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Cyprus, the best post-Brexit EMI jurisdiction

calendar 6/27/2020 8:00:00 AM
author Aldemaro Financial and banking

Brexit was a political and economic earthquake. That one of the cornerstones and major powers of the European Union was the first country that decided to leave was a shock to many. It was one of the most important political news of the past decade, and its effects will be felt in Europe during this decade as well.

During 2020, the UK and the EU are in a transitional negotiation phase to see what their relationship will be post-Brexit. However, with the coronavirus crisis, negotiations are pretty much stalled, and there is much uncertainty about what will happen.

Right now, the UK is on a transition period until December 31, 2020, where it still has passporting rights. Nevertheless, the conditions after that period will depend on the agreement the EU and the UK reach this year.

And there's one particular industry that might be pretty rocked by Brexit. We're talking about e-money institutions (EMIs).

The UK holds almost three-quarters of the European EMIs. The EU doesn't have many well-established license providers, and the UK offers a solid and reliable legal framework and has the best licensing and financial services reputation across Europe.

At least until the end of this year, e-money institutions can offer their services across the EEA with a UK license. That means they have passporting rights. If you receive your license in one EU member state, you can offer that same service in other EU states without needing an additional license or having to establish a branch or office as long as the regulatory authority of the country you wish to operate at is duly notified.

However, after this year, that may end.

Even if you don't like the EU and support Brexit, if you're interested in the EMI world, you're likely a bit anxious about what can happen to the business in Europe after the transitional phase ends in December 2020.

Due to this deep European dependence on the UK, it is quite likely that both parties will reach a deal.

But in the financial world, one can handle only a certain amount of uncertainty.

This may be an issue if you're thinking of establishing an EMI. However, as usual, in Mundo, we have a solution for you.

We can help you establish your e-money business in the most flourishing country in the EU and our favorite post-Brexit jurisdiction in Europe. We're talking about Cyprus.

This stunning Mediterranean island is more than just blissful beaches, fantastic archaeological sites, and great food and wine. It's one of the best European jurisdictions for financial, investment, and banking business.

It has a well-established and reputable regulatory authority (the Central Bank of Cyprus), fantastic service providers, and one of the best tax regimes in the EU, which includes a meager 12.5 % corporate tax rate.

That's why in Mundo, we offer a wide array of services in Cyprus.

And among them, we can help you receive an EMI license and setup your e-money business in this otherworldly island.

As we've told you in our Country Focus, we are faithful servants of Saint Mamus.

Let's talk about the main benefits of an e-money license in Cyprus.

 

Why Cyprus? Five benefits of establishing your EMI in Cyprus

An efficient legislative framework compliant with EU laws and regulations

The Central Bank of Cyprus is well-known as one of the top banking regulatory entities in the EU. Moreover, after the 2013 financial crisis, Cyprus made a significant turn towards the future, which included some updating and simplificationof its financial laws and regulations while keeping them solid enough. All this led Cyprus to be one of the most reputable jurisdictions in the whole world.

Passporting rights

As Cyprus is a well-established EU jurisdiction, its e-money institutions have passporting rights. That means they can operate their business in any other EEA jurisdiction without additional licensing processes and without establishing a physical branch or office in that country. A Cyprus EMI license will allow you to do business all over the EU freely, without licensing bureaucratic processes, and from Cyprus without needing to establish additional offices in other places.

Beneficial tax regime

One of the main benefits of setting up any type of business in Cyprus is its tax regime. The island offers an extremely attractive tax regime with an extensive network of double tax treaties, a low corporate tax rate at 12,5 %, and severalincentives for foreign investors, such as no withholding tax on dividend distributions.

Fantastic for business

Cyprus has an ideal environment for doing business. English is one of the islands' official languages and the main business language. As it is a well-established financial jurisdiction, you'll find top-level professional service providers (e.g., accounting firms, legal firms, consultancy firms). You will be able to hire a qualified workforce for your business.

Straightforward process

The process in Cyprus isn't necessarily the simplest, but it is straightforward. What we mean is that you have an authority that clearly communicates the requirements and steps and allows for transparency in the process. That means that even if the process isn't short, with a helping hand, you shouldn't have too many headaches.

 

What is a Cyprus EMI?

An EMI is an institution that is authorized by the competent authorities to issue electronic money. The term refers to money that is electronically stored and can be used to make transactions either with the issuer (EMI) or other parties that accept the money. An example of this can be loyalty discount cards that are issued by a brand and accepted by several other brands as a money equivalent of an agreed standard value.

In Cyprus, the regulatory entity that emits EMI authorizations is the Central Bank of Cyprus, following these laws and regulations:

  • The Electronic Money Laws of 2012 and 2018.
  • 2009/110/EC of September 16, 2009, on the taking up, pursuit and prudential supervision of the business of electronic money institutions.
  • (EU) 2015/2366 of November 25, 2015, on payment services in the internal market.

Now, under the EU and Cyprus law, which are the authorized activities your EMI can conduct after it receives its license?

  • Services allowingplacement of cash on a payment account and all operations required to operate a payment account.
  • Services allowing cash withdrawals from a payment account and all operations as required for operating such an account.
  • Execution of payment transactions, including transfers of funds on a payment account with the user's payment provider or with another payment service provider:
  • Execution of direct debits, including one-off direct debits;
  • Execution of payment transactions through a payment card or a similar device;
  • Execution of credit transfers, including standing orders.
  • Execution of payment transactions where a credit line covers the funds for a payment service user:
  • Execution of direct debits, including one-off direct debits;
  • Execution of payment transactions through a payment card or a similar device;
  • Execution of credit transfers, including standing orders.
  • Issue of payment instruments and/or acquiring of payment transactions.
  • Money remittance.
  • Payment initiation services.
  • Account information services.

On top of all these payment services, EMIs can issue e-money. Electronic money is defined as a monetary value represented by a claim on the issues, such as:

  • Electronically-including magnetically-stored money (such as a chargeable internet-based account with its debit or credit card).
  • Money issued on receipt of funds to make payment transactions (conversion of bank money into electronic money).
  • Money accepted by anyindividual or legal person aside from the electronic money institution.

A licensed EMI in Cyprus can open bank accounts with all banks in Cyprus. We work with many associate banks as we generally recommend to open two bank accounts: one with a local bank and one with a European bank with a branch in Cyprus to diversify risk exposure.

 

How to apply for a Cyprus EMI license?

Now, let's walk you through the main requirements and features you need to know before applying for a Cyprus EMI license.

Timeframe

Preparing your application package can take less than a month if you provide us with all the documents opportunely, but, generally, it takes between one and two months as we help you to improve your package.

After submitting the application package, the CBC will examine it and will usually also ask for additional information and clarifications. In most cases, it will designate a timeframe within which to reply. When the CBC is satisfied with the application, the company will be given a conditional license.

The Law stipulates that the CBC must answer within three months from the date of the application. However, the three months begin to run once the application is complete. In other words, if the CBC reverts with follow up questions, the timeframe will start counting only after they are fully contentwith the answers. For this reason, the timeframe for the conditional license is approximately 6-9 months and will largely depend on the approval of the ultimate beneficial owner of the company.

The conditional license will determine certain conditions the applicant must meet for the license to be activated. These include renting/buying office space, hiring employees, directors, having the proper software, and any other matters necessary for the EMI to be operational. Current CBC practices demand that the conditions are met immediately. Thus, all actions relating to activation must be taken simultaneously with the preparation and filing of the application.

Once the company is ready, an appointment will be booked with CBC for inspection, and if the company satisfies the pre-conditions, their license will be activated. 

This means it will be extra work, but it also means the whole process can be completed in 12 months, and, in most cases, it takes only a a little more than a year.

 

Operational costs

All EMIs established in an EU member state must have local office staffed with the key personnel to offer the services, which means that the staff must live in the jurisdiction. If they’re not citizens of the jurisdiction, they must have the relevant work permits. All this leads to operational costs that must be considered. We can help you find an adequate office space and staff for operating your EMI.

In terms of operational costs,  a reasonable annual budget for the EMI's operational expenses, including the salaries, IT, telephone, rent, electricity, auditing, compliance, professional fees, etc., will be no less than approximately €150.000. The actual numberrelies mostly on the size of the company, its operations, and the remuneration of executive directors.

 

Minimum capital requirements

The Law stipulates that the initial minimum capital requirement for an EMI is EUR 350,000 and there are also continuous capital requirements, calculated in accordance with the provision of the Law, among other things, to maintain a balance of at least the initial minimum capital requirement. 

 

Organizational structure

As with all financial licenses in Cyprus, the Board of the EMI must be comprised of at least two executive and two non-executive directors, of which the majority must be Cyprus residents. Moreover, the company also requiresRegulatory Compliance Officer, AML Compliance Officer, Chief Information Officer, and Risk Manager.

To reduce the cost of establishment some positions can be taken by the same person. Nevertheless, once it’s fully operational, additional staff will be needed to cover the duties and responsibilities of the positions.

 

Shareholders and UBOs

Shareholders can be either natural persons or legal entities. However, CBC requires this to be disclosed and assessed at the UBO (Ultimate Beneficial Owner) level. The UBOs must be of good reputation with clean criminal records, clean financial records, and the ability to provide financial assistance to the entity if needed.

When a shareholder is a group of companies, the CBC must be informed of its structure, the group's relations, and the EMI.

 

What documents do you need to submit, and what is the process?

To begin the application process, you need to fill the application form and submit it with these documents to the CBC:

  • Entity's Incorporation Documents.
  • A summary issued by the appropriate body explaining the primary legal features of the applicant.
  • Personal documents from the individuals that will hold an essential function (Board of Directors, licensed services):
  • Certificate of clean criminal record
  • Certificate of non-bankruptcy
  • CV
  • Certified copy of the passport
  • Documents from shareholders and ultimate beneficiary owners (UBOs) evidencing  their legitimacy and share acquisition details including evidence of source of funds and shareholding structure chart.
  • Detailed program of operations.
  • Organization structure.
  • Detailed business plan.
  • Minimum capital evidence.
  • An Internal Operations Manual that includes:
  • Procedures to protect the funds of electronic money users.
  • Report on the governance arrangements and internal control mechanisms including those about money laundering and terrorist financing.
  • Description of the procedures for monitoring, handling and following up on security incidents and security-related customer complaints.
  • Description of the processes for organizing, monitoring, tracing, and restricting access to sensitive payment data.
  • Description of the business continuity arrangements.
  • Description of the principles and notions applicable to the collection of statistical data on performance, transactions, and fraud including supporting documentation.
  • Security policy document.
  • Proposed professional indemnity insurance or equivalentguarantee (if applicable).
  • Latest audited accounts (for existing companies).
  • Most recent management accounts (for existing companies).

The process has five main steps:

  • Pre-application: We help you prepare and improve your application, so the CBC doesn't have to revert many times asking for additional information.
  • Submitting the documents.
  • CBC reverts: They'll come back asking for clarification in some documents and asking you to add supporting documents and reports.
  • CBC issues a conditional license: After they're satisfied with the application, they will issue this document.
  • Comply with the last requirements to receive a full license. These include renting/buying office space, hiring employees, directors, having the proper software, and any other matters necessary for the EMI to be operational.

 

Who are we, and what can we do for you?

In Mundo, along with NTL, we are committed to your freedom and that´s why we want to see you thrive in your business. We want you to live, work, do business, and invest freely whenever you want and wherever you want.

That's why we have more than two decades offering the best financial, trust, banking, immigration, and investment services in the world, in the best jurisdictions, and with the best experts.

We have built an unparalleled network of partners in Cyprus. We work with the finest experts on the island to offer the best services and help you start your e-money institution.

Our team in Cyprus can help you with these services and also can help you to obtain an e-money institution license and to manage your EMI:

  • Consulting support towards authorization and registration of your EMI.
  • Preparation of the application package in a cost-efficient manner completely adapted to your needs, including:
  • Designing your corporate structure in a cost-efficient manner.
  • Preparing a custom operation manual.
  • Preparing AML and KYC policies.
  • Formulating your business plan.
  • Filling the application form.
  • Reviewing all shareholder, director, and head of department questionnaires.
  • Presenting qualified executive and non-executive directors, if you need them.
  • Guiding you to submit all documents and certificates.
  • Respond, on your behalf, to any inquiries and suggestions made by the CBC.
  • Headhunting for qualified directors and personnel, including executive training.
  • Legal, accounting, and auditing support.
  • Opening a bank account for your EMI (we usually recommend one bank account with a local bank and one bank account with a European bank present in Cyprus).
  • Compliance consulting.

We can also offer support for choosing an adequate software provider and presenting software, debit card, and providers for any other services the EMI may need.

We offer one of the most comprehensive, all-encompassing service packages in Cyprus, which we consider the best EMI jurisdiction in the EU, and we expect significant growth of such businesses established on this gorgeous island.

Don't wait until we see how the after-Brexit goes. Be one of the first to take advantage of the fantastic benefits Cyprus provides for e-money institutions. All you need to do is contact us right now and we'll find a tailor-made solution for you.

Contact us right now

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