Start a FX/CFD broker in Cyprus

Since the country gained entry into the European Union in 2004, Cyprus has emerged as the most popular jurisdiction in Europe to start a FX/CFD broker. Although there have been a lot of changes since then, that remains true today and large numbers of brokers and start ups will look to start a FX/CFD broker in Cyprus if they are trying to access clients in the European Union.

FX/CFD brokers in Cyprus are regulated by the Cyprus Securities and Exchange Commision (CySEC). As we’ll see, there are two key FX/CFD CySEC licences that you can apply for if you want to start a FX/CFD broker in Cyprus.

Cyprus FX/CFD licenses – a short history

There are really three key reasons why Cyprus has emerged as a hub for the FX/CFD industry. 

Things kicked off in 2004 when Cyprus entered the European Union. This meant a company with a CySEC FX/CFD license could passport to clients across Europe. Remember that at that point in time this also included the UK. 

That meant you could access by far the largest combined market for FX/CFD trading in the world by starting a FX/CFD broker in Cyprus.

The other important factor was (and still is) tax. Cyprus has comparatively low corporate tax rates. It also has attractive policies regarding tax on dividend income. Compared to many other markets in Europe, this means if you start a FX/CFD broker in Cyprus then you will pay a much lower level of tax – both on the corporate level and as an individual business owner.

The final reason Cyprus became a hub for the FX/CFD industry was what you could broadly define as ‘ease of business’. Many FX/CFD brokers have owners from Russia and the MENA region. Along with a relatively easy to acquire license, these people could physically move to Cyprus relatively easily. This made doing business in Cyprus an attractive option.

Why start a FX/CFD broker in Cyprus?

1. Access to the EU market

An FX/CFD license from CySEC gives the holding company the ability to passport their services across the European Union. This means if you start a FX/CFD broker in Cyprus, you can access the entire EU market.

2. Low taxes

Corporation tax is 12.5% in Cyprus, which is one of the lowest levels in the EU. There are also several beneficial dividend tax exemptions. For example, dividends received by a Cypriot holding company are tax exempt. If you have an offshore entity that can mean that any profits generated by that entity can be shifted back to your Cypriot holding entity, without being subject to tax. If you are not a Cypriot resident then you also pay no tax on dividends. If you are a resident then this rises to 17% – still comparatively low.

3. Respected tier-1 regulatory regime

Although it was seen in the past as a less reputable jurisdiction, CySEC has become a more respected regulator. Having a CySEC license can be good for your own branding and improve your corporate governance.

4. Strong talent pool

The huge numbers of companies that have gone to start a FX/CFD broker in Cyprus over the last couple of decades means that the island now has a huge talent pool for the FX/CFD industry. This means access to people that understand the business and can help you grow your company.

Steps to start a FX/CFD broker in Cyprus

1. Register a Cypriot company

The first step to start a FX/CFD broker in Cyprus is to register a local company. Note that to get a Cypriot FX/CFD license you need two company directors and two non-executive directors. Of those four, three must be Cypriot residents.

2. Prepare CySEC application form

The FX/CFD CySEC license application is extensive. Some of the things you must include are…

• A three-year business plan
• Details of your entire group company structure
• Police records for shareholders and company directors
• All of your Cypriot company documents
• Details about your business operations, including compliance factors like AML and risk management

3. Fill out and submit CySEC application

The documents listed above must be included with the CySEC FX/CFD license application form. You can see what details you will have to include on the CySEC website, where the application form can be downloaded easily.

4. Respond to any CySEC queries

It is common for CySEC to request further details once you have submitted your application form. You may respond and then be presented with further questions. Your application won’t be accepted unless you can satisfactorily answer these questions and it is worth ensuring that the details you include when you first submit the application are as comprehensive as possible to reduce the amount of time this process takes.

How long does it take to get a CySEC FX/CFD license and start a FX/CFD broker in Cyprus?

We estimate that you may need at least 12 months to get a FX/CFD license from CySEC – but there are some important caveats to that.

Firstly, CySEC has a fast track process which you can apply for at an additional cost of €25,000. Once your application is submitted then it should take eight weeks to get approval from CySEC.

It is also worth noting that there are always nuances to every case. For example, gathering all the documents you need to submit to CySEC and setting up a company may only take a couple of months. In other cases it may be longer. 

We think a best case scenario looks something like…

1. Cyprus company registration and application preparation – 2 months
2. CySEC FX/CFD license review and processing – 3 to 5 months
3. Minimum capital requirement set up – 1 month
4. CySEC physical inspection and review – 1 month

We would reiterate that the above would be an absolute best case scenario, where everything goes smoothly and there are no meaningful hiccups or requests from the regulator. Real life tends to be more complicated!

How much does it cost to start a FX/CFD broker in Cyprus?

We estimate that it will cost at least €1,000,000 to start a FX/CFD broker in Cyprus today if you want to run a b-book broker, factoring in capital requirements. However, the total cost to start a FX/CFD broker in Cyprus will depend on which license you apply for. 

FX/CFD brokers in Cyprus are regulated as what CySEC terms ‘Cypriot Investment Firms’ (CIFs). 

Different CIFs have different permissions. For the purposes of a FX/CFD broker, the key permissions to be aware of are dealing on own account, which basically means an ability to operate using the b-book model.

Brokers that want to operate in Cyprus using the b-book model have a minimum capital requirement of €750,000.

If you want to start a FX/CFD broker in Cyprus but only want to use the a-book model, your minimum capital requirement is €150,000. 

Those are going to be your two biggest ‘costs’. Although you aren’t actually spending or giving that money away, you still have to maintain it at that level and must have it up front. You cannot get a FX/CFD license from CySEC without this up front cash.

Other costs to keep in mind are a €7,000 application fee to CySEC and a €35,000 contribution to CySEC’s investor protection scheme. Note that if your application for a CySEC license is denied you will get that €35,000 fee back.

The harder to predict costs are…

1. Company formation costs
2. Hiring local employees
3. Renting an office
4. Legal and compliance consultant fees

These are likely to be substantial and could easily run into the hundreds of thousands of euros. That being the case, we think getting a FX/CFD license from CySEC with full b-book permissions, is likely to require at least €1,000,000 today. 

What are the capital requirements for starting a FX/CFD broker in Cyprus today?

If you want to start a FX/CFD broker in Cyprus and run a b-book business model, the minimum capital requirement is €750,000. 

For a broker that wants to only run an a-book model then the minimum capital requirement is €150,000.

These figures are in line with European-wide levels which were introduced via pan-EU regulation in mid-2021 – so you are not getting a ‘better’ or ‘worse’ deal on this front by setting up a FX/CFD broker in Cyprus.

Why the €75,000 FX/CFD CySEC license is not a broker license

Some readers may be familiar with or have seen another broker ‘license’ that only has a €75,000 capital requirement.

This license is really for introducing brokers. It does not allow you to hold client funds, nor does it allow you to run a b-book. As such, all it permits you to do is to introduce clients to other firms who you have some sort of commission agreement with – you aren’t running a brokerage operation.

This is not a bad thing or something we want to sneer at. However, we do not believe it really constitutes a FX/CFD broker license in a meaningful way, so we have not included it in this article.

What are the yearly costs when you start a FX/CFD broker in Cyprus?

Regulatory costs for a b-book broker in Cyprus are currently €13,000 + up to €150,000, dependent on how much revenue the broker is generating. This does not include operational expenses, such as local employees and office costs.

Those fees can be broken down as follows:

1. €10,000 to CySEC for a b-book license
2. €3,000 for offering CFD trading

The €150,000 fee is based on a tiered system in which CySEC charges brokers a percentage of their revenue. The percentage charged is dependent on how much revenue the broker is generating. Revenues below €500,000 are not subject to any fee and there is also a cap on the amount that CySEC can charge of €150,000. Above that €500,000 amount, the fees are as follows:

1. 0.75% on revenue between €500,000 and €1,000,000 
2.  0.1875% on revenue between €1,000,001 and €5,000,000
3.  0.1125% on revenue between €5,000,001 and €10,000,000
4.  0.0975% on revenue exceeding €10,000,001

For FX/CFD brokers that do not have b-book permissions, the CFD services fee is still €3,000. However, the license fee will be lower, with a-book brokers typically paying €8,000 or less, depending on what permissions they have.

The other big costs to be aware of are local employees, compliance and office costs. These can be extensive. If you are running a b-book broker then you are looking realistically at five local employees minimum. We note that, at the time of writing, one broker which received approval within the last 12 months has close to 20 employees in Cyprus already.

Employees are also not your only cost. You have to think about reporting costs, such as trade reporting or filing annual accounts. Then you must rent a local office, which cannot be the sort of post office box set up that you can get away with in some offshore jurisdictions.

These costs are hugely variable but, for a b-book broker, we think €500,000 annually would be a bear minimum.

FX/CFD CySEC license physical office and presence requirements

To start a FX/CFD broker in Cyprus, you must have a physical office and local employees. Most brokers tend to rent an office in Limassol but there are others based in Nicosia or even Larnaca. 

Renting an office in Cyprus is not cheap and rental prices have gone up substantially, particularly in Limassol, over the last few years. We have seen some offers in the region of €1,000 per month but would urge caution as to how valid those claims are, particularly as you require meaningful office space to get your license from CySEC.

As for local employees, your company needs to have two directors and two non-executive directors. Three of those must be in Cyprus.

In terms of local employees, for a company that wants to start a b-book FX/CFD broker in Cyprus, we think the standard procedure should be…

1. A CEO
2. A chief compliance officer
3. A head of back office
4. A general manager (eg. chief operating officer)
5. A head of risk / dealing

Yes you may be able to get away with less but CySEC is becoming more stringent and having those employees, for a b-book operation, is basically the bare minimum.

How are FX/CFDs regulated in Cyprus?

If you start a FX/CFD broker in Cyprus then you will be subject to the European Securities and Markets Authority’s restrictions on FX/CFD trading. 

These restrictions are extensive. Some of the most important ones for FX/CFD brokers are…

1. Limited leverage

FX/CFD brokers licensed by CySEC cannot offer more than leverage of 30:1. This leverage varies depending on the underlying instrument the CFD is derived from and can be substantially lower. For example, leverage on crypto CFDs is capped at 2:1.

2. Marketing restrictions – no deposit bonuses, prizes, or contests

If you start a FX/CFD broker in Cyprus, you cannot provide what ESMA terms ‘incentives to trade’. That means you cannot offer clients deposit bonuses, trading competitions, prizes, or anything similar.

3. Risk warnings

Brokers must put risk warnings to clients, noting the percentage of clients that lose money when trading with the broker over the prior 12 months, with the figure updated on a quarterly basis.

4. Negative balance protection and 50% margin close out

FX/CFD brokers with a CySEC license must provide clients with negative balance protection. In other words, clients cannot lose more than they put down to trade with. They must also use a 50% margin close out, meaning positions must be closed if a client’s trade falls below 50% of the initial margin put down.

Starting a FX/CFD broker in Cyprus – the positives and negatives

There are upsides and downsides that anyone looking to start a FX/CFD broker in Cyprus should be aware of. 

We believe that unlike many other jurisdictions, where there is more of a clear cut distinction between the positives and negatives, a FX/CFD license from CySEC is more a double-edged sword and whether or not it’s ‘good’ will depend on your own circumstances.

Starting a FX/CFD broker in Cyprus – the positives

1. Access to the EU

Although the EU no longer includes the UK, it is still one of the largest markets for FX/CFD trading in the world, with average deposits and average revenue per client in countries like Germany, Italy, and France still being high compared to global averages. A CySEC license gives you access to this market.

2. Banking

One of the biggest pain points for FX/CFD brokers, especially those that only have offshore licenses, is banking. A CySEC license requires you to have a bank account with a bank in the European Economic Area. In that sense, stronger banking is almost a part of the license.

3. Comparatively affordable and good local talent

Cyprus has emerged as a major hub for the FX/CFD trading industry over the last two decades. That means the country is now a great place to find local expertise and employees. At the same time, if you are an established brand with good financial backing, it is – compared to some other markets – still not that expensive, with local salaries and office space being cheaper.

4. Favourable tax regime

Low corporate tax and, depending on your circumstances, the potential for no tax on dividends, means that a FX/CFD license from Cyprus can be a good way to keep more of the money you earn, both on a business and personal level.

Starting a FX/CFD broker in Cyprus – the negatives 

1. More restrictive regulations

The ‘downside’ of being regulated in the EU means that you are subject to a much higher regulatory burden. This has its positives but it also means you are going to end up paying a lot more operationally to meet compliance standards. It also means you are more limited in what you can do to onboard clients.

2. Expensive for a start-up broker

Cyprus is unlikely to be a good option for any broker that is starting out, unless you have sizeable investment behind you. Although an established brand may find it comparatively low cost, if you are looking to put most of your money into sales and marketing then starting a FX/CFD broker in Cyprus may not be a great option for you.

3. Highly competitive market

Although you have access to the EU market, it is worth keeping in mind that this is a highly competitive market where almost all the large, well-capitalised brokers do business. This is not to say you shouldn’t try here but, combined with the heavy regulatory burden, this makes the EU a difficult place for FX/CFD brokers to compete.

Should you start a FX/CFD broker in Cyprus? Final thoughts

We believe Cyprus is likely to appeal to existing brokers, who may have started offshore but want to branch out into the EU, or start up players with strong financial backing. This is primarily who we see in the market today.

In contrast, if you are a start up broker then Cyprus is going to be a difficult place for you to get started in. It may be that you go for the a-book license, but even then your combined expenses – just to get started – are likely to run into the hundreds of thousands of euros. As such, the CySEC license is likely to be inaccessible to start up brokers.