Financial Licenses

Forex Licenses in Cyprus, an Interview with our Expert

1/20/2021 8:00:00 AM
Admin System

Although the Cyprus CBI has been suspended, leaving one of the most interesting European citizenship programs out of the picture, Cyprus still has a lot to offer. For immigration purposes, it is still possible to apply for residency by investment and there are a lot of major business opportunities. Cyprus is one of the few places to combine an OECD compliant jurisdiction with excellent business incentives and tax advantages.

At Mundo we are lucky to have the best experts in Cyprus and one of them, Danilo, has agreed to talk about Cyprus in this interview. Let us discover the advantages and detailed information of a Forex business in Cyprus thanks to our expert´s knowledge and experience. 

Danilo, we are so happy to have you onboard Mundo as we understand you represent one of Cyprus's top financial licensing firms. Please tell me a little about your expertise in this area which I understand is one of the most challenging law areas.

Thank you so much for the opportunity. We appreciate the invitation to discuss the Forex Financial industry in Cyprus. It is a great pleasure. Our experience, as you stated, is long and illustrious. With over 20 years “under our belt” within the industry we have journeyed through Cyprus financial industry from junior finance positions to CEO facing a number of challenges of an ever-changing environment along the way. We must say that it is exciting and interesting seeing the financial sector develop into what it is today.

We have seen many changes over the last 20 years. Most of these changes thrive from the way in which Cyprus is viewed. Cyprus used to be considered to be only a small island that was fun for tourists and offered high-interest rates for savings. Everything changed after Cyprus joined the European Union in 2004. This political and strategical move opened the doorway for a number of European businesses to set up camp on our island.

The fact that the corporate tax was only ten percent was also a great incentive for investors from Russia, the United Kingdom and Eastern Europe to have their head officers on the island, while still operating in their home countries.

These financial advantages then attracted small or start-up retail Forex companies that wanted to obtain licenses to run their businesses here. Cyprus offered these firms, such as Metaquotes and Leverate to mention a few, low running costs and the chance to function in an inexpensive regulatory framework. That brings us to today when the Forex industry on this small island in the Mediterranean has grown into a business sector all of its own. During this time of expansion and change, the CySEC was there every step of the way.

CySEC has assisted in the formation of a global Forex hub, which was carefully created with the implementation of strong regulatory measures. Cyprus has a thriving financial sector and here you can find everything you need to conduct a successful business. Employees with the right know-how, digital marketing experts, legal services, appropriate training, and other advantages are only a few steps away. This means that Forex businesses can fully-function on our shores, without seeking factors from abroad.

Ask for more information

Pardon my question which may seem a little simple, but could you tell us what exactly is Forex trading and how does it work? 

This is an excellent question; thank you for asking.

As a general comment, the word Forex alone refers to a typical exchange between currencies. However, when you add trading next to it, it relates to utilizing this exchange and trying to profit by exploiting the price differential in an ever-changing market. The Forex market is one of the most interesting, and I dare to say the most unique among the financial markets.

First and foremost, there is no central agency, authority, clearing house or central body that controls or oversees the market. Instead, there is an international network of banks, brokers, or even individual traders that respond to supply and demand.

Governments theoretically have the power to affect their respective currency price. Practically, however, the amount and diversity of factors affecting a currency price are so many that this becomes a herculean task, therefore costly and impractical.

Unlike other markets, the Forex market virtually runs 24/7. Other markets close their central exchange for the weekend or holidays. Forex market closes only partly due to the affected currencies and remains open for the unaffected ones. This makes the market accessible by anyone at any time.

Lastly, the sheer market size, estimated in the number of trillions per day makes it an entity of its own, separated from other financial markets like stock or options markets.

I understand that you have various types of brokers within the Forex industry, some are called market makers, other STP, could you tell us about that?

Market Maker and STP refer to the two main business models for Forex brokers. The main difference is the liquidity risk. One takes on the risk and the other delegates the risk. Now, before I state who is who, I'll need to explain the liquidity risk and its importance for each business model.

In simple terms, when a trade order is placed, the trader essentially converts its money into a financial instrument. When the order is closed the instrument converts back to cash in the trader's account. This is called liquidity, and the related risk is the inability of that financial instrument to convert back to money. In Forex trading while converting from one currency to another the number of conversions changes according to its market price, generating either profit or loss.

The broker is responsible for ensuring that money is available during the conversion. This, in simple words, means the responsibility for liquidity is on the broker hence the risk. Understandably the higher the transaction volume a broker handles the higher the risk.

Now back to the two models. The STP model delegates the risk by engaging with liquidity providers, for example, banks, specialized liquidity service providers or even other investment firms. On the other hand, MM takes on the risk by acting as its own liquidity provider.

Unlike STP, a market maker is a broker that doesn't cover positions on liquidity provider. An STP broker is obliged to pay for clients' beneficial trades with its own money – their earnings are clients´ losses. The general term for them is B-book brokers. This model faces greater risk, but on the other hand, according to statistics, most customers lose their money, so usually, the revenues of MM-brokers are higher than those of STP brokers.

To keep it simple, an STP broker needs to engage with as many traders as possible to increase its total volume. In contrast, an MM can only engage with as many traders as the risk level allows it. I should also note that the MM model can increase the risk tolerance levels by engaging with other LPs in the same way as an STP broker, with the difference that it can choose when to use the LPs, thus controlling its income even more.


How can a firm engage in Forex trading, in other words, what license it needs to obtain, what activities does it allow you to do?

Allow me to clarify here that there is no specific license for Forex trading. There is a combination of licensed services that allow a firm to engage with Forex trading clients.

In Cyprus, the necessary licenses to provide Forex trading services under the STP model we discussed, are (1) reception and transmission of trade orders and (2) execution of clients' trade orders, and three ancillary activities (1) Safekeeping and administration of financial instruments and (2) Foreign exchange services (3) Granting credit or loans. For the MM model, the firm will need the license for dealing on their own account additionally.

Further and depending on the operations, the firm may require additional licenses. For example, if the firm plans to publish technical or fundamental analysis on its website, the ancillary service of investment research will be needed.

As already discussed above, for operational activities the main difference is trade order processing. The STP must connect their systems with their liquidity provider to facilitate the execution of the order, the MM's takes on the order and have a system in place to monitor and manage its own risk exposure. Different policies and procedures are in place where they clarify the various conditions and mechanisms to accept and execute a trade order.

On another note, both types of firms can engage prospective clients according to their marketing guidelines and disclose all the necessary information as required. Further, both need to identify and conduct due diligence on their prospective clients, accept clients' money segregated from the firm's own funds, and provide their clients with sufficient access to information. This information can be about their account, the transactions, and the trade order status such as reports or historical transaction data.


Can you walk us through obtaining the licensed services you just mentioned, how long will it take?

To establish a CIF – a Cypriot Investment Firm – you will need to first incorporate a Cypriot entity which will be the applicant, therefore let's start from here. A company can be formed within a couple of weeks following a completed application, which is done in two steps. First, reserve the name and then incorporate the company by providing shareholder, director, and secretary information, and the articles of association.

The next step is the application to CySEC. Other than the various information regarding the firm, the shareholders, and its Board of Directors, essential to the application are the business plan and the internal operations manual. These two documents need to include vital information regarding the firm's operations. They must correspond to the applied licensed services and the regulatory framework such as AML, Business Continuity policies and procedures, and funding and marketing plan details.

At this stage, the CySEC is obligated to respond within a maximum of 6 months. If successful, the response will stipulate the conditions for license activation and a timeframe for their implementation. The conditions outline the minimum requirements to start operating: the office set-up and hiring the key personnel, meaning AML and Compliance officers, and a responsible officer for each licensed service.

We usually advise our clients to start the office set-up during CySEC's application examination for maximum time efficiency.

Contact our experts

Cyprus has become one of the most prestigious jurisdictions for Forex trading, can you enlighten us why that is? 

A combination of factors contributed to creating the ideal circumstances for Cyprus becoming a prime selection for Forex trading firms.

The two most known are the tax regime, with a low corporate tax of 12.5% and tax structures that allow up to 0% tax on dividends for foreign investors. Situated at the crossroad of three continents, this country is the ideal international base of operations. The location is also highly regarded due to the Mediterranean climate, which creates a friendly environment both for people and businesses.

Other factors are Cyprus´s EU membership which gives access to one of the world's largest markets. Its supportive services infrastructure with numerous highly qualified accountants, lawyers, and IT specialists is readily available.

One even more important factor is that Cyprus is the best jurisdiction for "value for money". Among its competitors, Cyprus offers low set-up and operational costs under a high standard regulatory framework as the Cyprus Securities and Exchange Commission (CySEC).

You mentioned low set-up and operational cost, could you elaborate?

Cyprus has low business costs compared to Malta, Netherlands, Ireland, and Luxembourg. One of the highest costs for an investment firm is its personnel cost. The average salary in the financial services sector in the UK and Luxembourg, for example, is around 8,000 EUR. In Cyprus, the average is half of that, meaning around 4,000 EUR, for executive director positions, 50% lower on average than its competitors. The quality, however, is not lower. Cyprus workforce is highly educated and well experienced in financial services, and Cyprus has been a well-established brokerage jurisdiction for years now.

Office space is another high cost as it scales up with a firm's growth. It averages 100 EUR for the UK, 50 EUR for Luxembourg and 20 EUR for Cyprus per square meter.

Other costs such as software licenses, and IT set-up costs, do not differ so much since today's technology can be set-up and accessed from anywhere in the world.

In addition to the above, Cyprus has a modern, flexible legal framework based on English common law, robust regulations, and enhanced anti-money laundering compliance supervisory practices.

Another primary driver is the speed of getting over the line in Cyprus. Compared to other jurisdictions, it tends to be quicker to obtain authorization here, and the process is generally less expensive.

I understand that Cyprus offers many different licensing regimes, which we will be discussing in later editions. Could you go through the other business models and licenses?

With the appropriate combination of licensed services, a firm can offer trading services for any financial instrument. For example, the same licenses we discussed for Forex trading can also be used for classical Brokerage, as long as you have declared the related financial instruments to the CySEC and have the systems in place to offer these services. It is imperative to have a complete business plan with clear descriptions of the operations to apply for suitable licenses.

Other widely used licensed services are wealth management, portfolio management, and investment advice. In many cases, these are used together, with wealth managers being the typical business models utilizing them.

There are other licenses which are less used such as underwriting and placement financial instruments, multilateral or organized trading facilities, and data reporting repositories.

In addition to the licenses discussed so far, other regulatory regimes are Funds, UCITs, and Fund Managers licenses, also supervised by the CySEC.


As you are aware, we work with many jurisdictions under various regulatory bodies across nations. We continuously experience the ever-changing regulatory environment around financial services. Considering this, would you recommend Cyprus for a startup or recommend a different jurisdiction, specifically for Forex trading services?

While I would recommend Cyprus without hesitation to any investor who wants to establish or relocate an investment firm, I would be skeptical to recommend Cyprus as a startup option. Especially if the investors don't have experience operating under regulatory authority.

Compliance structures can be conceived as a hindrance with increased operational costs and a lot of requirements in situations that can be perceived as a simple operation. For example, when accepting a new client, you will need to collect a substantial amount of information to comply with all applicable regulations. Collecting and processing this information increases operational costs, especially now with GDPR regarding the processing and protection of private data.

If the prospective investor cannot cover these costs or doesn't have experience with regulatory requirements, I would recommend that they start from a jurisdiction with less strict regulation. First, to cover operational costs and potentially enjoy their profits, and secondly, to gain a sense of the requirements to operate within a compliance environment.

For our readers to engage your expertise, can you sort of take me through the process and time frames?

We are proud of ourselves as client-oriented service providers. Thus, we would like to initiate a free consultation meeting, either online or in-person which, based on our experience, averages to an hour. The conference's purpose is to get the right perspective of the clients' needs and objectives and our role in their implementation. We then set out an action plan and present our proposal, which will detail the goals and timeframes.

For a Forex trading license, the timeframes are usually 1 to 2 months to prepare the application for the CySEC and gather all the necessary documentation. During this timeframe, we proceed with the incorporation of the Cypriot company and registration with all the relevant authorities, tax, social insurance, etc.

Then we proceed with the application for the CySEC. We proceed with office set-up and hiring of key personnel to be ready for the activation when the process is completed and the license issued successfully. After the approval, we finalize all activation conditions usually within a month and proceed to the final step which is activating the license.

Like you can see in this interview, our Cyprus expert has all the knowledge and experience needed to help you establish a Forex or any other business in Cyprus. Contact us to acquire a financial license through our expert.

Contact our expert

All Countries
All Tags