How to prepare the Annual MiFID Compliance Report in 2024

Regulated entities authorized to provide investment services are responsible for the adherence to a number of obligations against their regulator, who in Cyprus’ case is the Cyprus Securities and Exchange Commission (CySEC). One of the most important regulatory obligations of Cyprus Investment Firms (CIF) is the preparation, approval and timely submission of the Annual Compliance Report. This requirement derives from the responsibility that all investment firms have within European Union, to abide by the Markets in Financial Instruments Directive (MiFID) regulatory framework.

The person entrusted with the preparation of the Annual Compliance Report is each Company’s Compliance Officer, who shall present the Report to the Board of Directors (BoD). After the BoD meeting minutes are constructed, these shall be submitted to the regulator along with the signed by the Compliance Officer Report, the latest by the 30th of April of each year.

The present article serves as a guide in the construction of a comprehensive Compliance Report which entails assessing the Company’s processes and procedures and whether these are compliant to the existing legislative commands.

Within this commentary, the SALVUS Regulatory Compliance Team analyses the following aspects of the Annual Compliance Report:

1. Executive Summary
2. Business Divisions
3. Findings & Recommendations

We regularly share bite-sized insights on LinkedIn such as those found in this article

1. Executive Summary

Similarly with the purpose of the Executive Summary within the AMLCO (Anti-Money Laundering Compliance Officer) Annual Report, it provides an overview and summarizes the entire report in a concise yet clear manner. To that end, it equips key stakeholders with a snapshot of the Company’s compliance status and performance.

This succinct summary acts as a communication tool, effectively communicating the most significant insights and recommendations and shall be read as an independent part of the Report. It supports decision-making by highlighting areas for improvement and guiding strategic initiatives to enhance compliance effectiveness.

The Executive Summary also presents the most important deficiencies of the Company, which in turn are categorised as:

• Key Findings rectified from the preceding year,
• Key Findings remaining from the previous year, and
• Key Findings and Recommendations identified within the current year.

2. Business Divisions

Not unlike the Executive Summary, the Business Divisions are also an integral part of the Compliance Report. Within this segment of the Report, the Compliance Officer aims to present the Company’s First and Second Levels of Control. In total three levels of control are identified. The First Level is comprised of all the Company’s employees entrusted to perform the day-to-day activities, which characterize a Company as operational. In that context, the policies and procedures established by the Company are also considered as a part of the First Level of Control, since they assist the personnel with the performance of their duties. The above are regarded as the First Level of Control, considering they behave as an early warning mechanism for identifying or mitigating risks within the Company.

As the Second Level of Control in a Company, are considered the Compliance and Risk Management Functions. This is because the said Functions have been instituted for enhancing the monitoring of the First Level of Control. In addition, they are tasked with assessing the adequacy and effectiveness of the implemented policies and the reporting accuracy. In this respect, established controls test the Company’s compliance with the applicable regulatory framework and the effectiveness of the actions taken to remedy identified weaknesses.

Considering the above, the whole purpose of the Compliance Report is to present and analyze the present state of the First and Second Levels of Control of a company.

3. Findings & Recommendations

The findings and recommendations section serves as a spotlight, shedding light to areas of non-compliance or potential risk within the Company’s operations. By documenting deficiencies or gaps in the Company’s compliance processes, this section provides an overview of the institution’s compliance landscape. Beyond just identifying compliance issues, this section dives deeper into the root causes behind them. Through analysis, it uncovers the origins of non-compliance, whether stemming from outdated policies, ineffective procedures, or organizational shortcomings. Understanding these root causes is essential for implementing targeted mitigation strategies and preventing recurrence of compliance breaches.

Central to the findings and recommendations section is the provision of actionable measures to be taken in order to mitigate the above shortcomings. Recommendations presented offer steps towards achieving compliance objectives. Hence, when a deficiency is identified within the Company’s practices, the Compliance Officer is obliged to present the relevant rectification action which will eliminate any discrepancies.

Final Thoughts

In conclusion, crafting the Annual Compliance Report in 2024 demands meticulous attention to detail and strict adherence to regulatory directives, as outlined within this article.

For compliance professionals within sectors like Cyprus Investment Firms and other CySEC regulated entities, understanding the intricacies of preparing a comprehensive Annual Compliance Report can only be described as beneficial. In the same spirit, it’s essential for Board members to grasp the vital information and data necessary for regulatory assessment and approval.

In response to this demand, SALVUS Funds, in collaboration with the Institute for Professional Excellence (IforPE), offers a self-paced course entitled “How to prepare the MiFID Annual Compliance Report in 2024”. This program ensures the delivery of valuable insights into the Annual Compliance Report preparation. Through participation in this course, professionals will acquire the expertise and capabilities needed to produce a complete Annual Compliance Report that aligns with regulatory demands.

The SALVUS Regulatory Compliance team can support CIF regulated entities obliged under the MiFID regulatory framework, to fulfil their annual regulatory reporting obligations and prepare your Annual Compliance Report through our Compliance Consulting service.

Contact us at info@salvusfunds.com or call us at +357 7000 7898 if you require guidance on the preparation of your Company’s Compliance Report or if you have enquiries about our MiFID Compliance Report course with IforPE.

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The information provided in this article is for general information purposes only. You should always seek professional advice suitable to your needs.