A. INTRODUCTION – THE LAW
The provision of administrative, namely, fiduciary, trustee, corporate and related services, is a regulated activity and not freely exercised, unless relevant Licence is granted to the person providing such services.
The law regulating the provision of administrative services is the “Law Regulating the Businesses Providing Administrative Services and Related Matters of 2012, Law No. 196(I)/2012, as amended, hereinafter referred to as “the Law”.
The aim of the Law is to regulate the provision of administrative services from companies that do not fall within the exceptions identified in the Law. Advocates, members of the Cyprus Bar Association, qualified accountants, members of the Institute of Certified Public Accountants of Cyprus (“ICPAC”), and other specified categories of companies and legal persons and their subsidiaries, are exempted from the provisions of the Law and do not need a Licence to offer administrative services.
The said categories of persons and their respective companies or subsidiaries, as well as their employees, are exempted from the obligation to receive a Licence as per the provisions of the Law, as they are regulated by their respective professional bodies or other regulatory authorities.
The provision of administrative services, being a regulated activity, can be offered, in Cyprus or from Cyprus, only by Licenced companies or by the exempted by Law companies or persons. The Cyprus Securities and Exchange Commission hereinafter referred to as “the Commission”, is the regulatory authority responsible for the implementation of the provisions of the Law and grant the relevant Licences.
The Law identifies in detail as to which are the administrative services requiring a Licence, what are the conditions and procedure of receiving such a Licence, as well as extending, amending, withdrawing and terminating its validity.
Additionally, the Commission is entrusted with extensive powers and with authority to impose heavy administrative fines in case of any violation of the Law in addition to the criminal offences established in case of such violation.
With this publication we give an analysis of the Law, in order to assist companies already in the business of the provision of administrative services and also new prospective companies who would like to deal with such activities and understand its provisions.
The positive aspect of the Law is that now the administrative services sector, is well regulated for all the players in the field.
The new Law fills a vacuum that existed in the legislation and complements effectively the laws which are already in force and specifically the Cyprus International Trusts Law, No.69(I)/1992 and the legislation as to the Prevention and Suppression of Money Laundering Activities Law, No.188 (I)/2007.
The issues created
The Law, as enacted, raises various legal and implementation issues. The complications created, the mismatches in its implementation by the regulating authorities, the discrimination and unconstitutionality of certain of its provisions, are commented accordingly in an attempt, those responsible for correcting such issues, to take positive steps and cure any defects.
B. DEFINITIONS AS PER THE LAW
“Licenced person” – “Αδειούχο πρόσωπο” means the company established (incorporated) under the Companies’ Law Cap. 113, which holds a Licence under the provisions of the Law;
(Our comment 1: As per the provisions of the Law, only Cyprus incorporated companies pursuant to the Companies’ Law Cap.113, may apply to obtain such a Licence.
Foreign, or EU registered companies, or physical persons, or branches of foreign companies declaring a place of business in Cyprus, or Partnerships registered pursuant to the Partnerships and Business Names Law, Cap.116, do not have this possibility and right.
This limitation might bring the Law in direct conflict with well-established principles of EU Law as it discriminates against EU companies and creates limitations on the freedom of movement, establishment, work, employment and related principles).
“Licence” means the approval and registration of the Licenced person in the Register kept by the Commission;
“Entitled persons” – “Δικαιούχα πρόσωπα” means the Exempted Persons who are regulated by their respective regulatory authorities as well as the Licenced persons;
“Exempted person” means:
“Subsidiary company” has the meaning as defined in articles 2 and 148 of the Companies’ Law Cap 113, as well as the meaning attributed to the term “subsidiary undertaking” in art. 1 and 2 of Directive 83/349 EEC and includes also any subsidiary of a subsidiary undertaking of an ultimate parent undertaking;
(Our comment 2: The Cyprus Bar Association has issued a directive in relation to subsidiary companies of Advocates, item iii. above, clarifying that it will regulate subsidiary companies of Advocates’ LLCs or general or limited legal partnerships or of an Advocate physical person, as identified under i., above, provided the subsidiary companies belong exclusively to them.
In effect, only if they are 100% subsidiaries of the said persons under i., above will be regulated by the Cyprus Bar Association and only in this case such companies will be treated as an Exempted company as per the Law. The interpretation to the notion of subsidiary given by the Cyprus Bar Association is a strict one and not in line with articles 2 and 148 of the Companies’ Law, Cap. 113, or the Law which makes specific reference to articles 2 and 148 of the Companies’ Law, Cap. 113 in identifying the meaning of subsidiary where a company is a subsidiary of another company if such other company holds more than 50% of its issued share capital and or otherwise controls it.
On the contrary, the Institute of Certified Public Accountants of Cyprus, (ICPAC), adopts the meaning of a subsidiary as this is identified in the Companies’ Law Cap 113, articles 2 and 148 and specifically adopted in the Law and requires that at least 50% of the board of directors must be Members of the Institute and hold a licence for the provision of administrative services, issued by the Institute and their Members outlined above control the majority of the votes in the company in accordance with the respective articles of association or partnership agreement.
In this way, there is a mismatch, a non-uniform approach as to the implementation of the same provision of the Law by the regulating bodies giving beneficial treatment to members of the Institute of Certified Public Accountants of Cyprus (ICPAC), in breach of the principle of equality as per the Constitution and also constituting a serious restraint of trade.
The interpretation given by the Institute of Certified Public Accountants of Cyprus seems to be correct and this should have been also followed by the Cyprus Bar Association).
“Real beneficiary” has the meaning attributed to it by article 2 of the Prevention and Suppression of Money Laundering Activities Law, No.188 (I)/2007, namely, for companies, is the physical person or persons who hold more than 25% of the share capital of the company or the physical person or persons who in any other way exercise control over the administration or management of the company;
“Persons who actually manage the Licenced person” mean the members of the board of directors of the Licenced person and its senior management;
(Our comment 3: The above definition, of who is actually managing the Licenced person, in combination with the relevant provision in the Law, art. 7, excludes the use of nominee directors in Licensed companies.
The directors of the Licenced person, either executive or non-executive or acting on shareholders’ instructions or not, are considered by the Law as among the persons who actually manage the company and, in this respect, must meet the qualifications defined in the Law and also bear the liabilities defined therein).
“Director” is the person who holds the position of a director in a company or who has the power to exercise substantially the same powers / authorities as those exercised by a director in a company and includes a person under whose instructions a director or the directors exercise their powers;
(Our comment 4: The Law adopts an extended and broad meaning of the concept of company director with the obvious aim to extend the number of persons that come under the provisions and regulation of the Law).
“Administrative services” mean the services regulated by the Law and defined further below;
“Trust” means the written legal arrangement where the settlor transfers property to one or more trustees who will hold it for the benefit of one or more beneficiaries and includes an international trust, as defined in the Cyprus International Trust Law, L.69(I)/1992 as amended;
“Trust Registries” means the trust registries kept by the Cyprus Securities and Exchange Commission, the Cyprus Bar Association and the Institute of Certified Public Accountants of Cyprus (ICPAC);
“Trustee” or “Fiduciary” means a person to whom specific property has been transferred to or has been granted in accordance with the provisions of a trust deed or a trust agreement, who will hold it for the benefit of one or more beneficiaries;
“Settlor” means a person who transfers or in any other way grants property to a trust;
“Investment services” means any of the services and activities, respectively, specified in Part I of the Third Appendix of the Investment Services and Activities and Regulated Markets Law, No. 144(I)/2007 as amended, relating to any of the financial instruments listed in Part III of the Third Appendix of the said law;
“Securities and Exchange Commission” or “Commission” means the legal entity of public law which is governed by the Cyprus Securities and Exchange Commission Law, No. 73(I)/2009 as amended;
"Investment Firm" or "IF" has the meaning attributed to this term by article 2 of the Investment Services and Activities and Regulated Markets Law, No. 144(I)/2007;
“Regulatory authorities” are the authorities which are defined by articles 59 of the Prevention and Suppression of Money laundering Activities Law, No.188 (I)/2007, indicatively the board of the Cyprus Bar Association for Advocates, the board of Certified Public Accountants of Cyprus (ICPAC), for auditors and accountants, the Central Bank of Cyprus for credit institutions and others as identified in the Law;
“Company” means a company incorporated under the Companies’ Law Cap 113 as amended;
“Management Company” has the meaning attributed to this term by article 2 of the Open-Ended Undertakings for Collective Investments Law, Law No. 78(I)/2012 (UCITS Law);
“Variable Capital Investment Company” has the meaning attributed to this term by article 6 of the UCITS Law;
“Limited partnership” has the meaning attributed to this term by the Partnerships and Business Names Law, Cap 116;
“Depositary” has the meaning attributed to this term by article 2 of the UCITS Law;
“Private company” has the meaning attributed to this term by article 29 of the Companies’ Law Cap 113;
“Cyprus Investment Firm” or “CIF” has the meaning attributed to this term by article 2 of the Investment Services and Activities and Regulated Markets Law No. 144(I)/2007 as amended;
“Compliance officer” means a compliance officer as defined in Sub-paragraph (a) of paragraph (1) of article 69 of the Prevention and Suppression of Money Laundering and Activities Law and paragraph 2 of Directive DI144-2007-08 of the Commission for the Prevention of Money Laundering and Terrorist Financing;
"Parent company" has the meaning attributed to it by articles 2 and 148 of Companies’ Law, Cap 113, as well as having the meaning attributed to the term “parent undertaking” by articles 1 and 2 of Directive 83/349/EEC on consolidated accounts;
“Register” means the Register established and maintained according to the provisions of the Law;
“Unit” means the Unit for the Prevention of Money Laundering offences established under the Prevention and Suppression of Money Laundering Activities Law, No.188 (I)/2007;
“Law” or “the Law” means the Law Regulating the Businesses Providing Administrative Services and Related Matters Law, No. 196(I)/2012 as amended and the Directives issued by the Commission pursuant to this Law;
“Directive DI144-2007-08” means the Commission’s Directive for the Prevention of Money Laundering and Terrorist Financing;
“Directives” means the Commission’s Directives of regulatory content, which are issued pursuant to the Law and are published in the Official Gazette of the Republic of Cyprus;
“General partnership” has the meaning attributed to this term by the Partnerships and Business Names Law, Cap 116;
“Client” means every person to whom administrative services are provided;
“Credit institution” means a bank and or a co-operative credit institution;
“Regulated market” means a regulated market as defined by article 2 of the Investment Services and Activities and Regulated Markets Law, No. 144(I)/2007 as amended;
“Co-operative credit institution” has the meaning attributed to the term by article 2 of the co-operative Societies’ Law, Law No.22/1985 as amended;
“Bank” has the meaning attributed to this term by article 2 of the Banking Law, No. 66(I)/1997 as amended;
“Financial instruments” means the instruments defined in article 2 of the Investment Services and Activities and Regulated Markets Law, No. 144(I)/2007 as amended.
C. APPLICABILITY OF THE LAW
The Law regulates and applies to persons who provide administrative services in or from Cyprus.
C.I. Persons exempted from the applicability of the Law
The following persons are fully exempted from the applicability of the Law:
The persons identified under paragraphs C.I. a) and b) above, if they wish, they may elect to submit an application to obtain a Licence from the Commission. In such a case, such persons will be regulated by the Commission and not by their respective regulatory authorities.
A legal person exclusively owned by a Licenced person and not by an Exempted person, is not subject to the provisions of the Law; the responsibility for the actions undertaken by the said legal person under the Law is borne by the Licenced person; in such cases the Licenced person should notify the Commission immediately, and without delay of the existence of such legal persons.
(Our comment 5: A legal person exclusively owned by a Licenced person, namely, 100% subsidiary companies of Licensed persons are not subject to the provisions of the Law. ONLY if they are 100% (exclusively) owned by the Licensed persons will not be subject to the provisions of the Law, while subsidiary companies of Exempted persons, are not subject to the provisions of the Law, if they are subsidiaries as per the provisions of articles 2 and 148 of the Companies’ Law Cap. 113.
As per articles 2 and 148 of the Companies’ Law Cap. 113, a company is a subsidiary of another company if such other company holds more than 50% of its issued share capital and or otherwise controls it. There is no need to hold 100% of its share capital to be a subsidiary under these incorporated in the Law articles.
By demanding a 100% participation in subsidiaries of Licenced persons, while the same is not demanded for Exempted persons, the Law imposes discriminatory treatment between Licenced persons and Exempted persons in breach of the principle of equality as per the Constitution).
The provision of administrative services by an employee of a Licenced person or by a third person following outsourcing is considered as provision of administrative services by the actual Licenced person itself. The issues related to outsourcing will be discussed further below.
(Our comment 6: In effect, when 100% subsidiaries of Licenced companies, exclusively owned by them, offer administrative services, these services are considered to be offered by their Licenced parent companies which Parent companies bear also the relevant liabilities.
Such 100% subsidiary companies do not need a Licence pursuant to the provisions of the Law. Licenced companies may also outsource the provision of administrative services to third persons not being their employees, either physical persons or legal persons and these third persons are not obliged to receive a Licence pursuant to the provisions of the Law.
The outsourcing of the services though may be made only to persons residing in Cyprus as will be seen further below and to physical or legal persons provided certain conditions are met as per article 4 of the Law.
Also, in this case, the administrative services are considered as services offered by the Licenced persons and not by the third persons.
The Law does not give a definition for the term “third persons”. We assume though that it applies both to physical and legal persons).
C.II. Provision of trustee services
Any person providing trustee services, administers and manages trusts, must collect and have at all times available in Cyprus for disclosure to the relevant Regulatory Authority the following information, where applicable:
D. REGULATION OF ADMINISTRATIVE SERVICES
D.I. Prohibition to provide administrative services
Subject to any exemptions in the Law, only Entitled persons, namely, Licenced persons and Exempted persons, may provide administrative services.
Physical persons employed by Entitled persons are also exempted from the provisions of the Law but only when they exercise administrative services as part of their employment.
D.II. Identification of administrative services
The services and activities described below, once offered in or from Cyprus, are considered to be administrative services and are regulated activities subject to the provisions of the Law:
(Our comment 7: The provision of administrative services from Cyprus based persons to foreign companies or trusts is a regulated activity and the provisions of the Law are applicable).
Advocates’ exclusive jurisdiction for companies’ incorporation
The power to incorporate companies remains the exclusive prerogative of advocates as is provided in the Advocates’ Law.
(Our comment 8: In effect, the registration of companies of any type, remains an advocate’s exclusive activity and not an administrative service and therefore is outside the scope of the Law).
Administrative services controlled by other laws
In case that any of the administrative services as defined above are services that need a Licence according to the Investment Services and Activities and Regulated Markets Law or the UCITS Law or any other law, the provider of such services is obliged to obtain a Licence according to the respective applicable law and not the Law.
D.III. Provision of administrative services by physical persons
The provision of administrative services by physical persons in the below cases, does not require the obtaining of relevant Licence, (in any event, such Licence cannot be issued to physical persons but only to Companies registered in Cyprus), provided that such administrative services are not advertised or used in order to attract clients, nor will they be offered or provided to other persons, other than those specified further below:
(Our Comment 9: The Law has implemented these exceptions as to physical persons and excuses the provision of administrative services by them, in order to avoid, under the particular cases, the commitment of the criminal, civil, administrative offences and other breaches specified in the Law, if such services are offered without a Licence.
The reason is that physical persons can never obtain a Licence as Licences as per the Law are exclusively only granted to companies registered in Cyprus as per the provisions of the Companies’ Law Cap.113.
So, Physical persons offering administrative services are not committing the specified criminal, administrative, civil and other offenses and breaches specified in the Law, only once they are within the exceptions herein below specified).
(Our comment 10: There is no definition in the Law as to the meaning of the “group of companies” notion and this might raise interpretation, applicability and enforcement issues. Under the circumstances a wide approach may be accepted).
vi. Where the company is the subsidiary of a company described under (i) – (v) above;
vii. Being a company director, in less than ten companies, not including the companies referred to in paragraphs (i) – (vi) above and provided that the relevant person does not control the board of directors of the relevant company.
(Our comment 11: in order to make use of this exemption, the person acting as director may not act as the sole director of the company and may not control the board of directors in any way.
One may suggest that in the case of such director being appointed additional at least two directors, not under the exception, must be in place so that in this case the one director appointed under the exception, may not control in any way the board of directors).
b. Being a secretary in a company by a physical person resident of Cyprus in the cases where:
(Our comment 12: same comment applies as comment 10 above in relation to the meaning of the notion of “group of companies”).
iv. the company is the subsidiary of a company described under (i) – (iii) above;
c. The provision of the services of a trustee when the person providing the trustee services is the settlor or where all the beneficiaries of the trust are himself and or his/her spouse and/or his/her family members and/or his/her spouse’s family members, up to the fourth degree of relation; or
d. Being a trustee in a trust created under a will of a physical person;
e. The administration of bank accounts of a company which satisfies the conditions as identified above under a) i – vi.
(Our comment 13: a physical person offering directorship services pursuant to the exception a) vii above, namely being a director in less than 10 companies, cannot administer the companies’ bank accounts where he/she is a director, as the possibility of administering bank accounts without a Licence and being within the exception, applies only to companies as specified under a) i – vi and not under a) vii above which is the 10 companies exemption.
This is rather peculiar, as the director of a company, cannot be appointed as a signatory to its bank accounts limiting in effect the rights of a director as identified in the Companies’ Law Cap 113!).
D.IV. Provision of administrative services by legal persons
The provision of administrative services by legal persons in the below cases does not require the obtaining of relevant Licence, provided that such administrative services are not advertised or used in order to attract clients, nor will they be offered or provided to other persons, other than those specified further below:
D.V. Provision of administrative services by legal persons registered abroad
The provision of administrative services by a foreign legal person, specified under D.II b) iii. and viii. above, does not require the obtaining of a Licence provided the below are met collectively:
E. CONDITIONS FOR GRANTING THE LICENCE
E.I. Central offices
The central offices of the Licenced person must be located in Cyprus.
A Licence granted under the Law will allow the Licenced persons to provide those administrative services for which they have obtained a Licence. The Licenced administrative services may be offered by the Licenced companies in Cyprus or abroad, provided that the respective legislation abroad does not forbid them from doing so.
E.II. Persons who actually manage the Licenced person
The persons who actually manage the business of the applicant or the Licenced person must be honest and have the experience, academic and or professional qualifications that secure correct and prudent administration.
The management of the Licenced person must be effected by at least two persons meeting the above requirements.
c) Commission’s discretion
The Commission may reject an application for a Licence, if it is not satisfied that the persons who will actually manage the business of the applicant or of the Licenced person are of sufficiently good reputation and sufficiently experienced or if there are grounds for believing that the presence in the management of the applicant poses a threat to its correct and prudent administration.
The Commission retains the right, at any given time following the granting of the Licence, either to object to any appointment, or to a change of any appointment of a person who will actually manage the business. The Commission may also request from the Licenced person additional material or information or recommend amendments to be made;
The Licenced person must comply with any demand and or recommendation of the Commission on this issue.
E.III. Shareholders of the Licenced person
a) Identity of shareholders
The Commission shall not authorise the provision of administrative services, until it has been informed of the identity of the direct and or indirect shareholders and real beneficiaries of the applicant irrespectively if they are physical or legal persons.
In the cases where the shareholders of the applicant are legal persons, the applicant or the Licenced person must provide information of the identity of the physical persons managing them as well as that of their shareholders, reaching up until the final physical persons.
b) Commission’s discretion
The Commission may reject the application to grant a Licence if, taking into account the need to ensure the correct and prudent management of the company, it is not satisfied as to the suitability of the direct and/or indirect shareholders and real beneficiaries.
The Commission retains the right, at any given time following the granting of the Licence, either to object to any participation, or change of shareholder, or request from the Licenced person additional material or information or recommend amendments if it has reasons to doubt the suitability of the direct and or indirect shareholders and beneficial owners.
The Licenced person must comply with any demand and or recommendation by the Commission on this issue.
E.IV. Persons employed by a Licenced person
The Licenced person must make sure that the persons it employs must be of sufficiently good character and honest and have the skills, knowledge and expertise necessary for performing the responsibilities assigned or to be assigned to them.
b) Legal advisor
The Licenced person must employ an internal legal advisor or maintain a regular business relation with an external advocate on an annual basis.
(Our comment 14: The employment of a practising licenced advocates is not possible as otherwise there is violation of the Advocates’ Law. Practising licenced advocates cannot be employees of third parties).
c) Compliance officer
The Licenced person must employ a compliance officer.
The appointment of the compliance officer must be pre-approved by the Commission taking into account his/her experience, skills, good character and honesty.
It is noted that the duties of the compliance officer may not be delegated or outsourced. This limitation as well as the liability of the compliance officer is a strict one. The compliance officer must be an employee of the Licenced person and his/her appointment is always subject to the approval of the Commission.
F. THE APPLICATION FOR GRANTING, EXTENDING OR AMENDING A LICENCE
F.I. Submission of the application for the granting of a Licence
a) Authority to grant the Licence
A company wishing to obtain a Licence for the provision of administrative services submits a duly completed application, to the Commission.
The information and documents to be submitted can be found at the website of the Commission at the link https://www.cysec.gov.cy/en-GB/entities/RBS-F/FORMS/
b) Commission’s discretion
When receiving and examining the application and at any given time, the Commission may demand the submission of any additional information or any documents deemed necessary and helpful in the evaluation of the application.
The application is considered duly completed only if it includes all the information, as well as the relevant submission fee fixed by the Commission under the Law.
The Commission grants a Licence only if is satisfied that all the necessary fees, material, forms, documents and information have been submitted and prove that the applicant complies with the provisions of the Law.
The responsibility for the correctness, completeness and accuracy of the application for the granting of a Licence, as well as for the material and documents that accompany the application, rests on the members of the board of directors of the applicant or the Licenced person who sign the application
G. WITHDRAWAL, SUSPENSION AND TERMINATION OF A LICENCE
G.I. Withdrawal of a Licence
The Commission may withdraw a Licence, in case it ascertains that:
G.II. Consequences of withdrawal
Where a Licence is withdrawn, the Commission permanently deletes the Licenced person from the Register.
The company, whose Licence has been withdrawn, ceases immediately to provide administrative services and within a period of three (3) months from the date the Commission's decision has been notified to it, has to settle its obligations and pending issues
A company, whose Licence has been withdrawn, remains under the supervision of the Commission until the Commission is satisfied that the said company has completely complied with the provisions of the Law.
G.III. Suspension of a Licence
The Commission may suspend a Licenced person’s Licence in the following cases:
When the conditions of sub-paragraph b) above exists the Commission may set a reasonable deadline, that may not exceed three (3) months from the date of the notification of the suspension of the Licence, for compliance with the provisions of the Law or the Prevention and Suppression of Money Laundering Activities Law, No.188 (I)/2007 or Commission’s Directive DI144-2007-08.
The Licenced person must, within the deadline set by the Commission as stated in paragraph b) above, inform the Commission of its compliance with the provisions of this Law or the Prevention and Suppression of Money Laundering Activities Law, No.188 (I)/2007 or the Commission’s Directive DI144-2007-08. Where the Commission:
In case the Licenced person does not inform the Commission within the set deadline as stated above with regards to its compliance with the provisions of the Law, the Commission automatically applies the procedure laid down under b) above.
In case of suspension of the Licence, the Licenced person is not allowed to provide administrative services.
G.IV. Actions leading to the automatic termination of a Licence
A Licence for the provision of administrative services is automatically terminated in the cases where the Licenced person expressly quits from the Licence for the provision of administrative services.
In case the Licenced person expressly quits from the Licence for the provision of administrative services, the Commission immediately terminates its Licence and permanently deletes it from the Register without prior notification to the Licenced person.
The company, whose Licence has been terminated, ceases immediately to provide administrative services and has to settle its obligations and pending issues, within a period of three (3) months from the date its decision for quitting has been notified to the Commission.
A company, whose Licence has been terminated, remains under the supervision of the Commission until the Commission is satisfied that the said company has completely complied with its outstanding obligations.
H. ORGANISATIONAL REQUIREMENTS
H.I. Outsourcing of administrative services to third persons
When the Licenced person outsources the provision of administrative services to third parties, it must ensure the provision of a continuous and satisfactory service to its clients and the execution of the administrative services in a continuous and satisfactory basis.
Any outsourcing may be assigned only to persons residing in Cyprus. Such delegation must take place in a way that does not impede the Commission’s ability to regulate the direct compliance of the Licenced person with all its obligations.
(Our comment 15: In effect, outsourcing by Licenced persons to persons living outside Cyprus is not possible. The restriction imposed on Licenced companies to outsource administrative services only to persons residing in Cyprus, in combination with the possibility to offer directorship services to overseas companies established outside Cyprus being a regulated activity, will create tax issues to these overseas companies having Cyprus resident directors, due to the fact that the tax system of Cyprus imposes taxation based on the management and control test and such companies under certain conditions might be considered that are taxable in Cyprus.
The same problem applies to Cyprus Non – Tax resident companies. A licenced person cannot offer directorship services to such companies as the director should be a Cyprus resident and in such a case the non – tax resident companies immediately become tax resident companies as their management and control is situated in Cyprus).
The Licenced person outsourcing the provision of administrative services to external bodies or third persons continues to bear full responsibility and liability for the fulfilment of all the obligations borne according to the Law, the Prevention and Suppression of Money Laundering Activities Law, No.188 (I)/2007and the Commission’s Directive DI144-2007-08.
(Our Comment 16: Any outsourcing by Licenced persons to a physical person must take into account the limitations imposed to physical persons, not being an employee of the Licenced person, as these were analysed in paragraph D.III above. Only if the physical person falls within the exceptions of the Law, might offer such services. The outsourcing of administrative services to legal persons such person not being an Entitled person, is not possible in view of the limitations imposed in the Law as indicated above under D.IV.
Notwithstanding the provisions of the Law, the duties / responsibilities and liabilities of the compliance officer cannot be transferred, assigned or outsourced to a third person.
H.II. Safekeeping of clients’ financial instruments
For the purpose of protecting the clients’ rights in relation to their financial instruments, the Licenced person must maintain the necessary records and accounts, in order to be in a position, at all times and without delay, to separate the assets held on behalf of one client from the assets held on behalf of any other client, as well as from its own assets.
H.III. Safekeeping of clients’ funds
For the purpose of protecting the clients’ rights in relation to their funds, the Licenced person must take all necessary measures to ensure that the clients’ funds deposited, according to the provisions of the Law, are held in a separate account or accounts from other accounts used for the possession of the Licenced person’s funds.
The Licenced person must maintain the necessary records and accounts in order to be in a position, at all times and without delay, to separate the funds held on behalf of a client from the funds held on behalf of any other client.
H.IV. Deposit of clients’ funds
As soon as it receives clients’ funds, a Licenced person is obliged to immediately deposit them, without any delay, to one or more accounts named “clients’ moneys” and is opened in a credit institution Licenced either in Cyprus or abroad.
H.V. Use of clients’ financial instruments and funds
In case the Licenced person holds financial instruments of clients, it is obliged to take every possible measure to protect the ownership rights of the clients, especially in case of its bankruptcy; it is forbidden to the Licenced person to use the clients’ financial instruments on its own account.
In case the Licenced person, holds clients’ funds, is obliged to take every possible measure to protect the interests of his clients; it is forbidden for the Licenced person to use in any way clients’ funds on its own account.
H.VI. Preparation of financial statements
The Licenced person is obliged to prepare within four (4) months from the end of each financial year, financial statements which will provide a true and fair picture of its affairs and are in accordance with the applicable accounting standards and rules. The said financial statements must be audited by an auditor and accompanied by a signed copy of its report; the said financial statements must be kept at the head offices of the Licenced person in Cyprus and are available to the Commission upon request.
I. CONTINUOUS AND GENERAL OBLIGATIONS
I.I Continuous obligations of a Licenced person
The Licenced persons registered on the Register, must at all times comply with the conditions under which the Licence was granted, the Law, the Prevention and Suppression of Money Laundering Activities Law, No.188 (I)/2007 and the Commission’s Directive DI144-2007- 08.
Physical persons providing administrative services as identified above in paragraph D.III, must at all times comply with the Prevention and Suppression of Money Laundering Activities Law, No.188 (I)/2007 when exercising the above services.
I.II. General obligations of a Licenced person
Any person under an obligation pursuant to the Law and the Commission’s Directives to submit or notify to the Commission, any information, data, documents or printed material, must ensure their correctness, completeness and accuracy.
The provision to the Commission of false or misleading information or data or documents or printed material or the non - disclosure of material information, constitutes a violation of the Law and is subject to an administrative fine as will be stated further below, and also constitutes a criminal offence punishable pursuant to the Law.
J. MAINTENANCE AND PUBLICATION OF THE REGISTER
The Commission establishes and maintains a Register where the Licenced persons are registered that is freely accessible by the public.
When granting a Licence, the Commission grants a number from the Register, which is maintained according to the provisions of the Law, to every Licenced person and registers in the Register the Licensed person’s details, the administrative services it provides, the names of the legal persons they own exclusively and provide administrative services, the names of their employees that offer administrative services, the name of the compliance officer and his details as well as any other information deemed necessary.
All the regulating authorities have the obligation to keep similar registries with the said details.
Subject to the below provisions, the Commission regularly updates the Register.
The Commission publishes the Register on its website, or in any other way it decides.
The Commission posts in a prominent position on its website the link to access the respective registers maintained by the Regulatory Authorities of entitled persons.
Registers for trusts
The Commission, the Cyprus Bar Association and the Institute of Certified Public Accounts must establish and maintain respective Registers as to the trusts submitted with them.
K. CRIMINAL AND CIVIL LIABILITY, ADMINISTRATIVE SANCTIONS AND REGULATORY COMPETENCY OF COMMISSION
K.I. Criminal Offence
A person who is in violation of or does not comply with the provisions of the Law and provides administrative services while is not an entitled person, or submits to the Commission false or misleading information / documents or withholds material information, is guilty of a criminal offence, punishable, in the event of conviction, by a term of imprisonment not exceeding five (5) years or by a fine, not exceeding three hundred and fifty thousand euro (€350.000,00) or both.
Where the offence stated above, is committed by a legal person, any member of the board of directors, of the managerial, supervisory or auditory bodies, where it is proved that such a person has consented or acted as an accomplish to the offence is additionally criminally liable to the legal person committing the offence.
Persons who, as stated in the above paragraph, have criminal liability for the offences committed by the legal person, are liable jointly and / or severally with the legal person, for every damage caused to third parties by the act or omission establishing the offence.
Unless provided otherwise in any other law, a violation or omission to comply with the provisions of the Law by a person providing administrative services will not affect the validity of any act or activity of this person which takes place within the framework of providing the relevant administrative services.
K.II. Administrative sanctions
Any person violating the provisions of the Law or violating the Directives issued pursuant to the Law or violating the Prevention and Suppression of Money Laundering Activities Law, No.188 (I)/2007 and the commission’s Directive DI144-2007-08, is liable, irrespective of any criminal liability, to an administrative fine imposed by the Commission, not exceeding five hundred thousand euro (€500.000,00) and, in case of repetition of the violation, an administrative fine not exceeding one million euro (€1.000.000,00), depending on the gravity of the violation.
Where a person has obtained a financial benefit by violating the Law or the Prevention and Suppression of Money Laundering Activities Law, No.188 (I)/2007 or the commission’s Directive DI144-2007-08, which financial benefit exceeds the sum of the administrative fine provided above, the Commission, irrespectively of any criminal liability, may impose an administrative fine of up to the double of the amount the said person gained by the violation.
The Commission may also impose an administrative fine:
K.III. Collection of administrative fine
In case of failure to pay the administrative fine, measures shall be taken to collect the fine as provided by the Cyprus Securities and Exchange Commission Law.
K.IV. Civil liability
Any person who violates the Law or the Directives issued pursuant to the Law, must compensate any person who suffers damage or loss of profit or both, which has arisen due to his act or omission in violation of the obligations emanating from the Law or the Directives issued pursuant to the Law.
Criminal liability or the imposition of any administrative fine does not relieve the offender from any civil liability.
K.V. Competent regulatory authority and powers
The Commission is responsible to ensure the supervision and application of the provisions of the Law, as well as imposing administrative sanctions and exercises its powers:
The Commission undertakes the investigation of administrative violations either on its own initiative or following a submitted complaint.
The provisions of the Cyprus Securities and Exchange Commission Law, concerning the supervisory competency of the Commission, its power to collect information, conduct investigations and inspections, to impose administrative sanctions, co-operate with competent authorities in Cyprus and abroad and generally all the competencies, powers, responsibilities and duties, apply for the purpose of implementation and supervision of the Law in a corresponding way.
The Commission, while examining any applications filed, may demand orally or in writing the provision of any data and information.
Irrespective of the provisions of any other law, any person to whom a notice by the Commission for collection of information, inspection or investigation is addressed shall be bound to comply immediately and provide the requested information timely, fully and accurately.
Notwithstanding the provisions of any other law, in case of refusal to provide access to information, records, books, accounts as well as other documents and data stored in computers, during an investigation or inspection by the Commission, the Commission may proceed with the immediate confiscation of the relevant information, records, books, accounts and other documents and data, as well as the electronic storing and transfer of data systems.
The Commission must return anything confiscated under the provisions of the Law to its holder, as soon as the purpose of its confiscation is fulfilled and in any case within forty-five (45) days from the day of confiscation.
In addition to the above, the Commission submits to the Unit any information or suspicions that arise when exercising its competencies according to the Law, which may involve violations of the Prevention and Suppression of Money Laundering Activities Law, No.188 (I)/2007.
Whenever the Law states in any way the obligation of informing, submitting, notifying or filing of documents or information to the Commission, the Commission has the power and authority to accept these in electronic form.
The Commission may determine by way of a Directive the documents / information it will accept in electronic form, or in electronic and printed form, as well as the procedure and the way of submission of these documents.
Whenever the Commission requests the submission of documents in electronic and printed form the responsibility for the compatibility and identicalness of the documents submitted lies with the person who, according to the Law, is obliged to submit the documents to the Commission.
The Commission may determine further details for the aforementioned procedure.
K.VI. Power to issue Directives
The Commission may issue Directives for the regulation of any matter in the Law, which needs or is susceptible to determination.
The compliance with the Directives issued by the Commission pursuant to the Law is mandatory to those referred to.
J. CHARGES AND ANNUAL FEES
For the purposes of implementation of the Law, charges and fees shall be paid, the amount of which shall be defined by a Directive issued by the Commission.
The charges and fees as defined above shall be considered as revenue of the Commission and in case of non-payment, court measures are taken for their collection, in addition to any other measures defined in the Law, in which case the amount due is collected as a civil debt.
This publication has been prepared as a general guide and for information purposes only. It is not a substitution for professional advice. One must not rely on it without receiving independent advice based on the particular facts of his/her own case. No responsibility can be accepted by the authors or the publishers for any loss occasioned by acting or refraining from acting on the basis of this publication.
Lawyer – Managing Partner
We are a Law Firm with offices in Cyprus and Malta and a representative office in Shanghai China comprising of more than 70 lawyers, accountants and other professionals who advise, international and local clients.
The Firm has been offering legal and consulting services since 1983 evolving from a traditional law firm to an innovative cutting-edge multidisciplinary law firm combining exceptional expertise in law, tax, vat and accounting.
From its establishment the Firm’s focus has been heavily business oriented and always abreast with the latest global developments and innovations. Drawing from our pool of experienced professionals we provide our clients’ businesses full legal and accounting support on an everyday basis as well as customized solutions in today’s global financial and legal challenges.
We consider ourselves as ‘traditional pioneers’ and our motto is to foresee and anticipate any issues that may potentially impact our clients’ business and to offer effective advice and solutions proactively.
Civil Partnership, Law Firm
Kinanis Fiduciaries Limited
Suite 20, The Penthouse, 4th Floor, Ewropa Business Centre,
Dun Karm Street, Birkirkara, BKR 9034, Malta
Tel: + 356 27 54 00 24, Fax: + 356 27 54 00 25
E-mail: email@example.com – Website: www.kinanis.com
Kinanis (China) Limited