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Payment Institutions & Electronic Money Institutions in Cyprus

Payment services:

The main goals of Directive 2007/64/EC were to put an end to the fragmentation of the European payment services market and increase competition in the payment services sector. For these purposes, the Directive harmonised the prudential requirements and facilitated theaccess of new payment service providers in the market.

Electronic money services:

The Directive 2007/64/EC modernises the regulatory framework applicable to electronic money institutions. A number of inconsistencies which caused a disruption of the level playing field between payment services institutions and electronic money institutions and prevented the arrival of new entrants in the sector are now resolved.

For the purposes of harmonisation with the acts of the European Community, the Central Bank of Cyprus (“CBC”) issued the Payment Services Law, 2009-2010 and the Electronic Money Law, 2012. In accordance with the Laws, payment and electronic money services may only beprovided in the Republic of Cyprus by an institution which has been granted the relevant authorisation by the CBC.

The regulatory framework in perspective

In the aforementioned Laws the following are, inter alia, defined:

• The amount of the initial capital as well as the amount of own funds that institutions are required to maintain;

• The methods for safeguarding the funds received; • The delegation of operational functions to third parties; • The right to exercise the freedom of establishment and the freedom to provide services

in another EU member state without establishment.

Distinguishing between payment and electronic services

What is a payment service?

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

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

3

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:

• Execution of direct debits, including one-off direct debits;• Execution of payment transactions through a payment card or a similar device;• 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:

• Execution of direct debits, including one-off direct debits;• Execution of payment transactions through a payment card or a similar device;• Execution of credit transfers, including standing orders.

5 Issuing and/or acquiring of payment instruments

6 Money remittance

7

Execution of payment transactions where the consent of the payer to execute a payment transaction is given by means of any telecommunication, digital or IT device and the payment is made to the telecommunication, IT system or network operator, acting only as an intermediary between the payment service user and the supplier of the goods and services.

Payment Service Provider (PSP) means one of the following persons:

• Credit institutions; • Payment institutions; • Electronic Money institutions; • European and National Central Banks; • Member states or regional authorities; • Post office giro institutions.

A Payment Service User can be any person using a payment service (e.g. natural or legal persons whether acting in trade /profession or as a consumer).

What is electronic money?

Electronic money means a monetary value represented value represented by a claim on the issuer, which is:

• Electronically – including magnetically – stored (e.g. chargeable internet based account, magnetic card);

• Issued on receipt of funds for the purpose of making payment transactions (conversion of bank money into electronic money); and

• Accepted by a natural or legal person other than the electronic money issuer.

A Payment Service (PS) is one of the services listed below:

Electronic Money Issuer means one of the following entities:

• Credit institutions; • Electronic money institutions; • Post office giro institutions; • European and National Central Banks; • Member states or regional authorities.

Similarities and differences

Similarities

• Licensing procedure (Central Bank of Cyprus) • Content of application file • Shareholding requirements • Administration & Infrastructure requirements • Accounting and external audit requirements • Both EMIs and PIs can perform commercial activities in addition to their core activity.

Differences

• Capital requirements (EMIs: €350.000, PIs: from €20.000 - €125.000) • Legal form (EMIs more restrictive, PIs: “legal person”) • EMIs are duly authorised by Law to conduct payment services, i.e. all services in the scope of

PIs. The contrary is not possible as PIs cannot issue e-money.

In accordance with the amended legislation, any Cypriot PI or EMI wishing to expand business in the EU either under the freedom of establishment or under the freedom to provide services, shall notify its intention to the CBC providing the required information as stipulated by the relevant legislation. On the other hand, PIs /EMIs duly authorised in their home member state and acting though a branch, an agent or free provision of services do not need formal authorisation from CBC as they benefit from EU rule on freedom of provision of services.

Expansion of your business in the European Union

Contact us

PricewaterhouseCoopers Professional Training LtdEmail: info@pwcacademy.comwww.pwc.com.cy/theacademy T: +357 22 555 000 F: +357 22 555 029

Antonis HadjicostasManagerConsultingantonis.hadjicostas@cy.pwc.comTel: +357 22 555 236

This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.© 2016 PricewaterhouseCoopers Ltd. All rights reserved. PwC refers to the Cyprus member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

George LambrouPartnerConsultinggeorge.lambrou@cy.pwc.comTel: +357 22 555 728

Demetra EllinaDirectorConsultingdemetra.ellina@cy.pwc.comTel: +357 22 555 732