An innovative financing opportunity


The continuous evolvement of the financing market led to the inevitable creation of innovative schemes and financial technology solutions. Crowdfunding has been established as an alternative and innovative financing model, mainly for Small and Medium-sized Enterprises (“SMEs”) and start-ups, opening the gate to promote innovative businesses.    

During a crowdfunding campaign, a business owner can raise funds from the crowd through an online platform, operated by a crowdfunding service provider. In our analysis, we focus on the regulatory regime of crowdfunding in Cyprus as an investment scheme through the issuance of transferable securities, during which investors will participate in the crowdfunding campaign and will have a return based on their investment (“investment-based crowdfunding”). Currently, investment-based crowdfunding is the only regulated type of crowdfunding in Cyprus.

The participants of an investment-based crowdfunding are the project owner, the crowdfunding service provider and the investor.


Crowdfunding in Cyprus is regulated under the Investment Services and Activities and Regulated Markets Law1 (the “Law”) and the Crowdfunding Directive2 issued by the Cyprus Securities and Exchange Commission (“CySEC”). The Crowdfunding Directive regulates the provision of crowdfunding services by the crowdfunding service providers and constitutes a supplement of the Law, with the aim to enhance the protection of investors during crowdfunding through the issuance of transferable securities. It should be noted that the existing legislation does not regulate other forms of crowdfunding such as loans, rewards and donations.

1 Law 87(I)/2017
2 Directive D187-10 of CySEC on the provision of crowdfunding services in respect of transferable securities

Crowdfunding service providers

According to the provisions of the Crowdfunding Directive, a crowdfunding service provider means a Cyprus Investment Firm (“CIF”) providing crowdfunding services. In effect, a crowdfunding service provider should obtain an authorization as a CIF in order to initiate the provision of crowdfunding services and should therefore meet its obligations set by the Law. Further, an existing CIF may request the expansion of its authorization so as to cover the provision of the below crowdfunding services.

Crowdfunding services are defined as “the matching of business funding interest of investors and project owners through the use of a crowdfunding platform” and which services consist of the following investment services and all or any of the following ancillary services as the case may be:

I. Investment services as provided under Part I of the First Appendix to the Law

  1. Reception and transmission of orders;
  2. Placing of financial instruments without a firm commitment.

II. Ancillary services as provided under Part II of the First Appendix to the Law

  1. Safekeeping and administration of financial instruments for the account of clients, including custodianship and related services such as cash/collateral management and excluding maintaining securities accounts at the top tier level;
  2. Provision of advice to undertakings on capital structure, industrial strategy and related matters and advice and services relating to mergers and the purchase of undertakings.

It should be noted that by granting such authorization, the CIF will be able to provide its crowdfunding services in the European Union under the passporting regime set by MIFID II3 and the Law. Further, it is worth mentioning that when a CIF acts as a crowdfunding service provider for the cross-border offering of transferable securities for investment-based crowdfunding, the prospectus thresholds regarding marketing, sale and distribution of securities within the European Union will be applicable.

The rules on investors’ protection

As mentioned above, the Crowdfunding Directive establishes a set of rules for the enhancement of investors’ protection. These rules concern the conflicts of interest, the customers’ due diligence, transparency obligations, the safekeeping of clients’ funds and financial instruments, as well as exit opportunities for the investors.

Two of the main rules are that a crowdfunding service provider is not allowed to acquire participation in the crowdfunding projects participating on the platform operated by itself and that a thorough Key Investment Information Sheet (“KIIS”) must be drafted by the project owner, containing information on the crowdfunding project.

It should be noted that the obligation for preparing a KIIS is applicable without prejudice to the obligation for the preparation of a Key Information Document (“KID”) under the EU Regulation 1286/20144.

3 Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU
4 Regulation (EU) No 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs)


In October 2020, the European Regulation on crowdfunding service providers5 (the “Crowdfunding Regulation”) was published on the official journal of the European Union along with the EU Directive 1504/20206 amending MIFID II. The Crowdfunding Regulation aims to harmonize investment-based and loan-based crowdfunding across the European Union, by establishing standards and obligations to be met by the crowdfunding service providers.

5 Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7 October 2020 on European crowdfunding service providers for business, and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937
6 Directive (EU) 2020/1504 of the European Parliament and of the Council of 7 October 2020 amending Directive 2014/65/EU on markets in financial instruments

It is important to note that the EU Directive amending MIFID II, excludes from the scope of application of MIFID II the crowdfunding service providers regulated under the Crowdfunding Regulation, whereas, based on the current regulatory framework, a crowdfunding service provider in Cyprus should be authorized as a CIF in accordance with the Law implementing MIFID II.   

Since the Crowdfunding Regulation, which is directly applicable in the national law of the Member States, will enter into force on the 10th of November 2021, it remains to examine how the Cyprus regulator will adjust the existing crowdfunding framework in order to meet the requirements under the Crowdfunding Regulation.


Crowdfunding Service Providers

Our Financial Services Department may assist a company to obtain an authorization as a CIF or assist an existing CIF to expand its authorization to provide crowdfunding services.

Kinanis LLC may:

  • Act as legal advisor to the applicant;
  • Undertake the application preparation and relevant documentation for authorization and assist to comply with the obligations set by the Law and the Crowdfunding Directive;
  • Provide regulatory advice.

SMEs and start-ups

If you are a SME or a start-up, Kinanis LLC may:

  • Provide regulatory advice and guidance to set up the crowdfunding project;
  • Assist with the preparation of the relevant documentation for the project;
  • Liaise with the crowdfunding service provider and CySEC.


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.

March 2021


Andri Michael
Partner – Financial Services & Funds Department

Savvina Miltiadou
Associate Lawyer – Financial Services & Funds Department


We are a Law Firm with offices in Cyprus and Malta and a representative office in Shanghai China comprising of more than 50 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.

Kinanis LLC
Lawyers’ Limited Company
12 Egypt Street, 1097, Nicosia
P.O. Box 22303, 1520 Nicosia, Cyprus
Tel: + 357 22 55 88 88 – Fax: + 357 22 66 25 00
E-mail: KinanisLLC@kinanis.com – Web site: www.kinanis.com

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: malta@kinanis.com - Website: www.kinanis.com 

Kinanis (China) Limited
China Representative Office
Unit 661, 6/F CIROS PLAZA,
388 Nanjing West Road, Huangpu District,
Shanghai City, 200003, China
Tel: + 86 18 410 072 690
E-mail: china@kinanis.com - Website: www.kinanis.com