Introduction

The Investment Services and Activities and Regulated Markets Law (144/2007) implements the EU Capital Requirements Directive (2013/36/EC) on access to the activity for and prudential supervision of credit institutions and investment firms, amending EU Directive 2002/87/EC and repealing EU Directives 2006/48/EC and 2006/49/EC. The law and the Cyprus Securities and Exchange Commission's (CySEC) Directive DI144-2014-14 on the Prudential Supervision of Investment Firms refer to significant Cyprus investment firms (CIFs) and subject them to additional requirements and restrictions. Significant CIFs are referred to in the following sections of the law and the directive:

  • Article 12(5) of the law regarding limitations on the number of directorships that an individual may hold;
  • Article 18A(2)(a) of the law regarding the establishment of a nomination committee;
  • Paragraph 6 of the directive on the establishment of an independent risk committee; and
  • Paragraph 22 of the directive on the establishment of an independent remuneration committee.

However, thus far, there has been no guidance in the law or the directive on how to assess whether a CIF qualifies as a significant CIF. CySEC recently issued Circular C081 with the aim of clarifying and providing guidance on the matter. The circular also sets out the obligations to qualify as a significant CIF.

Definition

The circular provides that a CIF will qualify as a significant CIF if it meets one or more of the following thresholds:

  • The CIF has total assets which amount to more than €43 million. 'Total assets' is understood to mean the CIF's total assets:
    • as set out in the most recent audited financial statements submitted to CySEC pursuant to Section 114 of the law; or
    • when the CIF carries out the assessment under this rule at any time after the date of its most recent audited financial statements, as the CIF would report to CySEC in accordance with the relevant period as if the reporting period for that financial statement ended on the date that the assessment is carried out.
  • The CIF has annual fees, commission income and/or turnover which amount to more than €50 million. 'Annual fees, commission income and/or turnover' is understood to mean income derived from the CIF's activities in the 12-month period immediately preceding the date on which the CIF carries out the assessment under this threshold on a rolling basis.
  • The CIF receives or holds clients' money which amounts to more than €60 million. 'Clients' money' is understood to mean the money that a CIF receives or holds in the course of, or in connection with, all of the services and activities that it performs:
    • as set out in the most recent audited financial statements submitted to CySEC pursuant to Section 114 of the law; or
    • when the CIF carries out the assessment under this rule at any time after the date of its most recent audited financial statements, as the firm would report to CySEC in accordance with the relevant period as if the reporting period for that financial statement ended on the date that the assessment is carried out.
  • The CIF holds or administers clients' assets that amount to more than €2 billion. 'Clients' assets' are understood to mean assets held or administered by the CIF in the course of, or in connection with, all of the activities that it performs:
    • as set out in the most recent audited financial statements submitted to CySEC pursuant to Section 114 of the law; or
    • when the CIF carries out the assessment under this rule at any time after the date of its most recent audited financial statements, as the firm would report to CySEC in accordance with the relevant period as if the reporting period for that financial statement ended on the date that the assessment is carried out.

Obligations

In addition to defining significant CIFs, the circular sets out a number of obligations with which a significant CIF must comply:

  • A CIF has an ongoing obligation to assess regularly whether it has become a significant CIF.
  • Where a CIF has yet to qualify as a significant CIF, but becomes aware that it is likely to qualify as such, it must make arrangements immediately to establish effective and comprehensive strategies, processes and systems to comply with the requirements applicable to significant CIFs.
  • Once a CIF meets one or more of the thresholds above and qualifies as a significant CIF, it must inform CySEC immediately that it has qualified as such and submit a new organisational structure.
  • A CIF that qualifies as a significant CIF must comply with the requirements applicable to significant CIFs within a three-month period, starting from the date on which the CIF meets one or more of the thresholds.
  • Where a CIF ceases to qualify as a significant CIF, it must continue to comply with the additional requirements and restrictions applicable to significant CIFs until the first anniversary of the date on which it ceased to qualify as a significant CIF.

Comment

By setting easily recognisable limits in the form of thresholds, the circular clarifies the applicable legislation for CIFs to assess whether they qualify as significant CIFs. The thresholds make it easier for CIFs to identify whether they are compliant with the law and to put the necessary measures in place to operate lawfully. CIFs operating in Cyprus have been awaiting clarification on this matter for some time, making the circular a welcome development for business in Cyprus. CySEC's timely response in issuing regulatory guidance will be instrumental in creating greater certainty for CIFs operating in Cyprus.

For further information on this topic please contact Margarita Hadjitofi or Elina Mantrali at Harneys Aristodemou Loizides Yiolitis LLC by telephone (+357 25 820020) or email (margarita.hadjitofi@harneys.com or elina.mantrali@harneys.com). The Harneys website can be accessed at www.harneys.com.

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