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22 October 2012
Years of discussion and deliberations have followed the 2006 introduction of the first draft of the Regulation of Fiduciaries, Administration Businesses and Company Directors Bill, in compliance with EU Directive 2005/60/EC, by the Cyprus Central Bank (CBC). Interested parties include the Bar Association and the Institute of Certified Accountants.
During the past few months, this matter has progressed and is expected to be tabled before the House of Representatives before the end of 2012. Various amendments have taken place since the original draft, including the shifting of the supervisory responsibility from the CBC to the Cyprus Securities and Exchange Commission (CySec).
Among other things, the law aims to:
According to the licensing procedure provided for by the new law, any party which offers such services must comply with certain criteria - these will apply not only with regard to their internal procedures, but also to requirements of professional and academic qualifications and experience in the relevant field. The new law specifically provides that only those persons or legal entities that hold a licence from CySec may offer the above-mentioned regulated activities (unless they are specifically exempted from the licensing requirement). CySec will be maintaining a registry of members and the licences may be issued on such terms and conditions as CySec considers appropriate.
Section 3(1) of the law specifically provides that, among others, auditors and accountants which are engaged in the provision of 'administration services' (as these services are defined in the law) are exempt from the application of the law, provided that they are regulated by the relevant supervisory authorities in accordance with the Prevention and Suppression of Money Laundering Law. The new law has not taken away from the lawyers the exclusive right of incorporating companies. However, it provides that only licensed persons can establish trusts.
In order to obtain a licence:
Once the new law has been enacted, regulated service providers must ensure that they have proper policies and internal control procedures in place in order to ensure that they have updated and accurate information at all times, in compliance with the law. At any time, CySec may request that the licensee submit to it any information or documentation that is reasonably required for conducting its supervising role. Furthermore, during its investigations, if the licensees fail to cooperate in providing it with the requested information and/or documentation, CySec will have the right to directly confiscate any registries, accounts, books and any other documentation, as well as any electronic devices used for the transmission of data. These will be returned by CySec within 45 days of the date on which they were confiscated.
Any person who acts in contravention of or does not comply with the law will be found to have committed a criminal offence, punishable by imprisonment of up to five years, a fine of up to €350,000 or both. If the offence was committed by a legal person, then any of its directors, managers or responsible auditors may be liable if it is shown that he or she agreed or assisted in the commission of the offence. Furthermore, CySec has the discretion to impose an administrative fine of up to €500,000 (or up to €1 million for repeat offences), depending on the seriousness of the offence.
A system must be in place for CySec to implement the law. Although Section 31 of the new law grants CySec the power to issue any directives that it may consider necessary for the enforcement of the law, where it may be required, this may be insufficient.
It remains to be seen whether the enactment of this law will also trigger amendments to the Company Law - for example, in making relevant provisions for those companies that provide fiduciary services in instances of change of shareholders or directors. Furthermore, it may necessitate the need for the company registrar to put in place procedures and policies for ensuring that those fiduciaries that either are not exempt and have not obtained a licence or whose licence has been revoked cannot provide any directorship, secretarial or nominee services, and thus cannot make such filings with the registrar.
Section 7(2) of the new law requires that the administration of the licensed person must be carried out by two individuals whose qualifications must comply with the provisions of the law. Where the fiduciary is a corporate entity, it has not been clarified whether these individuals must be members of the board of directors of the company. At the same time, the new law provides that these two individuals are the persons who "really administer" the licensed company. This is an unclear provision, as pursuant to corporate governance the ultimate and 'real administration' control in a company is vested in the hands of the directors, who then can delegate these duties to any of the company's managers.
Furthermore, CySec reserves the right to object to a change of any of these individuals who "really manage" the company. Thus, if the intention of the law is for these two individuals to be directors of the licensed company, the regulations of the company registrar or the Company Law will need to be amended to ensure that no change of directors in these licensed companies can be registered at the registrar unless the prior written consent of CySec has been obtained. The same will apply in the event of a change of shareholders of the licensed company.
Despite the strict requirements that it will introduce, the enactment of the new law is welcomed by practitioners in Cyprus since it will strengthen the trust and confidence of international clients dealing with Cyprus as an international and leading financial centre. Thus, it is hoped that it will be enacted and come into force within the course of the next few months.
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