CySEC strengthens its regulatory role

The Cyprus Securities and Exchange Commission (CySEC) held a press conference on the 1^st of February 2022, where its Chairman Dr. George Theocharides, centred on the enhancement of the authority’s supervisory capabilities with the use of new technologies and tools, which will reinforce CySEC’s capacity for investors’ protection.

The Chairman pointed on the continued and steady growth of the investment sector, with a 2.28% increase in the number of entities under CySEC’s supervision, during 2021. The press release that followed the speech by CySEC’s Chairman described CySEC’s goals and developments on the areas below;

A) Supervisory Reviews

CySEC’s Supervision Department has:

• Conducted 308 desk-based and thematic reviews of Cyprus Investment Firms (CIF).
• Evaluated the desk-based reviews held in 2020.
• Reviewed 18 annual compliance and internal audit reports and one Internal Capital Adequacy Assessment Process (ICAAP) report.
• Monitored the marketing communication of 27 CIF.
• Carried 460 desk-based reviews of Collective Investment Funds’ documents.
• Conducted a desk-based review of the Central Securities Depository (CSD).

Furthermore, the Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) Department:

• Conducted 60 onsite reviews of supervised entities.
• Reviewed 478 compliance and internal audit reports, emphasising the Board of Directors (BoD) practices of 239 CIF, Administrative Service Providers (ASP), and Alternative Investment Funds (AIF).
• Received information from 431 supervised entities, regarding business relationships with persons who acquired Cypriot citizenship through the Cyprus Investment Programme (CIP).

Lastly, the Market Surveillance and Investigations Department:

• Completed 41 investigations with respect to the violation of the current legislation by issuers, CIF, and ASP.
• Forwarded 4 cases to the Attorney-General of the Republic to examine whether criminal offences were committed by natural or legal persons.
• Maintained 30 ongoing investigations, by the end of 2021.

B) Fines

Dr. Theocharides indicated that the fines posed to supervised entities through investigations and reviews, totalled 1.34 million Euros in 2021, and 4.53 million Euros over the past two years, with the majority being applied to CIF for violating the legal framework of the Markets in Financial Instruments Directive (MiFID) II. In addition, during 2021 CySEC revoked the operating license of 4 CIF, suspended the license of 6 CIF, and asked 70 supervised entities to take corrective actions, applying a specific timeframe.

C) Strengthened supervision

To enhance its supervisory efficiency and effectiveness with the aim to prevent the implementation of bad practices, CySEC is in the process or plans to adopt additional tools and strategies, such as:

• The use of a specialised system to monitor and supervise the marketing and social media activities of regulated entities. This tool helps to collect, analyse, and monitor regulated entities’ online marketing material and communications by searching and detecting specific mentions from a set of global sources on a real-time basis, covering 187 languages and triggering immediate alerts.
• The continuous professional training of key-position employees with respect to regulatory issues. Following the certification of AML Compliance Officers (AMLCO) in 2020, CySEC will introduce within 2022, new exams for regulated entities’ staff who have direct contact with retail clients.
• The expansion of its Supervisory Department, with the employment of 32 new people since October 2021, of whom 15 have dedicated supervisory duties.
• The management of Big Data by utilising RegTech systems, enabling CySEC to screen large and varied volumes of trading data quickly. In this context, CySEC is implementing a transaction data processing, storage and reporting system which will also connect with the European Securities and Markets Authority’s (ESMA) hub, providing the ability to download and import relevant data. The implementation is expected to be completed by June 2022.
• The enhancement of data supervision regarding European Market Infrastructure Regulation (EMIR), Markets in Financial Instruments (MiFIR), and Securities Financing Transactions Regulation (SFTR) regulations to ensure financial stability, market integrity and investor protection through the development of procedures and methodologies for the automatic detection of potential risks and irregularities.
• The management of CySEC’s data by designing a Data Governance Framework (DGF) which focuses on three main areas:

1. people, roles, and responsibilities,
2. policies and procedures, and
3. technology, tools, and skillsets.

In this way, the authority will automate several internal processes and efficiently manage its resources. The framework’s implementation is planned to start within 2022.

• The currently implemented Enterprise Risk Management Framework (ERM-F) will enable the effective risk management of risks posed by older, current, and future activities.
• The upgrade of the Risk-Based Supervision (RBS-F) in 2021, to continuously take into consideration the risks arising from new market developments and changes.

D) New legislation

As for the regulatory framework, the Chairman mentioned that its modernisation is one of the authority’s top priorities and new developments should be expected within 2022.

To this end, according to CySEC’s Press Release we shall expect:

• Significant attention to the correct application of ESMA’s Intervention Measures, emphasising the ongoing supervision of the regulated entities’ marketing material and activities, including social media.
• The introduction of CySEC’s new certification scheme for the personnel who has direct contact with retail clients.
• An increase in the number of desk-based and onsite reviews and inspections, either in the form of full audit or thematic. In this respect, we shall consider the findings and recommendations made within 2021, for regulated entities’ annual reports, with respect to the AML procedures and controls.
• New developments in the ways and systems for examining trading data which may also lead to amendments of their submission procedure.

Conclusion

Overall, there are plenty of fronts the Chairman and CySEC have pledged to introduce, enhance, and enforce throughout 2022. Most notably, CySEC has informed the investment services sector of its commitment to implement new technologies that can more accurately and quickly pinpoint suspicious activity and areas of risk. Additionally, all efforts by CySEC aim to further safeguard investor protection, ensure the smooth operation of Cyprus investment firms, and attract investors, entrepreneurs, and venture capitalists to the jurisdiction.

At SALVUS we have a dedicated Regulatory & Compliance team ready to help your business with the regulatory and compliance challenges you face. Please contact us at info@salvusfunds.com or call us at +357 7000 7898 to discuss how we can be of value.