Cyprus Investment Firms — A review on the recent Cyprus Legislation related to the provision of investment services, the exercise of investment activities, the operation of regulated markets and other related matters, N.87(I)/2017.
The Parliament – House of Representatives in Cyprus, passed a new legislation introducing the basic provisions of the European MiFID II Directive for more rigorous market supervision through the granting of additional powers to supervisors, with effect as from 3 January 2018.
The law governs the terms and procedures for the licensing and operation of Cyprus Investment Firms (CIFs), Investment Firms (IFs), the regulated markets of the Republic of Cyprus and data reporting services providers.
For the sake of clarity, an IF means any juridical person whose regular activities and business are based on the provision of one or more investment services to third parties and/or the performance of one or more investment activities on a professional basis, and includes also Cyprus Investment Firms CIF.
Investment services and activities may include, in accordance with Part I of the Appendix ‘A’ of the legislation, the following: receive and transmit orders in relation to one or more financial instruments, execution of orders on behalf of clients, dealing on own account, portfolio management, provide investment advice, underwrite of financial instruments and/or place of financial instruments on a firm commitment basis, disposal of financial instruments without an underwriting commitment, MTF and OTF operations.
The new legislation regulates, inter alia, the conditions for the licensing and authorization of Cyprus Investment Firms — CIFs and the operation of IFs, the provision of investment services or the performing of investment activities by third country firms through the establishment of a branch, the granting of authorization and the operation of regulated markets in the Republic of Cyprus, the licensing and operation of the data reporting services provider, the supervision, cooperation and implementation by competent authorities as well as other related matters.
The scope of the proposed law includes investment firms, market operators, data reporting service providers and third country firms which provide investment services and related activities through the establishment of a branch within the Republic, as well as credit institutions providing investment services or carry out investment activities covered by an authorization granted to them by the CBC or an authority of any other EU Member State.
It is noticeable that, the government bill included transitional provision aimed at the continuation of certain provisions of the abolished law related to the Investor Compensation Fund and the capital adequacy of Cyprus Investment Firms — CIFs, which will be incorporated into new legislation at a subsequent stage.
The main amendments that will affect the process of the provision of investment services and the new disclosure forms, are quoted in the circular of the Cyprus Securities and Exchange Commission (CySEC).
It is also important to mention that the licensing is valid throughout the European Union and allows the Cyprus Investment Firm — CIF to provide such services and carry out the activities for which it has been authorized throughout the EU, either through the establishment of a branch or through free provision of services.
Subject to the provisions of the said legislation, a Cyprus Investment Firms — CIF may appoint representatives to promote its services, attract customers or potential clients, or receive orders from existing clients and transmit them, to provide financial instruments and to advise on the financial instruments and services offered by a Cyprus Investment Firm — CIF. However, it is remarkable that, the Cyprus Investment Firms CIF which decides to appoint a tied agent and/or representative, remains fully liable for any act or omission may arise when the agent is acting on behalf of the Cyprus Investment Firm CIF.
Any IF or credit institution authorized and supervised by a competent authority of a Member State other than the Republic of Cyprus, may provide investment services and/or carry out investment activities and freely provide ancillary services to the Republic, provided that such services and/or activities are covered by its license. Furthermore, an IF or Credit Institution may also provide investment and related services in the Republic, in accordance with the said Law and the Credit Institutions Law 1997 — 2016 as amended, through the exercise of the right of establishment either by establishing a branch or by appointing an associate representative in the Republic of Cyprus.
It is undeniable that, the new provisions regarding the provision of investment services and activities will apply in a wider range of such activities than the existing legislation, due to the inclusion of additional services/activities and financial instruments as explained in the Appendix ‘A’ of the recent legislation. Another major change in the provision of cross-border services is that companies will be obliged to submit a passport notification for each Member State in which they intend to cross-border their investment services.
The Cyprus Securities and Exchange Commission has been recently issued a circular informing the CIFs regarding their obligations under Articles 35 and 36 of the new Law of 2017, which harmonizes the national law with Directive 2014/65/EU on markets in financial instruments (MiFID II), which will enter into force on 3 January 2018.
For further information on this topic please contact AMG Mylonas & Associates, LLC by telephone +357 25 101080 or by e-mail [email protected]