor its risk with regards to its operations, its position, and the overall risk profile of its portfolio.
  • The AIF must maintain the appropriate organisational structure to minimise conflict-of-interest risk.
  • AIF Management of Operations: By at least 2 natural persons with sufficient experience and specialisation (who cannot participate in the management of the depositary).
  • The AIF must appoint a Depositary to entrust the assets of the AIF for safe-keeping.
  • The AIF must develop and be in compliance with its Common Fund Rules
  • The AIF must comply with all obligations regarding disclosure to investors (Prospectus, annual report, half-yearly report, rules & instruments of incorporation)

What are AIFs?

AIF includes any collective investment undertaking, including investment compartments thereof (investment compartments are considered as separate AIFs), which, collectively:

(a)    raise capital from a number of investors, with a view to investing it in accordance with a defined investment policy for the benefit of those investors; and

(b)    do not require authorisation pursuant to section 9 of the Open-ended Undertakings for Collective Investments Law of 2012 or pursuant to the legislation of another Member State which harmonises the article 5 of the Directive 2009/65/EC;

According to the Alternative Investment Funds Law of 2014, an AIF of the Republic (of Cyprus) refers to:

(a)    an AIF established in the form of a common fund, authorised by the Cyprus Securities and Exchange Commission (CySEC); or

(b)    an AIF established in the form of an investment company, authorised by CySEC and having its registered office and its central offices of operation the Republic;

(c)    an AIF established in the form of partnership, authorised by CySEC having its main location for the exercise of its activities in the Republic;

(d)    an ‘Alternative Investment Fund with limited number of persons’ (AIF-LNP) which refers to an AIF authorised, by CySEC, as such in accordance with section 115(2) of the Law;

The Legal Form of an AIF:

Therefore, an AIF may be set up in one of the following legal forms:

(a)    as a mutual fund;

(b)    as an investment company in the legal form of a limited liability company with shares (shall be defined whether fixed-capital or variable capital); or

(c)    as a limited liability partnership.

AIF Management

An AIF, subject to any authorization/registration requirements under AIFM Law, may be either:

(a)    Self-Managed, where it does not appoint an external manager, if it is established as an investment company and one of the following applies:

(I)         the assets of the portfolio of the AIF, including any assets acquired through use of leverage, in total do not exceed a threshold of €100m;

(II)        the assets of the portfolio of the AIF, where the AIF does not employ leverage and its unit-holders have no redemption rights exercisable during a period of 5 years following the date of initial investment in each AIF, do not exceed a threshold of €500m;

(III)       the persons that sign the instruments of incorporation of the investment company under incorporation or the members of the board of directors, in case of an incorporated company, decide not to appoint an external manager and to exercise internal management in accordance with the provisions of the Alternative Investment Fund Managers Law of 2013 (“AIFM Law”); either obligatory, in case the assets of the portfolio of the investment company exceed the thresholds of subparagraphs (i) or (ii) accordingly, or by choice, because they choose to opt in the AIFM Law, whereby the investment company would be considered as an AIFM and fall within the scope of the AIFM Law; or

(b)    Externally Managed, where it appoints an external portfolio manager, who;

(I)         is an AIFM authorised in accordance with the AIFM Law; or (II)        where subparagraph (i) does not apply, may operate as, either an AIFM authorised in accordance with the AIFM Law, or as a management company authorised in accordance with the Open-ended Undertakings for Collective Investments Law, or as an Investment Fund authorised in accordance with the Investment Services and Activities and Regulated Markets Law, as amended.

Therefore, an AIF is authorised and licensed by the Cyprus Securities and Exchange Commission (“CySEC”) where the specific requirements introduced on the type of the IF and whether the IF will be self-managed or externally managed are met; and, CySEC may specify by directive any investment restrictions on AIFs according to the nature of the assets in which they invest in and the type(s) of investors which the AIF targets.

AIF General Requirements

  • The Initial Capital of the AIF, as appropriate, shall be consisted of cash or assets relevant to the investment policy of the AIF, free from any kind of charge, as follows:

(I)         Common Fund: €125,000 minimum

(II)        Investment Company (Fixed/variable capital):

  1. Externally-Managed: €125,000, or
  2. Self-Managed: €300,000.

(III)       Limited Liability Partnership: €125,000.

  • The AIF must maintain and apply appropriate risk management systems to monitor its risk with regards to its operations, its position, and the overall risk profile of its portfolio.
  • The AIF must maintain the appropriate organisational structure to minimise conflict-of-interest risk.
  • AIF Management of Operations: By at least 2 natural persons with sufficient experience and specialisation (who cannot participate in the management of the depositary).
  • The AIF must appoint a Depositary to entrust the assets of the AIF for safe-keeping.
  • The AIF must develop and be in compliance with its Common Fund Rules
  • The AIF must comply with all obligations regarding disclosure to investors (Prospectus, annual report, half-yearly report, rules & instruments of incorporation).

An ‘Alternative Investment Fund’ refers to any collective investment undertaking, including investment compartments thereof, which collectively:

(a)    raises capital from a number of investors, with a view to investing it in accordance with a defined investment policy for the benefit of those investors, and

(b)   does not require authorisation pursuant to section 9 of the Open-ended Undertakings for Collective Investments Law of 2012 or pursuant to the legislation of another Member State which harmonises the article 5 of the Directive 2009/65/EC.

For an AIF to operate as a Variable Capital Investment Company it shall take the legal form of a limited liability company, its name shall include the term: “Variable Capital Investment Company”, and it shall be in compliance with the provisions/requirements of the Law 131(I)/2004, outlined below.

Minimum Investment Criteria:

Common Fund EUR €125,000
Externally-Managed Investment Company: (with fixed or variable capital) EUR €125,000
Self-Managed Investment Company: (with fixed or variable capital) EUR €300,000
Limited Liability Partnership EUR €125,000

AIF-LNP General Characteristics:

  • In accordance with the AIF Law, the establishment of an alternative investment fund with limited number of persons (“AIF-LNP”)is allowed, provided that it shall not fall within the scope of the AIFM Law nor shall be managed by an AIFM and, additionally, its incorporation documents or partnership agreement:

               (I)         defines specifically that the relevant fund is only addressed to professional or/and well informed investors; and
              (II)        limits the number of its unit holders, including the co-holders, to the maximum limit of 75 persons; and
             (III)       does not allow the issue of bearer shares.

  • The AIF-LNP Incorporation documents shall define measures and procedures to ensure that the maximum number of persons/unit-holders is complied with at all times.
  • An AIF-LNP is allowed to have more than 1 investment compartments however each investment compartment shall be treated as a standalone AIF-LNP.
  • An AIF-LNP can be established as:

               (I)         An investment company of fixed or variable capital; or

              (II)        An LLP.

  • To operate, an AIF-LNP, requires authorisation by CySEC.
  • It can be either externally managed or self-managed (if in the form of an investment company) or only externally managed (if in the form of an LLP).
  • It must prepare an annual report to be audited by an independent auditor and filed with CySEC.
  • The assets of AIF-LNP shall be entrusted to a Depositary (subject to certain exceptions)
  • There is a requirement for a Prospectus to be issued to investors.II

Minimum Investment Criteria: EUR 125.000

Singapore

Singapore is one of the leading international financial centers in the South-East Asian region. Obtaining a Singapore license can provide a tax efficient corporate structure in order to conduct sound investments. Following the financial crisis circa 2008, that brought worldwide attention to the financial industries regulatory frameworks and more specifically to the fund management industry; as a leading jurisdiction, Singapore started to implement measures in order to strengthen the jurisdictions regime in order to regulate the local fund management industry, therefore obtaining a Singapore license gives the company an additional reputation boost.

Fund management companies are licensed under and governed by the Singapore Finance Companies Act and their key function is to provide fixed and saving deposits as well as credit facilities to both individuals and corporations. Registered Fund Management Companies in Singapore enables companies to conduct business in fund management with up to 30 qualified investors (a maximum of 15 can also be funds or limited partnership fund structures) and only where the total value of the assets managed does not exceed SGD $250 million.

Would an RFMC be the correct license for your business?

  • They cannot acquire foreign currency denominated stocks, shares or debt securities.
  • No more than 30 qualified investors (of which no more than 15 may be funds or limited partnership fund structures).
  • The total value of the assets managed does not exceed SGD $250 million.

They may expand their scope of activities subject to MAS’ approval.

Base Capital Requirements:

Carrying out fund management in respect of any Collective Investment Scheme (CIS) offered to any Investor other than an institutional investor. SGD $1,000,000
Carrying out fund management (non-CIS) on behalf of any customer other than an institutional investor. SGD $500,000
Carrying out fund management other than that described in the above 2 points. SGD $250,000

There are 2 categories of CMS Licence holders for fund management (known as LFMCs):

  1. Retail LFMC which are permitted to carry on business in fund management with all types of investors.
  2. A/I LFMC which are permitted to carry on business in fund management only with qualified investors.

Obtaining a Singapore CMS licence is suitable in situations when a corporation that carries out business in any of the following areas:

  • Dealing in Securities.
  • Trading in futures contracts.
  • Leveraged foreign exchange trading.
  • Advising on Corporate Finance.
  • Fund Management.
  • Real estate investment trust management.
  • Securities financing.
  • Providing custodial services for securities.
  • Providing credit rating services.
  • Securities based crowd-funding.

Read more about the minimum capital investment requirements: CMS investment criteria. 

Feel free to contact us for more information or support.

All FMCs must maintain a base capital of SGD $250.000. See above for further details.