Cyprus Electronic Money Institutions (EMI) and Cyprus Payment Institutions (PI)

The Republic of Cyprus established itself as one of the most attractive European jurisdictions for the operation of EMIs, being the Cyprus Electronic Money Institution (EMI), along with Payment Institutions (PI).

The licensing and supervising regulatory body, the Central Bank of Cyprus, in coordination with the government, provides substantial support to the fintech industry in Cyprus.

Cyprus enjoys a relatively flexible legal framework that fully complies with the Electronic Money Directive 2 (Directive 2009/110/EC) and the Payment Services Directive (PSDS2) of the European Union (EU), but does not create additional regulatory or other legal hurdles.

Furthermore, Cyprus attracts Electronic Money Institutions (EMI) and Payment Institutions (PI) with its developed fintech ecosystem, availability of skilled fintech labour, its low corporate tax rate and an array of additional tax advantages for both corporate income and personal income (salaries).

Since more than 20 years, the fintech industry is rapidly growing in the European Union as well as globally. During this period, Electronic Money Institutions (EMI) and Payment Institutions (PI) did establish themselves as a serious alternative to traditional, often clumsy banks. EMIs and PIs provide faster service at substantially lower costs to transfer money within seconds, thanks to technology.

More than 20 years ago, Cyprus started to establish itself as a financial centre, focusing on the non-bank sector. Cyprus did become a sought-after jurisdiction for the fund industry (mainly AIFs and RAIFs), Electronic Money Institutions (EMI) and Payment Institutions (PI), and the fintech industry in general. A good number of well-known Electronic Money Institutions (EMI) and Payment Institutions (PI) are based in Cyprus.

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What is Electronic Money (E-Money)?

The European Central Bank defines electronic money as following:

“An electronic store of monetary value on a technical device that may be widely used for making payments to entities other than the e-money issuer.”

Consequently, digital currencies include the hardware and software required to create, store, and transfer electronic payments.

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What is an Electronic Money Institution (EMI)?

An Electronic Money Institution (EMI) is a financial institution licensed under the Electronic Money Directive 2 (Directive 2009/110/EC) which provides the services that a Payment Institution (PI) does provide (see next paragraph), and additionally issues electronic money (see above paragraph) and manages e-money accounts for storage and transfer. Many Electronic Money Institutions (EMIs) can also provide SEPA payments.

Not all EMIs do provide the same scope of services. Electronic Money Institutions often have their own specific focus on defined business purposes and are licensed accordingly.

A Cyprus Electronic Money Institution (EMI) is obliged to offer at least a part of their services to the local market as well.

Typical services of EMIs are prepaid cards, digital wallets, and online payment platforms.

Examples of Electronic Money Institutions: PayPal, Revolut, Wise.

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What is a Payment Institution (PI)?

A Payment Institution is licensed in the European Union under the Payment Services Directive (PSD2). A Payment Institution is specialized in managing payment services.

A Payment Institution processes payments, offers payment options like cards, transfers money, and even may provide credit services. Payment gateways of online shops are typically operated by Payment Institution (PI).

Typical services of PIs are payment processing, money transfer services, and payment gateways.

Example of Payment Institutions: Stripe, Worldpay, Adyen.

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Which main advantages does a Cyprus Electronic Money Institution (EMI) enjoy?

EU Membership: EU directives and regulations are transposed in national laws in all member states of the European Union. Consequently, regulated entities in one EU member state are recognized as regulated entities in all member states. Through the passporting system, Cyprus Electronic Money Institutions (EMI) and Cyprus Payment Institutions (PI) can offer their services and operate in all EU member states under their single licence from the Central Bank of Cyprus, without the need to get licensed in other EU member states.

Access to the SEPA System: Cyprus Electronic Money Institutions are allowed to provide payment services within the Single Euro Payments Area (SEPA).

Setup and operating costs are lower than in other EU countries: Although Cyprus is not a notedly low-cost country, setup costs and operating costs, including wages and ancillary wage costs, are lower than in comparable EU countries.

Business-friendly environment: Cyprus has a business-supporting environment, with a well-developed infrastructure, an easy tax system, and a highly skilled workforce.

Low taxes and tax incentives: The corporate tax rate is 12.5% on taxable income. Financial services are exempted from VAT in Cyprus. There is no withholding tax on dividend distribution. Investors do enjoy important incentives, including the Cyprus Non-Dom Tax Status. And last but not least, high-earners relocating to Cyprus enjoy 50% exemption on personal income tax for a period of 10 years. 

Appealing high living standard: While Cyprus is proud to maintain many traditions still today, it is a modern country with a high living standard.

Easy communication: The business language in Cyprus is English, and it is widely spoken in non-business areas as well.

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Capital Requirements for a Cyprus Electronic Money Institution (EMI)

Companies are required to have an initial minimum paid-up capital of EUR 350,000 when applying for an Electronic Money Institution (EMI) licence.

In addition to the initial capital requirement, Cyprus Electronic Money Institutions that are issuing electronic money, must maintain a paid-up capital equal to 2% of the average value of electronic money in circulation.

There are additional minimum paid-up capital requirements in relation to the provision of payment services that are not related to the issuance of electronic money. These capital requirements are calculated by the Central Bank of Cyprus based on one of three different methods.

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Other Requirements for a Cyprus Electronic Money Institution (EMI)

Place of incorporation and main activities: The legal entity (company) that applies for an EMI licence must be incorporated in Cyprus and must maintain its headquarter in Cyprus.

Management: A Cyprus Electronic Money Institution (EMI) must have at least two executive and two non-executive directors, the majority of the directors must be resident of Cyprus. All directors and senior management must meet the “fit and proper” criteria, demonstrating the necessary expertise and integrity, and they must be approved by the Central Bank of Cyprus. The Central Bank has the right to require more directors than the aforementioned four directors.

Operational resilience: EMIs are required to have operational strategies in place, a sound technical infrastructure, sufficient data protection measures as well as cybersecurity protocols to mitigate risks effectively, among others.

Mandatory staff: A Cyprus Electronic Money Institution (EMI) must have robust internal control mechanisms, including risk management, AML (anti-money laundering) and compliance, and audit functions, comprising the following mandatory positions:

• anti money laundering and compliance manager;
• risk manager;
• accountants;
• internal auditors;
• external auditors;
• external legal consultants. 

Some positions might be outsourced to agents or external individual persons, depending on the size and structure of an EMI, subject to the approval of the Central Bank of Cyprus.

Termination of an EMI license

An Electronic Money Institution’s licence is terminated if;

• the licence has not been used within 12 months of its issuance or partly terminated for the activities for which no use was made;
• it is expressively renounced by the Cyprus Electronic Money Institution (EMI), or
• the Cyprus Electronic Money Institution has not issued electronic money or not provided payment services for a period exceeding 6 months.

Lastly, the CBC has the power to revoke any authorisation granted in certain circumstances, such as lack of compliance with legal obligations. A revocation needs to be duly justified by the Central Bank of Cyprus, notified to the EMI and be made public.

Licence by Central Bank of Cyprus: Obviously, Cyprus Electronic Money Institutions must be licensed in Cyprus. The regulatory body is the Central Bank of Cyprus.

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Licence application for a Cyprus Electronic Money Institution (EMI)

The preparation of a comprehensive application file to be submitted to the Central Bank of Cyprus typically takes one to two months, depending on the cooperation of the client. The file shall contain the filled and signed application form, and the following documents and documentations:

• the applying company’s incorporation documents;
• KYC documents of the individuals in key function (Directors, risk manager, AML compliance officer, etc.), including clean criminal records, non-bankruptcy certificates, CVs, certified/apostilled copies of passports, proofs of address;
• KYC documents of the shareholders and ultimate beneficiary owners (UBOs), and proofs of their legitimacy and share acquisition details, evidence of source of funds and shareholding structure chart;
• detailed and comprehensive description of operations;
• the organizational structure (with an organigram);
• a detailed business plan with financial forecasts for the first three years;
• proof that the required initial capital has been paid;
• a detailed Internal Operations Manual as required by the law, including;
  • measures to safeguard the funds of electronic money users and/or payment services users;
  • description of the governance measures and internal control mechanisms;
  • description of procedures for monitoring, handling and following up on security incidents and security-related customer complaints;
  • description of the processes regarding the filing, monitoring, tracking and restricting access to sensitive payment data;
  • description of the measures and infrastructure to ensure business continuity;
  • description regarding the collection of statistical data on performance, transactions and fraud, including supporting documentation;
  • description of the internal control mechanisms to comply with obligations in relation to money laundering and terrorist financing (AML/CFT obligations;
• IT security policy;
• proposed professional indemnity insurance or comparable guarantee (required for specific activities);
• latest audited financial statements and most recent management accounts (for companies that are already operating).

Assessment of the application by the Central Bank of Cyprus: The Central Bank of Cyprus will review the application and will typically revert to the applicant or its representative with questions. Once all requests for further information have been satisfied, the Central Bank has a legal time frame of three months to asses the application in detail and to decide on the application.

The entire period from the first submission of the application file until the final decision is realistically six to nine months.

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What you can expect from us?

You are interested in setting up your European Electronic Money Institution in Cyprus?

You are seeking a competent partner to accompany you with the entire process of obtaining a licence from the Central Bank of Cyprus to operate as a Cyprus Electronic Money Institutions (EMI)?

Shanda Consult together with its closed associates will be happy to advice you and to provide its full scope of services.

Our services include but are not limited to;

• preliminary advice and consulting on the requirements for establishing an EMI in Cyprus;
• drafting of the Memorandum and Articles of the company to be incorporated for the purpose of operating a Cyprus Electronic Money Institution, incorporating this company; assistance in bank account opening;
• assistance in the preparation of:
  • a comprehensive business plan;
  • financial projections for the first three years of operation;
  • the operation manual, as described in the previous paragraph;
  • manuals for all procedures and operations of the company as required by low, KYC procedures, AML compliance, internal control and audits;
• preparing the licence application file to be submitted to the Central Bank, including but not limited to:
  • completing the Central Bank’s application forms and the check-list required;
  • providing all KYC documentations as described in the previous paragraph;
  • the operation manual and other manuals, as described in the previous paragraph;
  • group structure and operational structure;
• communication with the Central Bank on your behave, including liaison;
• following up the Central Bank’s assessment procedures until final decision;
• further assistance and consultancy during the operation of your Cyprus Electronic Money Institution, after being licensed.

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Contact us!

For further information and brief evaluation of your investment activities or projects, Shanda Consult offers you a 30-minute complimentary video meeting (Zoom), without any obligations.

Please feel happy to contact us through the contact form below and request your complimentary Zoom meeting.

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Disclaimer

Shanda Consult and the authors of this article explicitly disclaim any liability or responsibility to any individual, entity, or corporation that acts or fails to act based on any portion of this publication. Consequently, no individual, entity, or corporation should take action or rely on the information provided or implied in this publication without first seeking advice from a qualified professional or advisory firm like Shanda Consult, ensuring that the advice is tailored to their specific situation and circumstances.

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