EMI license in Cyprus

Located at the crossroads of three continents, namely Europe, Africa, and Asia, the Republic of Cyprus is henceforth referred to as Cyprus. The island is the third largest and most populous island in the Eastern Mediterranean. According to the International Monetary Fund, Cyprus is classified as an advanced economy. Cyprus is a member of the European Union and thus is bound to apply all EU rules. Regulations and taxes are friendly.

Apart from the USA Common Law, it is aligned with EU and international laws and regulations as well as e-Justice currently underway. The high tertiary education rate provides the Cypriot workforce with the ranking among the best-educated in the EU. In addition to the English language spoken, more than 75 percent of the Cypriots do business in this language.

For a country operating a services-based economy, there are over seven hundred registered accounting firms in this country including the Big 4, 2,700 licensed lawyers, and 160 law firms. The country is busy with financial services. A Cyprus-based shipping registry has the world’s 11th largest merchant fleet and the third largest fleet in the European Union. A third-party ship-management center, one of the largest in the world, is located in Cyprus. The government of Cyprus has fully-fledged offices that conduct international operations for a huge number of shipping companies regarding ship-owning, ship management, chartering, and shipping-related activities.

In addition, Cyprus is developing a modern telecommunication network and infrastructure such as 5G; it also invests much in its digital transformation, both in the public and private sectors and more importantly in cybersecurity. Similarly, long term strategy and action plan up to 2035 that describes 242 initiatives covering different strategic objectives including but not limited to greener economy, world-class education system, diversification and digitalization among others.

As a result of Covid-19, the recession in Cyprus was much milder as opposed to the average eurozone. Real GDP growth is projected to expand by 5.7 percent in 2021 and by 4.1 percent in 2022.

Reasons for living and doing business in Cyprus are a high quality of life, low crime rate, warm climate, and political stability within the region, along with friendly business conditions.

There are a number of reasons why EMI’s can be established in Cyprus, including:

• The passporting system allows operation in all EU jurisdictions under one license;
• If licensed and regulated by the Central Bank of Cyprus, the licensed and regulated EMI may offer SEPA payment services;
• Cyprus is at a geographical crossroads between Europe, Asia, and Africa, hence an attractive location for companies with international customers;
• It is very business-friendly, considering that it has a high level of development with low taxes and a very qualified workforce;
• European Union membership gives companies the right to access not only the single market but also free movements of goods, services, and capital within the continent;
• Firms can obtain low overhead costs in Cyprus since it has very low operating costs.

What is an Electronic Money Institution?

The different forms of e-money issued by EMIs, such as prepaid cards and electronic wallets, may be used by individuals and businesses. E-money is issued by legal entities.

If a natural or legal person other than the issuer accepts a claim on the issuer, then in order to make a payment transaction the issuer issues monetary claims against the issuer upon receiving the funds in electronic form including magnetic and issues upon receipt of funds.

E-money is the currency stored in bank computers and backed by fiat currency. It is otherwise known as the electronic version of cash, an electronic payment system.

The following are activities that may be engaged in by an EMI:

• Where an undertaking issues electronic money, at all times hold an electronic device that stores monetary value;
• Keep, for the purpose of placing electronic money into circulation, a readily accessible instrument for the distribution of electronic money;
• Issue electronic money for monetary value;
• Electronic money shall be issued;
• Place electronic money in circulation;
• E-money products to sell or resell;
• Invest in already existing electronic money products in the hands of electronic money holders;
• At any time when they are not acting as payers to distribute electronic money to an electronic money holder or a person purporting to hold the money;
• At redemption, where an electronic money holder may want to redeem his electronic money as follows;
• Contact electronic money holders or possible holders as an employee or other representative of a third party.

What is an Electronic Money Institution License?

An electronic money institution is, in a sense, a license that makes the issuance of e-money possible. In this way, a company could deposit money in forex accounts, fill electronic wallets, buy virtual currency, or make payments to other forex accounts.

With the license, you can also operate as an EMI institution and have permission to issue both individual and legal entities digital currency.

Without an electronic money institution, it would not be possible to develop something like a virtual currency wallet, any third-party payment service, and other resources using virtual currency.

PIs are not permitted to issue any form of e-money. Basically, the major difference between an Electronic Money Institution and a Payment Institution involves the issues of issuing electronic money.

Payment account legal treatment dichotomy has driven PIs and EMIs into different business models, as explained in this article, a number of jurisdictions will grant EMI licenses in 2023.

Governments have passed laws and regulations to safeguard consumers from possible risks that may arise out of financial services. Companies offering financial services need to achieve specific standards the government of that region where they wish to offer their services has set.

Different regulatory bodies in several countries have the mandate to issue EMI licenses. Any business has to fulfill specific requirements in their jurisdiction of choice before applying to their regulatory authorities.

An institution wanting to issue e-money has to apply for an EMI license. To put it another way, an EMI-licensed company can offer licensed PI services apart from the issuance of electronic money. The digital version of cash is stored on an e-money device or remotely on a server.

The definition of e-money does not include prepaid goods and services, or the limited network of goods/services under agreement with the issuer. Only companies incorporated in Cyprus that provide at least part of their e-money and/or payment services in Cyprus can apply for an EMI license.

Cyprus issues electronic money through the following institutions:

• Financial institutions;
• Other member state banks licensed by their designated authorities;
• Credit cooperatives;
• Institutions operating in conformity with the relevant legislation and carrying out operations connected with postal payment services and issuing electronic money;
• The European Central Bank and national central banks, when not acting in performance of their functions as monetary or other public authorities;
• Public authorities, member states, regional authorities, or local authorities;
• Electronic money institutions.

At the end of 2018, some 13 billion EUR was reported by EMIs in the euro area. Compared with the start of 2011, that total was four times higher.

Regulatory requirements

It is the Electronic Money Laws of 2012 and 2018 (”the Law”) that regulate the provision of electronic money services in the Republic of Cyprus (the “Republic”). This law enacts the following directives from the European Parliament and Council into national law:

Said directive makes provision for electronic money institutions to pursue their business and be prudently supervised by Directive 2009/110/EC of 16 September 2009.

Second Payment Services Directive, or commonly referred to as PSD2, has been adopted by the European Union in the year 2015.

For this end, an authorization by the Central Bank of Cyprus hereinafter called “CBC” or by any member state of the EU is required, prior to the offering of electronic money services in the Republic, under the right of establishment and free provision of services, as provided by the Law.

Electronic money institutions may be licensed only by the CBC, provided they are legal entities constituted in the Republic, where their head office and registered office should be situated, and provided at least part of their activity consists of electronic money service and/or payment service which is not connected with their issuance of electronic money.

Accordingly, pursuant to the Laws providing for the Provision and Use of Payment Services and Access to Payment Systems from 2018 until 2023, such an application for authorisation as electronic money institution shall be submitted to the CBC, accompanied by all the information referred to in subs. (3) to (8).

These subsections apply accordingly to electronic money institutions in accordance with section 4A of the Law. The application must be accompanied by the relevant application fee receipt, which should be deposited in the account – “APPLICATION FEES” with IBAN CY65 0010 0001 0000 0000 0772 3042.

For approval as an electronic money institution, the guidelines issued by the European Banking Authority EBA/GL/2017/09 are fully adopted by the CBC. These guidelines detail what information must be disclosed to the relevant authorities when an application is made.

Requirements

It is also known as the European Union Directive 2009/110/EC or the “Electronic Money Directive.” It provides a legal framework concerning the issuance and management of electronic money within the European Union. A high degree of protection for customers using e-money products and services, it offers a level playing field for all the issuers of e-money.

From the provisions of the Directive, the following are some of the requirements for an EMI to be subjected to:

The Directive, irrespective of their domicile, protects e-money services in the EU and is applicable to all EMIs that operate in the EU. It protects consumers that use e-money products and related services and also guarantees a level playing field for all e-money issuers.

PSD2

“Payment Services Directive 2” may also be referred to as EU Directive 2015/2366. In the backdrop of this European Union’s directive, new rules have been provided regarding the payment services. In the aftermath of PSD2, the payment service providers can compete more effectively, while consumers are better protected.

Following are the provisions contained in PSD2:

Directive PSD2 itself is targeted at providing equal opportunities within the EU for payment services, increasing competition, and protecting consumers. It impacts the industry of payment services significantly due to its applicability to all providers of payment services in the EU.

How to get an EMI license in Cyprus

The steps involved in the application process for an EMI license in Cyprus are highlighted below:

• The draft preparation of the application by collating all relevant information and documentation; this will also involve the business plan, financial projections, and due diligence reports.
• Submission of Application. The application and supporting documents are filed with the Central Bank of Cyprus for regulation and supervision of EMIs in Cyprus.
• Such an application, accompanied by supporting documentation, will be considered by the Central Bank of Cyprus as to whether the applicant is, or will be able to demonstrate, that it satisfies both the relevant eligibility criteria and regulatory requirements for obtaining an EMI license. This usually takes several months.
• In case of approval, the Central Bank of Cyprus could go ahead and conduct on-site inspection at the applicant facility for confirmation of the company’s systems, controls, and infrastructures regarding operation as an EMI. The license for EMI shall be issued by the Central Bank of Cyprus after it has completed the on-site inspection with due regard to compliance with the regulatory requirements.
• Applications for EMI licenses are complex and require considerable resources, including knowledge in electronic payments and regulatory compliance expertise.

EMI license applications in Cyprus are complex and require substantial resources, including expertise in electronic payments and regulatory compliance expertise.

Timeline

Once the application package has been received by the applicant, the CBC reviews it and invites supplementary information and explanations. Reactions often are expected to occur within a specific timeframe. Once the CBC grants conditional licenses are granted to companies when the CBC has viewed an application.

The Law states that CBC shall respond to the application within three months from the date of the application. It is after the application is complete that the running of the three months starts.

The timeline will only start to count when the CBC is satisfactorily disposed with answers about follow-up questions. Hence, it is perceived that the conditional licence is likely to take 6 to 9 months for completion and is subject to the approval of the ultimate beneficial owner.

Success may depend on the EMI license for your business. It is not the easiest task, hence seek legal support of our team at Regulated United Europe that will be happy to help you set up a company and obtain an EMI license application.

Setting up an EMI business in Cyprus will surely be truly efficient, smooth, and transparent with professional lawyers, business development professionals, and financial accountants by your side. Provide yourself with the means to achieve long-lasting success; if you want to license an EMI, then do not hesitate to contact us today for a free personalized consultation.