The 2020 year in review by CySEC ChairwomanSalvus Team
The Chairwoman of the Cyprus Securities and Exchange Commission (CySEC), Mrs Demetra Kalogerou, provided a 2020 year in review analysis at the Association of Cyprus International Financial Firms (ACIFF) annual meeting on 25th of November 2020.
SALVUS has summarized the insights provided by the Chairwoman and the latest developments concerning Cyprus Investment Firms (CIF). The CySEC Chairwoman further provided feedback and concerns on the 2020 thematic reviews, the areas of improvement, and an overview of things to come in 2021.
We compose this article with a view to helping our clients, partners and associates avoid fines and business complications or disruptions. In 2020, part of CySEC’s enforcement actions were 1.4 million EUR in fines to Cyprus Investment Firms.
A. Key Priorities
Suitability and appropriateness
An increase in complaints from retail clients by 80% compared to the 2019 year is an indication of poor suitability and appropriateness practices. It was noted that retail investors are being offered products that are not compatible with their investment profile. CIFs must take appropriate measures to enhance their suitability and appropriateness tests to retail investors.
The guidelines and requirements to meet the standards required by the MiFID II and PRIIPs regulation, are clearly not met by CIFs. Should your entity or yourself wishes to acquire the necessary knowledge to improve on this area, join our self-study workshop, and visit the selected articles below:
Client Categorization and Investor Protection under MiFID II
Suitability and Appropriateness Assessment on Product Governance
The Enhanced Product Governance under MiFID II
MiFID II Product Governance and KIDs for PRIIPs
B. Thematic reviews within 2020
The below are the areas which CySEC thematically reviewed during the year 2020:
- Product Governance
- PRIIPs, appropriateness and suitability
- Marketing communication,
- Inducement and remuneration
- Cost and charges
- Best execution
- Safeguarding client funds
- Risk Management procedures
- Transaction Reporting EMIR and MiFIR.
Circular C398 was issued in July 2020 and it was in regards to the inactivity fees charged by CIFs. In short, it called for firms to ensure that they provide fair ex-ante disclosures which are non-misleading. Several firms did not provide adequate information in regards to the conditions that categorize a trading account as inactive or dormant. The significant amount of revenues derived from inactivity fees is disproportionate, and CIFs should review and revise their policies and procedures to ensure compliance with the regulators guidance.
Circular C356 was issued in February 2020 and it focused on MiFIR transaction reporting. CySEC reviewed the completeness of reports to TREM where the regulator identified that reports are not submitted on time, and many required fields were completed wrongly. CySEC urges CIFs to ensure compliance, to appoint a responsible person to oversee the daily submission of the MiFIR reports and to rectify any failures.
Our transaction reporting team at SALVUS has been ensuring compliance in this area for Investment Firms and have led in-house project developments of EMIR and MiFIR. Should you require support to review the current policies and procedures, please contact us at [email protected] to discuss your transaction reporting needs.
C. Enforcement actions in 2020
In June 2020, CySEC took enforcement actions and issued fines of 1.4 million EUR. CySEC additionally started further investigations on a number of investment firms on the implementation of MiFID II as firms were suspected of non-complying with honest, fair and professional rules. As previously mentioned, firms have a duty to perform Client assessment and ensure compatibility on the products distributed to clients – MiFID II Product Governance – which is an area of poor performance by CIFs.
Code of Conduct
The Commission’s opinion is that a number of firms are not acting in the best interests of their clients, with the behaviour of their employees being occasionally unethical. The Chairwoman highlighted the importance of Circular C181 on the obligations of CIFs when providing information to clients on the services and instruments offered. The staff in general, and customer support staff in particular, must not provide investment advice in relation to financial instruments unless the CIF has been authorized to offer investment service of Investment Advice and the employee is fit and proper to perform this service.
CIFs must ensure that the Staff possesses the necessary knowledge and competence to meet relevant regulatory and legal requirements and business ethics standards. The level and depth of knowledge and competence expected for its employees should be determined by CIFs, reflecting the scope and degree of the relevant services provided.
D. Anti-Money Laundering and AMLD5
Reference was also made to the fifth (5th) AML Directive (AMLD5) which is to be incorporated into local legislation soon, including
- public access to the records of the UBOs,
- enhanced due diligence measures to monitor transactions involving high risk countries.
- requirement of virtual currency exchange providers and electronic wallet providers to become registered entities under CySEC.
CySEC has conducted more than 50 on-site AML inspections. It has been observed that there is an overall improvement and strength in the internal policies and implementation of controls.
Should you be interested to know more about Anti-Money Laundering and how to ensure Compliance with internal practices, join our self-study workshop on AML Duties, responsibilities, KYC and Due Diligence and visit the selected articles below:
AML: suspicious activity reporting and ML offences
AML: compliance culture and reporting obligations
AML: Customer verification and deposits
Compliance Tips and Enforcement of AML Best Practices
The Next Regulatory Regime of Anti-Money Laundering (AMLD5)
E. CySEC AML Certification and new CySEC Certification
CySEC introduced the CySEC AML Certification in February 2020, and since then more than 760 persons took the certification exam with more than 600 successfully obtaining the CySEC AML Certification.
In 2021, CySEC will introduce a new CySEC Certification specifically aimed at the sales and customer support departments. The exam will be based on the financial instruments and services offered by the CIF. The Commission considers the assessment of the knowledge of staff as a key factor for the fair treatment of clients.
The education team at SALVUS and the CySEC AML Certification exam preparation instructor, Evdokia Pitsillidou, have prepared more than 90 candidates for the CySEC AML examination, with all but one successfully passing the exam. Should you wish to prepare yourself or your team please contact us at [email protected].
F. New products by CySEC
The following new products are being introduced by CySEC:
- Crowdfunding – new applications are now accepted by CySEC.
- Sustainable Finance – single rulebook, disclosures, benchmarks and taxonomy is coming in 2021.
- Green Fintech Solutions – by the CySEC Innovation Hub.
As of the 1st of January 2021, the UK will be considered a third country. CySEC will be acting as a backstop in case of a no-deal, so the retail investors will not be affected by this transition.
In short, CySEC has placed emphasis on the corporate governance, transparency and accountability required from CIFs. CySEC in performing its supervisory and regulatory duties will be as diligent as in its efforts to ensure investor protection.
Should you have any questions or concerns on how to ensure Compliance with any of your regulatory obligations, please contact us at [email protected]. Our team will provide you, with the appropriate solution to your needs.
The information provided in this article is for general information purposes only. You should always seek professional advice suitable to your needs.