1. Licensing and Supervision of PI’s and EMI’s in Cyprus By Andreas Ioannou
INTERNATIONAL WORKSHOP
RUNNING PAYMENT PROCESSING BUSINESS IN EUROPE
October, 28-29, Vihula, Lääne-Virumaa, Estonia

2. Presentation Overview
Overview of PI requirements/Legislations
Overview of EMI requirements/Legislations
Passporting through Cyprus to All EU
Differentiate between the two
Overview of Central Bank Applications
Benefits of establishing in Cyprus
Q&A Session

3. Payment Institutions (PI’s) “A category of payment service providers which came into being after the enactment of the Payment Services Directive (PSD)”
LEGAL FRAME WORK – EU Payment Services Directive 2007/64/EC & CY Payment Services Law 128 (1) of 2009
Supervisory Authority – Central Bank of Cyprus
Initial Capital – Ranges depending on SERVICES OFFERED!
Permitted Services –
Operating a Payment Account
Accepting & Withdrawing Cash from Payment Account
Execution of payment transactions
Execution of Payments transaction involving credit lines
Issuing/Acquiring payment instruments
Money Remittance (Moneygram&WU)
Permitted Services –
Operating – gives the right to the PI to hold a suitable system and the infrastructure to receive clients funds and operate in line with AML and Compliance principles client accounts etc.
Accepting and withdrawing – the basic principles of reception and transmission apply
Execution of Payment Transactions includes but is not limited to :
------Execution of Direct Debits and one-off Debits
Execution of payment transactions through a payment card or similar device
Execution of credit transfers including standing orders
Execution of Payment Transactions – Credit Line
Same services as above
Special MENTION to the fact that credit lines create issues both with applications and capital requirements discussed later under heading applications to central bank
- Key difference with the above is that credit lines allow for the execution of Credit transfers and standing orders

4. PI FAQ’s PI FACTS When can a PI Grant Credit
Must be a Company registered in CY or EU
Head office must be in Cyprus
Majority of Board CY and Fit and Proper
The legislation allows for consent in manner forms
Ancillary Services
May offer point of sale and e-commerce
PI FAQ’s
When can a PI Grant Credit
When can a PI issue Debit Cards
Taking Deposits
Other requirements apart from Law
Cy & EU – interesting mix up the central bank has shown a desire however to have local company
Head office must actually be head office it can not be a satellite offices
Board – Management and Control – Also key staff members such as MLCO also needs to be in Cyprus etc. Directors must pass interview with CBC if the CBC is not convinced of passed experience
Consent – Execution of payment transactions where the consent is able to be given by a vareity of means this provision is often overlooked and very few take advantage of some of the more creative aspects. It can be given by any telecommuication, digital or IT device and the payment can thus be made to the tel…it system or network operator who is acting only as an intermediary between the payment service user and the supplier of the goods and services
Ancillary Services
– Include the execution of Payments Transactions – Foreign Exchange Services – Safekeeping activities and storage and processing of data
operation of payment systems such as advapay
Any other provisions of payment services having regard to applicable community and national
PI FAQs
CREDIT GRANTING – occurs when 1. credit is ancillary and granted exclusively in connection with the execution of payment transactions
When credit is granted in another member state such credit shall be repaid within a short period and in no cases exceeds 12 months – (including any revolving basis)
Such credit SHALL NOT be granted from funds received or held for purpose of executing a payment transaction (clients funds)
Granting credit is not to effect the own funds in terms of capital requirements however the PI is able to use its own funds as well as other means of funds from capital markets to grant credit
Debit cards – There is scope however it is limited – the PI can only offer such services when doing it on behalf of a Bank and not accept money from clients directly on these cards
Taking Deposits – PI cannot conduct business of taking deposits or repayable funds like a bank – the funds deposited must solely be accepted for the purpose of executing payment services. – They can not use these funds to grant loans or credits or other financial products.
Key points to not for other requirements
Personal data protection
- Anti-money laundering
Accounting
Compliance
Safeguarding clients funds

5. Electronic Money Institutions (EMI’s) “A financial institution that has been licensed in accordance with this Act and authorized to issue electronic money”
LEGAL FRAME WORK – EU Directive 2009/110 EC & CY Electronic Money Institutions Law 81 (1) of 2012.
Supervisory Authority – Central Bank of Cyprus
Initial Capital – EUR350,000
Permitted Services –
ISSUING OF ELECTRONIC MONEY
Operating a Payment Account
Accepting & Withdrawing Cash from Payment Account
Execution of payment transactions
Execution of Payments transaction involving credit lines
Issuing/Acquiring payment instruments
Money Remittance (Moneygram&WU)
Building on the Definition I would like to bring two important distinctions often not understood
Article 2(1) of the Directive defines an “electronic money institution” as a legal person that has been granted authorisation to issue e-money.
Furthermore, according to Article 2(2) of the Directive, “electronic money” means “electronically, including magnetically, stored monetary value as represented by a claim on the issuer which is issued on receipt of funds for the purpose of making payment transactions […], and which is accepted by a natural or legal person other than the electronic money issuer”. Credit institutions, as well as other financial and non-financial institutions, may issue e-money.
QUICK OVERVIEW OF WHAT IS ELECTRONIC MONEY – NOTE IT IS NOT A CRYPTOCURRENCY EXAMPLES GIVEN PAYPAL ETC…

6. EMI FAQ’s EMI FACTS When can an EMI Grant Credit
Must be a Company registered in CY or EU
Head office must be in Cyprus
Majority of Board CY and Fit and Proper
The legislation allows for consent in manner forms
Ancillary Services
May offer point of sale and e-commerce
EMI FAQ’s
When can an EMI Grant Credit
When can an EMI issue Debit Cards
Accepting Deposits
Other requirements apart from Law
Cy & EU – interesting mix up the central bank has shown a desire however to have local company
Head office must actually be head office it can not be a satellite offices
Board – Management and Control – Also key staff members such as MLCO also needs to be in Cyprus etc. Directors must pass interview with CBC if the CBC is not convinced of passed experience
Consent – Execution of payment transactions where the consent is able to be given by a variety of means this provision is often overlooked and very few take advantage of some of the more creative aspects. It can be given by any telecommunication, digital or IT device and the payment can thus be made to the tel…it system or network operator who is acting only as an intermediary between the payment service user and the supplier of the goods and services
Ancillary Services
– Include the execution of Payments Transactions – Foreign Exchange Services – Safekeeping activities and storage and processing of data
operation of payment systems such as advapay
Any other provisions of payment services having regard to applicable community and national
EMI FAQs
CREDIT GRANTING – occurs when 1. credit is ancillary and granted exclusively in connection with the execution of payment transactions
When credit is granted in another member state such credit shall be repaid within a short period and in no cases exceeds 12 months – (including any revolving basis)
Such credit SHALL NOT be granted from funds received or held for purpose of executing a payment transaction (clients funds)
Granting credit is not to effect the own funds in terms of capital requirements however the EMI is able to use its own funds as well as other means of funds from capital markets to grant credit
Debit cards – A KEY DIFFERENCE
A debit card constitutes in effect electronic money so an EMI can issue debit cards. The EMI receives an amount of money from the client and client may use this money for goods and services. It is important to always note that the bearer of the debit card must have the right to ask the EMI to redeem the E-money at par value in coins and bank notes or by transfer to an account free of charges other than those strictly necessary to carry the operation in practice no obstacles must be in place should a bearer wish to redeem.
Deposits – As with a PI the key difference instead of accepting for execution deposits are accept and in turn the EMI issues E-money.
Key points to not for other requirements
Personal data protection
- Anti-money laundering
Accounting
Compliance
Safeguarding clients funds

7. EU - PASSPORTING Both may Passport under terms outlined below:
Offer services freely in the EU by establishing a branch or without the establishment (e.g. Cross Border) via the method of notification.
No Further authorization from the competent authority of the Member state it wishes to offer services
The Services the entity is able to passport are those listed in its license granted by the Home Auhtority

8. What have we learned? What about the differences then? PI’s EMI’s
EMIs and PIs are regulated by the same authority, the Central Bank of Cyprus;
Both PIs and EMIs can provide Similar payment services. 
EMIs and PIs are subject to distinct regulations and laws.
What about the differences then?
The main (and defining) key difference is that EMIs are entitled to issue electronic money (in addition to their ability to function as PIs and provide payment services).
CAPITAL REQUIREMENTS
PI’s EMI’s
EUR20,000 (Money Remitters) EUR350,000
EUR50,000 (Mobile Payments)
EUR125,000 (Full Range)
In Cyprus EMIs are governed by the Electronic Money Law (2012), while PIs are regulated by the Payment Services Law ( ).

9. CENTRAL BANK OF CYPRUS APPLICATIONS
Application Requirements are in most aspects similar:
Shareholding Requirements;
Personnel Requirements;
Accounting and External Audit obligations etc.
Assessment of Infrastructure (IT)
Payment of Capital
Authorisation
Application
The expected time frame for the preparation of all relevant documentation for an EMI license is 1 – 2 months provided that the ultimate beneficial owner is not involved in a complex corporate structure.  From the moment of submission of the relevant application to CBC, it usually takes 3-6 months for the license to be granted, in order to honestly manage expectations. (see steps below that precede the filing)
·                     Register a new Cyprus Company with the Cypriot Registrar of Companies with an initial share capital of EUR1.000 and with a customised Memorandum & Articles of Association which will cover the operations of an EMI.
·                     Promote your application in front of the CBC.
·                     Design and build the EMI’s structure based on your specific needs
·                     Prepare a custom-built Operational Manual based on your specific needs,
·                     Prepare the Anti-Money Laundering Manual and the Know Your Client (KYC) policies in the most efficient manner and based on your needs,
·                     Prepare the Business Plan, in accordance with the CBC’s requirements
·                     Complete the relevant application forms (EMDQ1 and EMDQ2)
·                     Advise and/or assist with the completion of the relevant Questionnaires (EMDQ3) for the members of the Board and the Shareholders and/or UBO
·                     Locate qualified executive and non-executive directors (if needed) (Salary and Fees associated with such appointments will be discussed on a case by case basis)
·                     Locate qualified Compliance Officers, IT Managers, Anti-Money Laundering Compliance Officers and an Internal Auditor (within reasonable time) (Salary and Fees associated with such appointments will be discussed on a case by case basis)
·                     Complete the relevant checklists
·                     Prepare necessary justifications to be submitted to the CBC as applicable, to suit your case
·                     Prepare the letter(s) to accompany the application, in the events that any exceptions may be requested, as applicable
·                     Guide you in providing all the necessary documentation and certificates
·                     Assist you with the opening of a corporate bank account and client’s account for the safekeeping of clients funds with a local bank
·                     Initiate responses to the CBC’s queries and observations relating to the application as your appointed legal advisor and authorised representative
Shareholder is fit and proper and its source of wealth is able to be defined and exemplified to CBC for the initial capital
Personnel – 2 Executive Directors 2 Independent Non-Executive (desire recently UBO be a Executive or Non-Independent Non-Executive, Compliance, AMLCO (use to be more favourable for outsourcing is avoiding outsourcing on a whole)

10. Benefits of Operating From Cyprus
EU REGULATION & PASSPORTING
Relatively Low Capital Requirements
Comparatively Low Licensing and Operational Costs
Strong Economic and Financial Systems
Favorable Tax Regime
Comparatively Low Labor Costs
Skilled Professionals to provide support services
Geographical Location
EU Regulation:  as outlined previously
EU Single Passport: As outlined previously
Low Capital Requirements: as highlighted previously
Low Operating and Licensing Costs: Compared to other EU countries, Cyprus offers one of the most competitive operating and licensing cost packages for Investment Firms.
Strong Economy & Financial System: Macroeconomic stability with successful economic performances such as high growth rate, low inflation and low unemployment rates. Banking, accounting, and legal services are extremely efficient and are few of the strong points of the local economy.
Favourable Tax Regime: Cyprus benefits from a low corporate tax regime and an impressive range of double taxation treaties with more than 40 countries. Tax advantages to Cyprus Investment Firms:
- Corporate tax is only 12,5% on net profits - Profits from disposal of securities are tax free - No tax on payment of dividends to non-Cyprus tax residents

11. Q&A Session I thank you all for you time and attentiveness
I am on hand to answer your questions