The licensing Procedure and the operation of E-Money (EMI) institutions is currently regulated by the EU Directive 2009/110/EC and harmonized in Cyprus by the Electronic Money Law of 2012 AND 2018 which transposed into national law as per the directives of the European Parliament and of the Council. The Regulatory body for the licensing and supervision of EMI’s in Cyprus is the Central Bank of Cyprus (CBC).

Services provided by an Electronic Money Institution (EMI)

A company that wishes to issue electronic money will require to apply for an EMI license to the Central Bank of Cyprus. Therefore, with an EMI license, a company shall be able to provide the services provided by licensed Payment Institution (PI)** plus issuing electronic money. Electronic money is defined as a digital equivalent of cash stored on an electronic device or remotely at a server. The scope of the e-money definition excludes prepaid goods/services and a limited network of goods/services subject to an agreement with the issuer. An EMI license is granted only if the applicant company has its incorporated in Cyprus and provides at least part of its e-money services and/or payment services which are not related to the issuing of e-money in Cyprus.

**The Services provided by a Payment Institution are as follows:

1. Execution of direct debits, including one-off direct debits.

2. Services enabling cash to be placed on a payments account as well as all the operations required for operating a payment account.

3. Services enabling cash withdrawals from a payment account as well as all the operations required for operating a payment account.

a) Execution of payment transactions, including transfers of funds on a payment account with the user’s payment service provider or with another payment service provider:

b) Execution of payment transactions through a payment card or a similar device.

c) Execution of credit transfers, including standing orders.

4. Execution of payment transactions where the funds are covered by a credit line for a payment service user:

a) Execution of direct debits, including one-off direct debits.

b) Execution of payment transactions through a payment card or a similar device.

c) Execution of credit transfers, including standing orders.

5. Issuing and/or acquiring of payment instruments.

6. Money remittance.

7.Payment initiation services

8. Account information services

Fees

• Applicants shall pay an amount of EUR 5.000 at the time of submitting their application to CBC to operate as an electronic money institution.

• Where an electronic money institution wishes to extend its existing operating authorisation to additional payment services (Services 1-7 of Annex I of the Law) it shall pay the amount of EUR 1.000 for each additional service requested or EUR 500 if the additional service is service 8 of Annex I of the Law.

Initial Capital Requirements

A company applying for a license to provide e-money services must have an initial capital of at least €350.000.

Apart from the amount of initial capital of EUR350.000 an EMI must maintain:

• Capital requirements for the issue of electronic money shall be equal to 2% of the average value of electronic money in circulation.
• Capital requirements for the provision of payment services not connected with the issue of electronic money are defined by the Central Bank in one of the following three methods:

METHOD 1

• The electronic money institutions own funds shall amount to at least 10 % of its fixed overheads of the preceding year.
• This amount may be adjusted in the event of a material change in an electronic money institution’s business since the preceding year.
• Where an electronic money institution has not completed a full year’s business by the date of the calculation, the requirement shall be that its own funds amount to at least 10 % of the corresponding fixed overheads as projected in its business plan, subject to any adjustments at the request of the Central Bank.

METHOD 2

Where payment volume (PV) represents one twelfth (1/12) of the total amount of payment transactions executed by the electronic money institution in the preceding year:

• 4,0 % of the slice of PV up to EUR 5 million, plus
• 2,5 % of the slice of PV above EUR 5 million up to EUR 10 million, plus
• 1 % of the slice of PV above EUR 10 million up to EUR 100 million, plus
• 0,5 % of the slice of PV above EUR 100 million up to EUR 250 million, plus
• 0,25 % of the slice of PV above EUR 250 million
• The electronic money institution’s own funds shall amount to at least the sum of the above elements multiplied by the scaling factor k which is defined as 0,5 , 0,8 or 1 according to the payment services provided.

METHOD 3

The electronic money institution’s own funds shall amount to at least the relevant indicator (refer to point a below), multiplied by the multiplication factor (refer to point b below) and by the scaling factor k which is defined as 0,5 , 0,8 or 1 according to the payment services provided.

1. The relevant indicator is the sum of the following:

• interest income less interest expenses,
• commissions and fees received, and
• other operating income.

2. The multiplication factor shall be:

• 10 % of the slice of the relevant indicator up to EUR 2,5 million;
• 8 % of the slice of the relevant indicator from EUR 2,5 million up to EUR 5 million;
• 6 % of the slice of the relevant indicator from EUR 5 million up to EUR 25 million;
• 3 % of the slice of the relevant indicator from EUR 25 million up to 50 million;
• 1,5 % above EUR 50 million.

Required Documentation/Information for Submission

1. a program of operations, setting out in particular the issue of electronic money and the type of any possible payment services envisaged
2. a business plan including a forecast budget calculation for the first three financial years, which demonstrates that the applicant is able to employ the appropriate and proportionate systems, resources and procedures to operate soundly
3. evidence that the legal person applying for authorisation holds the required initial capital of at least EUR 350.000
4. a description of the measures taken to safeguard the funds of electronic money users
5. a description of the applicant’s governance arrangements and internal control mechanisms, including administrative, risk management and accounting procedures, which demonstrates that these governance arrangements, control mechanisms and procedures are proportionate, appropriate, sound and adequate
6. a description of the internal control mechanisms which the applicant has established in order to comply with obligations in relation to the Prevention and Suppression of Money Laundering Activities Laws of 2007 and 2010 on information on the payer accompanying transfers of funds, as amended or replaced
7. a description of the participation of the applicant in a national or international payment system as well as the intended arrangements for outsourcing of operational activities, the intended use of agents and branches and the intended use of natural or legal persons for the distribution and redemption of electronic money
8. the identity of the persons that have, directly or indirectly, control of the applicant, including the identity of the natural persons that hold, directly or indirectly, shares or voting rights in one or more legal persons that have control of the applicant, as well as details on the size of the actual participation of these persons and their suitability, taking into account the need to ensure the sound and prudent management of an electronic money institution
9. the identity of directors and persons responsible for the management of the electronic money institution and, where relevant, persons responsible for the management of the issue of electronic money and the provision of payment services activities, as well as evidence that they are of good repute and possess appropriate knowledge and experience to issue electronic money and perform payment services, and in particular copy of clean criminal record report, no bankruptcy report, description of professional and academic qualifications, managerial or board positions held in other legal persons, previous employments and experience in the issue of electronic money and the provision of payment services Licensing and supervision of Electronic Money Institutions
10. the identity of statutory auditors
11. the applicant’s legal status and articles of association
12. the address of the applicant’s head office
13. a draft contract between the electronic money issuer and the electronic money holder and the draft framework contract
14. the process for filing, monitoring, tracking and restricting access to sensitive payment data
15. the procedure for monitoring, handling and following up on security incidents and security-related customer complaints and
16. a security policy document, including a description of the IT systems and a detailed risk assessment of the electronic money institution.

IMPORTANT NOTE

• No authorisation shall be granted by the CBC unless it has been satisfied that the electronic money institution maintains an adequate organisational framework for its electronic money services business.

• This includes:

– a clear organisational structure with well-defined, transparent and consistent lines of responsibility,

– effective procedures to identify, manage, monitor and report the risks to which it is or might be exposed,

– adequate internal control mechanisms, including sound administrative and accounting procedures.

Therefore, applicants must ensure that the arrangements, procedures and mechanisms described in their business plan are

comprehensive and proportionate to the nature, scale and complexity of the electronic money services applied for.

How Totalpro can help:

• Preparation of the Application
• Preparation of a detailed time plan for the full establishment and full function of the Electronic Money Institution
• Drafting the required questionnaires
• Compiling the appropriate and relevant information
• Advising on Management structure
• Designing and drafting a Business Plan
• Organisational structure
• Financial projections
• Operational procedures
• AML procedures
• Communicating with CBC on behalf of client
• Acting as liaison /Project management
• Internal Audit
• External Audit
• Tax compliance
• Legal services

Additional Information: Commission Regulation which is binding in its entirety and directly applicable in all member states

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