Cyprus Banking License

Cyprus Banking License

Cyprus’ banking and finance business sector has changed significantly after the 2009-2013 economic crisis and consequent EU bailout. The economic crisis was largely prompted by exposures to the Greek economy and sovereign debt, as well as a severely heavily leveraged real estate sector; all of these factors resulted in Cyprus banks’ portfolios containing an unacceptably high proportion of non-performing loans (NPL), sometimes exceeding 50%. In exchange for EU bailout support, the Cyprus government signed the ‘The Economic Adjustment Programme Memorandum of Understanding (MoU) in March 2013.

The assessment of the banking system’s requirements and shortcomings was an important aspect of the MoU process. Following that, significant objectives were established and steps were taken to attain them. This comprised credit institution recapitalization and restructuring, as well as improving the regulatory and supervisory frameworks of the banking and financial sectors. While the journey to these goals was frequently harsh, the ultimate result was local banks and financial institutions that were rationalized, stable, well-funded, and, most crucially, invested in corporate governance.

Benefits of obtaining a Cyprus Banking License

Tax optimization

A corporate tax rate of 12.5%, with no dividend or capital gains taxes, withholding taxes, or taxes on securities profits. There are no taxes on your company’s foreign-sourced income.

Pro-business government

Following the 2013 economic crisis, Cyprus took a huge step toward a pro-business policy. They offered a slew of tax breaks and opened the nation to investors, establishing an appealing non-dom status, authorizing tax incentives for fund managers, establishing CBI and RBI programs, and revising banking regulations to allow banks to securitize loans. This lowered non-performing loans and provided the island with new FDI, which has subsequently rejuvenated the Cypriot economy.

Access to a larger market

By establishing an offshore business in Cyprus, you will get full access to the EU market. You can conduct business in other EU member states without obtaining extra permits, therefore a Cypriot license allows you to conduct business freely within the EU.

Straight forward process

Obtaining a finance license is, as usual, a difficult procedure. Nonetheless, the procedures for obtaining a financial license in Cyprus are severe enough to enable only legitimate participants while being flexible enough to be appealing.

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Regulatory authority of Cyprus financial services

The national authority for banking regulation, supervision, and resolution in the Republic of Cyprus is the Central Bank of Cyprus (“CBC’’). The CBC is governed by the Central Bank of Cyprus Law 2002, (‘’CBC Law’’). The CBC Law specifies the main responsibilities of the CBC in relation to banking regulation in the Republic of Cyprus.

Since Cyprus is part of the Eurozone since January 2008 (and as such part of the Single Supervisory Mechanism (“SSM”), the European Central Bank (“ECB“) assumed a number of tasks concerning policies relating to the prudential supervision of credit institutions established in SSM participating member states, which have been conferred on it by the Council Regulation (EU) No 1024/2013.

Additionally, the Cyprus Securities and Exchange Commission (CySEC) oversees operations and makes sure that financial rules and procedures adhere to the European MiFID financial harmonization law.

Activities allowed under a Cyprus Banking license

According to the Cyprus Business of Credit Institutions Law, a bank is forbidden from engaging in any operations other than those authorized by the banking license granted by CBC. The following activities are permissible:

• Accepting deposits and other repayable funds
• Lending
• Provision of payment services
• Issuing and administering other means of payment including travelers’ cheques and bankers’ drafts

Guarantees and commitments

• Trading for own account or for the account of customers in

o Money market instruments including cheques, bills, and certificates of deposit;

o Foreign exchange;

o Financial futures and options;

o Exchange and interest-rate instruments;

o Transferable securities.

• Participation in securities issues and the provision of services relating to such issues
• Advice to undertakings on capital structure, industrial strategy, and related questions and advice as well as services relating to the purchase of undertakings and mergers
• Money broking
• Portfolio management and advice
• Safekeeping and administration of securities
• Credit reference services
• Safe custody services
• Issuance of electronic money

Regulatory requirements to obtain a Cyprus banking License

Minimum capital:

• The law sets the minimum amount of capital for an applicant at €5,000,000 and it is required to be maintained throughout the course of the business operation of the banking entity.
• The initial capital can consist of one or more of the elements referred to in Article 26 of Regulation (EU) No. 575/2013:

(a) Capital instruments, provided the conditions laid down in the subsequent articles and regulations are met;

(b) Share premium accounts related to the instruments referred to in point (a);

(c) Retained earnings;

(d) Accumulated other comprehensive income;

(e) Other reserves.

• The Central Bank may authorize specific categories of credit institutions whose initial capital is less than the limit mentioned above, provided that the following conditions are fulfilled:

o The initial capital is not less than €1,000,000;

o The Central Bank shall inform the Commission and the European Banking Authority of the reasons for making use of this option.

Management:

At least two (2) Executive Directors who effectively direct the business of the Credit Institution are required.

Registered office:

The company must register its office in Cyprus and carry out banking business and/or provision of banking services in the country.

What legal entities can operate as a bank in Cyprus?

The legal entities that can operate as banks are the following:

• A credit institution incorporated in the Republic of Cyprus under the provisions of the respective company law;
• A credit institution incorporated and authorized in a member state pursuant to corresponding legislation of that member state in order to operate in the Republic of Cyprus through a branch;
• A credit institution established and authorized in a third country pursuant to corresponding legislation of that country in order to operate in the Republic of Cyprus through a branch.

Additionally, aside from banks, payment institutions (allowed to supply and execute payment services throughout the EU) can be licensed to operate as such by the CBC, if they satisfy the appropriate conditions since the Payment Services Directive has been incorporated into Cypriot legislation through the Payment Services Law. The Central Bank of Cyprus is the responsible body in Cyprus for the authorization and supervision of such payment institutions.

Process of acquiring a Cyprus Banking License

Formation of a Cyprus entity:

• Under the Cyprus banking law, an entity planning to undertake the banking business in Cyprus need to be duly registered and incorporated in Cyprus. Unless the applicant is already an incorporated entity conducting banking business under license in a different jurisdiction. In such a case, the latter can apply for a branch license to CBC for carrying out the banking business in Cyprus.
• N5Bank’ team of professionals will assist with the formation of an entity in the country. We will guide you on the best-suited business structure available under Cyprus company law.
• In order to proceed with the registration of your Cyprus entity, we will ensure that you fulfill the regulatory requirements. Accordingly, we will assist with providing services with respect to the local office, and local registered agent who will act as the representative of your entity to the Cyprus governmental authorities. With everything in place, our team will advance to register a company in Cyprus with the Department of Registrar of Companies and Intellectual Property.
• Once the company is successfully registered, we will send over the corporate documents including the Certificate of Incorporation, Memorandum, and Articles of Association as well as the other internal documents. We expect to complete the registration process of your Cyprus entity in 2 weeks.

Opening of corporate bank account:

• After company registration, you can proceed to open a corporate bank account. N5Bank’ banking team will assist in consolidating the documents for the process of corporate bank account opening with a reputable bank of your choice.
• Typically, directors and shareholders are not required to travel to Cyprus to open a corporate bank account. However, if travel is required, we will have a representative accompany you to the bank meeting. Alternatively, our team will negotiate with the banks to conduct a conference call instead or request a waiver.
• Once the bank account has been successfully opened, N5Bank will courier the internet banking token and access codes to your preferred address.
• Please note that the respective corporate bank account will be used for evidencing the fulfillment of the minimum capital requirement at the later stage of applying for a Cyprus banking license.

After the successful incorporation of your entity, our team of licensing experts will take over your engagement and proceed with the preparation of the banking license application. Usually, the Cyprus banking license application process goes through the following stages:

• Pre-application meetings
• Application stage
• Licensing of the bank
• Authorization for the commencement of banking business by the bank

Phase A: The pre-application phase/conditions to be met:

• During this stage, usually, a pre-meeting is set with the regulatory authorities where the representative of the applicant has to convince the capability of the entity to undertake the banking business in the country. The applicant shall disclose the identity of the shareholders or members, whether direct or indirect, natural or legal persons who hold a qualifying holding and the percentage of such holding or, in the absence of qualifying holdings, the identity of the largest shareholders or members.
• Accordingly, the Central Bank shall be convinced and informed of:

o The suitability of shareholders or members and disclosure when the criteria set out concerning the “fit and proper” is not fulfilled.

o The existence of any close links between the applicant and other natural or legal persons, which may prevent the effective exercise of the CBC’s supervisory function.

o The laws, regulations, or administrative provisions of a third country to which one or more natural or legal persons are subject, with which the credit institution has close links or difficulties with the application of those laws, regulations, or administrative provisions, shall not block the effective performance of the CBC’s supervisory mission.

o And the applicant shall provide the Central Bank with the information it so requests in order to be able to monitor on a continuous basis the compliance with the conditions laid in the banking laws.

Phase B: The application phase:

During the application phase, the Application form must be submitted alongside an extensive list of information and documentation. The application documentation is intended to provide the CBC with, inter-alia, information on

• The identity and suitability of all direct or indirect Controllers, directors, and managers of the applicant through the specific questionnaires and regulations governing the suitability of Management.
• The source of funding of the proposed bank, as well as the transparency and legitimacy of this source;
• The financial standing of the applicant, its controllers, and/or the group of institutions to which it belongs;
• The adequacy of the proposed bank’s business plan, which must provide insights on the proposed banking activities to be conducted, projected financial condition, management and organizational structures, including the proposed internal governance and compliance procedures and compliance systems to be used;

Phase C: Licensing

• During this stage if everything has gone well, the Central Bank will grant the banking license if it is satisfied that the members of the management body have a good reputation and sufficient knowledge, qualifications, and experience to perform their duties after a possible interview and the board reflects a sufficiently wide range of experiences, and meet the requirements as set out in Cyprus banking and concerned laws.
• The Central Bank can consult the competent authority of another Member State before granting authorization when the applicant –

o Is a subsidiary of a credit institution authorized in the other Member State; or

o Is a subsidiary of the parent credit institution authorized in the other Member State, or

o Is controlled by the same natural or legal persons who audit a credit institution authorized in the other Member State.

At the end of Phase C, Licensing, a letter is required to be addressed by the newly licensed bank to the CBC declaring that:

• It has observed all conditions attached to its banking license;
• Its initial capital has been fully paid up (for locally incorporated banks);
• Its initial contributions to the Deposit Protection Fund and the Investor Compensation Fund for Clients of Banks have been paid, unless it is exempted from such an obligation;
• The premises where bank activity will be conducted comply with security and protection requirements according to best practices and industry standards;
• The information and accounting systems implemented, are capable of producing its true financial picture, providing the necessary information for decision making and ensuring the compilation of annual or periodic financial statements, as well as of the prudential/ statistical returns, in an accurate and timely manner.
• The above letter should be accompanied by a confirmation from the bank’s approved external auditors, that requirements under Phase C have been met by the bank.

Documents required to obtain a Cyprus banking license

Cyprus issues banking licenses, which indicates that specific rules and regulations are applicable to applicants. In addition to the nation’s strict legislation regulating the incorporation of corporations, a significant level of authorized capital as well as a comprehensive set of documentation is needed which may include, but not be limited to –

• Bank name and its legal structure
• Names and CVs of the bank directors
• Certificates of proof that there is no criminal liability of applicants and directors
• Details of the applicant with all requested information and documents.
• Program of operations with all required information and documents.
• Business Plan with all required information and documents.
• Structural organization description.
• Evidence of Initial Capital.
• Measures to safeguard the funds of electronic money users and/or payment services users.
• Governance arrangements and Internal Control Mechanisms.
• Procedure for monitoring, handling, and following up on security incidents and security-related customer complaints.
• Process for filing, monitoring, tracking, and restricting access to sensitive payment data.
• Business Continuity Arrangements.
• Principles and definitions are applicable to the collection of statistical data on performance, transactions, and fraud.
• Security policy document.
• Internal Control Mechanisms to comply with obligations related to Money Laundering and Terrorist Financing (AML/CFT obligations).
• Identity and suitability assessment of persons with qualifying holdings in the applicant.
• Identity and suitability assessment of members of the management body and key function holders of the electronic money institution.
• Identity of Statutory Auditors and Audit Firm.
• Any other documents which can support the application form

What is the timeline of obtaining a Cyprus banking license?

The CBC has up to 6 months from the date of receipt of a new application (excluding the period spent answering questions and gathering further information) to communicate a decision. If the application is approved and a license is provided by CBC, the licensed bank must prepare for its establishment and operation within a maximum of 12 months.

If the Central Bank refuses to grant a credit institution authorization to start a business, it must notify the applicant in writing of its decision and the reasoning for the decision within 6 months of the date of receipt of the application or, if the application is incomplete, within 6 months of receiving of all the information required to make a decision. In any case, a decision to grant or deny authorization must be made within 6 months of the application’s submission.

An authorized credit institution may repudiate its license by notifying the Central Bank in writing. The return is effective from the date of the notice or, if a later date is specified, the return is effective from that day. If a later date is specified in the notice, the credit institution may set an earlier date for the return, which shall not be earlier than the date of its initial notification, by a new written notice to the Central Bank. The return of authorization is irrevocable unless it is specifically stated that it will be effective at a later date and the Central Bank accepts the revocation prior to that date with written notification to the credit institution.

How much does it cost to obtain a Cyprus banking license?

The overall engagement cost is determined by the services you require from N5Bank. From helping you with the incorporation procedure to getting the banking license, we will support you with a variety of services. The total sum that will be charged includes the licensing fee, the business registration price, and any extra expenses that could be incurred.

Before we start the registration process, we will go through the entire engagement cost with you in detail so that you know exactly what you are paying for. Before beginning any engagements, N5Bank aims to be upfront and forthright about the engagement costs. Our appointment letter will clarify all of these terms and conditions apparent.

Our services

N5Bank will assist you with the comprehensive set of services to obtain a Cyprus banking license which will include assisting in the formation of a corporation that will apply for a bank license, collating necessary background information to submit an application for a bank license, and preparing the significant corporate documents along the bank license application.

Moreover, N5Bank will be providing recommendations on the regulatory compliance solutions for the business, placing the bank into full operation once it gets the required certifications and licenses. We will ensure smooth communications with the local Central Bank, regulatory authorities, and government officials throughout the whole course of the engagement.

Technical compliance:

Professional IT analysis to ensure that the software meets regulatory standards. There are proven software solutions such as BAAS or SAAS. We significantly often work with such platforms as SoftexLab, which is ready-made technical solutions for your future fintech business, which are audited by various regulators within the jurisdiction.

Card issuance:

We recommend a White Label solution with partners such as XBANKSY, which is aggregator of more than 30 different cards and BIN- sponsorship around the World. This is a faster and, most importantly, more profitable way than direct VISA or MasterCard membership

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FAQ

Who regulates banks in Cyprus?

The banks and financial institutions are regulated and supervised by three authorities in Cyprus that are, the Central Bank of Cyprus (CBC), which is responsible for the supervision of commercial banks and cooperative credit institutions; the Superintendent for Insurance Control (SI); and the Cyprus Securities and Exchange Commission.

How do you get a banking license in Cyprus?

The procedure to get a banking license in Cyprus is simple and straightforward with N5Bank’ assistance. We assist our international clients from the setting up of the entity to the filing and submission of the banking license application to any further assistance as required on a case-to-case basis.

What is the most prevalent form of company structure in Cyprus?

A Cyprus limited liability company is the most prevalent and used form of company structure used by foreign investors.

What is the minimum amount of share capital required to set up a bank in Cyprus and obtain a Cyprus banking license?

The minimum amount of share capital required for setting up a bank in Cyprus and obtaining a Cyprus banking license is €5,000,000.

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