How to get prepared for an inspection by the regulator in 2025
On an annual basis, regulated entities are subject to rigorous scrutiny to ensure continued compliance with regulatory standards and the maintenance of their regulated status. In Cyprus, the Cyprus Securities and Exchange Commission (CySEC) is the national financial regulatory authority responsible for overseeing the securities market and investment services.
Established in 2001, CySEC ensures market integrity, transparency, and investor protection by supervising financial firms, granting licenses, and enforcing compliance with both local and European Union regulations, particularly the Markets in Financial Instruments Directive (MiFID).
Throughout this article, the SALVUS Regulatory Compliance Team examines CySEC’s inspection authority, and the governance standards required of investment firms, while offering practical insights from the team’s experience in regulatory inspections and highlighting key compliance focus areas. The article covers the following areas:
1. CySEC, the inspection authority
2. Governance Arrangements & Organizational Requirements
3. Key Inspection Areas
4. What Happens Post-Inspection?
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1. CySEC, The Inspection Authority
The Cyprus Securities and Exchange Commission (CySEC) is the national financial regulatory authority of Cyprus, established in 2001. Its core mission is to ensure market integrity, transparency, and investor protection within the country’s financial services sector.
The Cyprus Securities and Exchange Commission (CySEC) is vested with the authority to conduct inspections and investigations of entities under its supervision. In exercising its regulatory responsibilities, CySEC may request and collect any information it deems necessary. Its powers of inspection are extensive and include the right to enter the premises of regulated entities or to appoint an investigating officer to act on its behalf.
In cases where an obliged entity denies access, CySEC is empowered to order the immediate confiscation of the documents and data required for the investigation. Nevertheless, the Commission is bound by a statutory obligation to return any confiscated materials to their rightful holder within forty-five (45) days from the date of confiscation, unless the investigation is concluded prior to that deadline.
2. Governance Arrangements & Organizational Requirements
While CySEC provides the regulatory framework for compliance, it is the responsibility of each regulated entity’s internal governance to implement and uphold these requirements.
The Board of Directors is responsible for establishing and overseeing the CIF’s governance framework, ensuring compliance with regulatory standards. This includes regularly reviewing strategic objectives and client service policies. To support effective oversight, board members must have timely access to essential documents such as risk reports, audit findings, and policy updates.
The Board of Directors holds ultimate responsibility for ensuring compliance and must implement effective and prudent management practices, including:
- Clear segregation of duties
- Prevention of conflicts of interest
- Protection of client interests
- Promotion of market integrity
Beyond governance, CIFs must also meet organizational requirements that support daily operations, such as clearly defining roles, hiring qualified staff, and ensuring consistent delivery of quality services to clients.
3. Key inspection areas
Here is the list of areas that may be subject to regulatory inspection.
- Organizational Structure and Personnel Changes: Verifying whether the electronic records have been updated and confirming the implementation of Chinese Walls and the documented Employee Replacement Policy.
- Employment Contracts and Remuneration: Assessing whether policies and practices related to remuneration, employee recruitment, and staff knowledge and competence are properly established.
- Personnel Training: assessing its adequacy and quality as well as the employee awareness.
- Senior Management & Board of Directors (BoD): Ensuring that Senior Management & BoD fulfill their duties and responsibilities, and that they possess the appropriate suitability and awareness of the firm’s operations.
- Compliance Function: ascertaining that all required compliance processes are in place, including risk assessment and monitoring procedures
- Risk Management Function; reviewing the risk management plan, interviewing the key personnel employed, and if they report directly to the BoD
- Internal Audit Function: analyzing whether its findings were reported to CySEC through the Electronic Record and communicated to the BoD in a timely manner.
- Shareholders Holdings/Tied Agents/Inducements/Cross-Border/ICF: inspecting if appointment or intention of such services has been communicated to CySEC.
- Internal Operations Manual; checking whether the documented procedures are adequate and sufficient and reflect the current procedures in practice.
- Conflicts of Interest & Personal Transactions; investigating if a Conflict-of-Interest policy is implemented and if appropriate measures are taken to prevent or detect such phenomenon.
- Client Complaints: assessing the complaints handling policy and procedures and if the annual fee payment has been made to the Financial Ombudsman.
- Outsourcing; analyzing the adequacy and competence of outsourcing arrangements.
- Business Continuity & Disaster Recovery; ensuring if appropriate procedures and policies are in place.
- Product Governance: reviewing whether a Product Governance policy and product approval process is implemented.
4. What Happens Post-Inspection?
A post-inspection communication from CySEC is a critical follow-up step, as the regulator holds the authority to potentially take further action such as:
- Request compliance documentation related to the matters discussed.
- Request further clarification and additional information pertaining to the data previously submitted.
- Assess the status of any immediate actions previously instructed.
- Apply appropriate corrective measures and implementation timeframes for deficiencies that require a lengthier timeframe.
Following the conclusion of the post-inspection communication, the regulator is obliged to formally notify the firm about:
- Any further actions to be taken.
- Any breach of critical conditions of its license
- Any administrative fines or measures imposed
- If the firm’s license shall be suspended or revoked
- If any follow-up information must be provided
Final Thoughts
CySEC inspections can be demanding, requiring significant preparation from supervised entities. To stay compliant, firms should regularly review regulatory circulars and thematic reviews to keep policies and procedures up to date.
Board members play a key role in this process. A strong understanding of the firm’s operations enables them to effectively oversee and approve critical compliance matters, ensuring sound governance.
The SALVUS Regulatory Compliance Team alongside the SALVUS Internal Audit Team can support licensed, or potentially licensed, Cyprus Investment Firms and other CySEC regulated entities, to achieve regulatory compliance and ensure adequate interim internal audits. Our teams employ a project management approach to accomplish a high standard outcome.
In this respect, SALVUS Funds, in collaboration with the Institute for Professional Excellence (IforPE), offers an online self-paced course entitled “How to Get Prepared for an Inspection by the Regulator in 2025”. This program aims to provide valuable insights regarding the CySEC inspection process and preparation, sharing essential compliance tips to help your organization meet the regulator’s expectations. Through participation in this course, professionals will acquire the knowledge, expertise and skills required to apply a proactive approach, ensuring a successful inspection.
This online self-study program constitutes a comprehensive guide and grants 5 Continuous Professional Development (CPD) units counting towards the annual requirements of CySEC Advanced and CySEC Basic certification holders.
Contact us at compliance@salvusfunds.com if you need assistance with a regulator’s inspection, to discuss your internal audit needs, or if you have questions about our “How to get prepared for an inspection by the regulator in 2025” online CPD course with IforPE.
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Should you be interested to read more about Organizational & Operational Requirements, AML compliance or the Compliance Function requirements please visit the selected articles below:
- Developing a Compliant AML Manual in 2025: Best Practices for Regulated Firms
- Understand the Duties and Responsibilities of the Board of Directors in 2025
- Fundamentals of the GDPR Regulatory Framework in 2025
- A Practical Guide on AML Risk Assessment and Monitoring Program in 2025
- Review of Regulatory Updates and CySEC Circulars Quarter 1, 2025
- How to prepare the AMLCO Annual Report in 2025
- Comply with Market Abuse Regulation as per MiFID & MiCAR in 2025
- Regulatory Updates on AML and MiCA in 2025
The information provided in this article is for general information purposes only. You should always seek professional advice suitable to your needs.