On the 18^th of February 2021, the House of Representatives in Cyprus has voted in favour of the transposition of the 5^th AML Directive (‘AMLD5’) into national legislation. As a result, on the 23^rd of February 2021, Law 13(I)/2021 was published in the Official Government Gazette, amending the current AML legislative scheme in Cyprus (‘the AML Law’).

This is considered as a huge step towards the recognition of crypto-assets which have been approached with caution due to the lack of a clear legislative approach within the EU.

In summary, the implementation of the AMLD5 into national legislation will affect the approach taken towards cryptocurrencies, due to the following regulatory developments:

• The scope of the crypto-asset activity is now defined.
• Crypto-asset service providers dealing with exchanges between crypto assets or exchanges between crypto assets and fiat currencies, custodian wallet providers and other financial services related to crypto-assets are now considered ‘obliged entities’ and are subject to the AML Law. This will enable monitoring and consequently a higher degree of transparency.
• Initiation of a Public Registry relating to crypto-asset service providers that will be operated and kept by the Cyprus Securities and Exchange Commission (‘CySEC’). Relevant service provides shall file an application with CySEC, as per the applicable requirements.
• Registered crypto-asset providers will be able to offer their services in Cyprus and/or from Cyprus.
• To combat the risks related to the anonymity, Financial Intelligence Units (FIUs like MOKAS) should be able to obtain information allowing them to associate cryptocurrency addresses to the identity of the owner of cryptocurrencies.

The introduction of the abovementioned legislative provisions will also have an impact on the way banks treat crypto-assets within Cyprus and in general, within the EU. Until now, most of the EU credit institutions had policies of rejecting crypto-asset service providers with the latter being deprived of access to the bank system.

However, this is about to change, as crypto-asset service providers shall now be treated as ‘obliged entities’ under the AML Law, and therefore, merely the fact that, crypto-asset activities are being offered, does not constitute a reason for rejection anymore. The notion will be that, each case will be assessed on a case-by-case basis with crypto-assets service providers to be able to access the bank system, once they show compliance with the AML legislation.

Certified persons that are registered in the CySEC Public register should renew their registration for 2021, until 28 February 2021.

The renewal procedure must be performed online through the CySEC website, by completing the Renewal application and paying to CySEC the annual renewal fee of eighty euro (€80).

Certified persons must confirm on the renewal application, that they have completed by the end of 2020, continued professional training seminars that relate directly to their duties of:

1. ten (10) hours for persons registered in the Public register for the basic examination;
2. fifteen (15) hours for persons registered in the Public register for the advanced examination;
3. ten (10) hours for persons registered in the public register for AML compliance officers.

For the persons that are registered both in the public register for the basic examination and the AML compliance officers’ register, they must confirm that they have completed by the end of 2020, seminars of a duration of five (5) hours for persons registered in the public register for the basic examination, plus ten (10) hours for persons registered in the public register for AML compliance officers – being a total of fifteen (15) hours for both renewals.

For the persons that are registered both in the public register for the advanced examination and the AML compliance officers register, they must confirm that they have completed by the end of 2020, seminars of a duration of ten (10) hours for persons registered in the public register for the advanced examination plus ten (10) hours for persons registered in the public register for AML compliance officers – being a total of twenty (20) hours for both renewals.

CySEC on 2^nd February 2021, issued Circular C426 which analyses the new prudential framework that the investment firms will be subject to. More specifically, on 26^th June 2021, the Investment Firms Regulation (EU) 2019/2033 (‘IFR’) and Investment Firms Directive (EU) 2019/2034 (‘IFD’) comes into force, thus, all CIFs should comply with the new prudential regime which is different and independent from the Regulation EU No. 575/2013 (CRR) and Directive DI144-2014-14 which are applicable today.

Some of the main changes that the new prudential framework shall introduce are the following:

Initial capital requirements

New initial capital requirements for the authorization of all Investment Firms required pursuant to Art.15 of Directive 2014/65/EU (section 16 of the Law) to provide any of the investment services and/or perform any of the investment activities listed below:

The initial capital of an Investment Firm shall consist of the Common Equity Tier 1 capital (‘CET1’), Additional Tier 1 capital (‘AT1’) and Tier 2 capital (subject to certain conditions – Art. 9 of IFR).

European Banking Authority (‘EBA’) published seven final draft technical standards regarding IFD/IFR  

EBA published a package of seven (7) final draft Regulatory Technical Standards (RTS) related to the implementation of IFR and IFD which have been submitted to the European Commission.

These final draft RTS, which are part of the phase 1 mandates of the EBA roadmap on investment firms, will ensure a proportionate implementation of the new prudential framework for investment firms taking into account the different activities, sizes and complexity of investments firms.

The relevant RTS can be found here.

Reporting and disclosure requirements under IFR/IFD

On 4th June 2020, the EBA issued its draft Implementing Technical Standards (ITS) on reporting requirements for investment firms under Article 54(3) of IFR and on disclosures requirements under Article 49(2) of IFR.

Along with the ITS, EBA introduced a set of templates and instructions for class 2 investment firms (Annexes I and II of the Draft ITS) and a set of templates and instructions for class 3 firms (Annexes III and IV of the Draft ITS), where the supervisory reporting framework incorporates different and tailored reporting templates with different frequencies.

The templates mentioned above can be found here.

Actions to be taken by the CIFs

CIFs are urged to study the IFR/IFD carefully, along with the final draft RTS issued, so as to:

a) Identify the class they will be categorized at from 26th June 2021,*

b) Familiarise themselves with the new templates and the way their new capital requirement will be calculated,*

c) Identify the data needed to be collected and reported, especially in regards to the calculation of K-Factors,*

d) Review their internal records and systems and make the necessary changes to ensure that the required data for the K-Factors (i.e. assets under management, daily trading flow, clients’ orders held, etc) will be available to calculate their new capital requirements. This information should be readily available at all times.

CIFs should make their own assessment on the impact that the IFR and IFD will have on their own funds, concentration risk, liquidity risk, disclosure, reporting, remuneration requirements and take the necessary early actions to ensure compliance by the date of entry into force i.e. on 26^th June 2021.

*CIFs should also consult the CySEC practical guide for the new prudential framework for Investment Firms, which can be found here.

You can contact our firm for more information and guidance.

CySEC issued on 6^th of April 2020 Circular C375, following ESMA’s public statements regarding the application of MiFID II / MiFIR requirements due to the outbreak of COVID-19, and adopted the recommendations of the below mentioned public statements. These public statements are referred to the recording of telephone conversations, the publication of reports by execution venues and firms as required under RTS 27 and 28 and the new tick size regime for systematic internalisers. In particular:

1. Clarification of issues related to the application of MiFID II requirements on the recording of telephone conversations

MiFID II states that mandatory records to be kept by firms include, amongst other things, recording of telephone conversations relating to, at least, transactions concluded when dealing on own account and the provision of client order services that relate to the reception, transmission and execution of orders.

According to the ESMA public statement, in case the recording of relevant conversations may not be practicable due to the exceptional circumstances created by the COVID-19 outbreak, investment firms must adopt other alternative arrangements to ensure full compliance with the existing regulatory requirements.

2. Clarification of issues related to the publication of reports by execution venues and firms as required under RTS 27 and 28

Taking into account the exceptional circumstances created by the COVID-19 outbreak, CySEC followed the recommendation of ESMA public statement regarding the publication of reports RTS 27 and 28 by execution venues and firms. To this end:

a. execution venues unable to publish RTS 27 reports due by 31 March 2020 may only be able to publish them as soon as reasonably practicable after that date and no later than by the following reporting deadline (i.e. 30 June 2020); and

b. firms may only be able to publish the RTS 28 reports due by 30 April 2020 on or before 30 June 2020

3. Actions to mitigate the impact of COVID-19 on the EU financial markets regarding the new tick size regime for systematic internalisers

In addition, ESMA issued a Public Statement on 20 March 2020 regarding the compliance with the new tick size regime for systematic internalisers, introduced to MiFIR by Regulation (EU) No 2019/2033 (‘Investment Firm Regulation’ or ‘IFR’).

ESMA understands that the compliance with the new tick size requirements as of 26 March 2020 could create unintended operational risks for EU market participants in the current market situation in the context of the increasing spread of the COVID-19 pandemic and therefore ESMA is issuing the abovementioned public statement to ensure coordinated supervisory actions needed in response to the effect of the aforementioned adverse events on the application of IFR for systematic internalisers.

ESMA expects competent authorities not to prioritise their supervisory actions in relation to the new tick-size regime introduced in MiFIR towards systematic internalisers, as of 26 March 2020 and until 26 June 2020, and to generally apply their risk-based supervisory powers in their day to-day enforcement of applicable legislation in this area in a proportionate manner.

Contact our experts for more information and support

Due to the outbreak of the coronavirus (COVID-19) in Cyprus, CySEC recognised that this may prevent a number of CIFs from submitting relevant reports/notifications to CySEC within the required timeframes. Therefore, CySEC issued Circular C373 and extended the deadlines for the below presented reporting obligations:

Contact our experts for more information and support

The Cyprus Securities and Exchange Commission (“the CySEC”) on 17^th of December 2019, announced the introduction of ‘AML Compliance Officer’ exams which will take place starting from 4^th of February 2020.

All interested persons can submit an application to take the exam starting from 17^th December 2019. The relevant Syllabus can be found on the CySEC’s website at the following link: Syllabus

Applications can only be submitted online at the following link: Application

Finally, successful candidates may register in the AML compliance officers register.

Important Note

Individuals who are already employed or appointed as AML compliance officers in CySEC regulated entities, may submit an application to participate in the examinations as soon as possible. In case they fail the exam, they are obliged to apply to take the next examination in a period of twelve (12) months. The twelve-month period starts from the initial start date of examinations. In case an individual fails the exam in the twelve month-period, then their appointment as AML compliance officer shall not resume until they have managed to pass the exam.

 Contact our experts for more information and support

CySEC on September 27^th 2019, published its National Product Intervention Measures (“NPIMs”) in relation to the marketing, distribution and sale of Contracts For Differences (“CFDs”) by issuing Directive DI87-09. The measures proposed by CySEC under CP-02-2019 were largely aligned with the European Securities and Markets Authority’s (“ESMA”) temporary product intervention measures.

To this end, CySEC adopted the following measures per category as presented below:

LEVERAGE LIMITS

CySEC will adopt the same leverage limits as ESMA’s for all retail clients. Therefore retail clients will be required to pay at least the following initial margin protection of the notional value of the CFD (i.e. leverage limits):

Clarifications for the initial margin percentages by type of underlying

a) 3,33% of the notional value of the CFD when the underlying currency pair is composed of any two of the following currencies: US dollar, Euro, Japanese yen, Pound sterling, Canadian dollar or Swiss franc;

b) 5% of the notional value of the CFD when the underlying index, currency pair or commodity is:

   (i) any of the following equity indices: Financial Times Stock Exchange 100 (FTSE 100); Cotation Assistée en Continu 40 (CAC 40); Deutsche Bourse AG German Stock Index 30 (DAX30); Dow Jones Industrial Average (DJIA); Standard & Poors 500 (S&P 500); NASDAQ Composite Index (NASDAQ), NASDAQ 100 Index (NASDAQ 100); Nikkei Index (Nikkei 225); Standard & Poors / Australian Securities Exchange 200 (ASX 200); EURO STOXX 50 Index (EURO STOXX 50);

   (ii) a currency pair composed of at least one currency that is not listed in point (a) above; or

   (iii) gold;

c) 10% of the notional value of the CFD when the underlying commodity or equity index is a commodity or any equity index other than those listed in point (b) above;

d) 50% of the notional value of the CFD when the underlying is a cryptocurrency; or

e) 20% of the notional value of the CFD when the underlying is:

   (i) a share; or

   (ii)not otherwise listed in this Section.

MARGIN CLOSE-OUT PROTECTION

CySEC will proceed with a Margin-Close Protection requirement as the one adopted by ESMA, which is a margin close out rule on a per account basis. This will standardise the percentage of margin (at 50% of minimum required margin) at which CIFs are required to close out one or more retail client’s open CFDs;

In general, the margin close-out rule applies on an account basis across all open CFD positions in a client’s account based on 50% of the initial margin required. This includes positions with a guaranteed stop loss order or limited risk protection.

NEGATIVE BALANCE PROTECTION

CySEC proposed under CP-02-2019 to adopt the same requirements as provided for in the ESMA Decision on CFDs in relation to NBP.

CySEC reiterates that NBP means the limit of a retail client’s aggregate liability for all CFDs connected to a CFD trading account with a CFD provider to the funds in that CFD trading account (the “NBP Requirement”). The NBP Requirement must be triggered whenever margin close-out protection cannot be effectively applied due to extreme market events affecting the underlying of the CFD in question.

RESTRICTION ON THE INCENTIVES OFFERED TO TRADE CFDs

In order to address the risks emanating from incentivising retail clients to trade in CDFs by means of monetary or certain types non-monetary benefits, CySEC proposed under CP-02-2019 to adopt the same restrictions as ESMA on the incentives offered to clients.

To this end, CySEC believes that the CFD providers should not directly or indirectly provide the retail client with a payment, monetary or excluded non-monetary benefit in relation to the marketing, distribution or sale of a CFD, other than the realised profits on any CFD provided.

CySEC reiterates that “excluded non-monetary benefit” means any non-monetary benefit other than, insofar as they relate to CFDs, information and research tools.

STANDARDISED RISK WARNINGS

CySEC will proceed with adopting the same risk warning as ESMA’s, except for the case of new firms that do not have 12 months of retail client trading data where we request that the percentage range is replaced with a reference stating that “The vast majority of retail client accounts lose money when trading in CFDs” in the durable medium and webpage standard risk warning and in the abbreviated standard risk warning and with a reference stating that “‘CFD-retail client accounts generally lose money” in the reduced character standard risk warning.

In particular, the CFD provider should not send directly or indirectly a communication to or publish information accessible by a retail client relating to the marketing, distribution or sale of a CFD unless it includes the appropriate risk warning specified by and complying with the conditions:

SECTION A

Risk warning conditions

1. 1. 1. The risk warning shall be in a layout ensuring its prominence, in a font size at least equal to the predominant font size and in the same language as that used in the communication or published information.
      2. If the communication or published information is in a durable medium or a webpage, the risk warning shall be in the format specified in Section B.
      3. If the communication or published information is in a medium other than a durable medium or a webpage, the risk warning shall be in the format specified in Section C.
      4. By way of derogation to paragraphs 2 and 3, if the number of characters contained in the risk warning in the format specified in Section B or C exceeds the character limit permitted in the standard terms of a third party marketing provider, the risk warning may instead be in the format specified in Section D.
      5. If the risk warning in the format specified in Section D is used, the communication or published information shall also include a direct link to the webpage of the CFD provider containing the risk warning in the format specified in Section B.
      6. The risk warning shall include an up-to-date provider-specific loss percentage based on a calculation of the percentage of CFD trading accounts provided to retail clients by the CFD provider that lost money. The calculation shall be performed every three months and cover the 12-month period preceding the date on which it is performed (‘12-month calculation period’). For the purposes of the calculation:
         1. an individual retail client CFD trading account shall be considered to have lost money if the sum of all realised and unrealised net profits on CFDs connected to the CFD trading account during the 12-month calculation period is negative;
         2. any costs relating to the CFDs connected to the CFD trading account shall be included in the calculation, including all charges, fees and commissions;
         3. the following items shall be excluded from the calculation:
            1. any profits or losses from products other than CFDs connected to the CFD trading account;
            2. any CFD trading account that did not have an open CFD connected to it within the calculation period;
            3.  any deposits or withdrawals of funds from the CFD trading account
      7. By way of derogation from paragraphs 2 to 6, if in the last 12-month calculation period a CFD provider has not provided an open CFD connected to a retail client CFD trading account, that CFD provider shall use the standard risk warning in the format specified in Sections E to G, as appropriate.

       

SECTION B

Durable medium and webpage provider-specific risk warning

SECTION C

Abbreviated provider-specific risk warning

SECTION D

Reduced character provider-specific risk warning

SECTION E

Durable medium and webpage standard risk warning

SECTION F

Abbreviated standard risk warning

SECTION G

Reduced character standard risk warning

TERRITORIAL SCOPE OF CySEC NPIMS (‘CyNPIMs) – IMPORTANT NOTE

The content of CyNPIMs is variable based on the country of residence of the client. Therefore where an entity falling under CySEC’s remit markets, distributes or sells CFDs to a resident of:

   i. Cyprus, CyNPIMs will have their “Default Content”, namely the same as ESMA’s measures with the only difference the risk warning explained above.

ii. A Member State, where the NCA has introduced NPIMs, CyNPIMs will have the content of the measures taken by the NCA of the respective Member State.

iii. A Member State, where the NCA has not introduced NPIMs, CyNPIMs will have their Default Content.

iv. A third country, CyNPIMs will have their Default Content

Based on the above, please find below the national measures imposed by other NCAs of the respective Member State:

Contact our experts for more information and support

On 21-23 May 2019 FiveComply attended the iFXExpo International Conference that took place in Limassol, Cyprus. It was a great networking and educational event that gave us the chance to showcase our services to a global audience. The event was a great success with our team making more connections that will help us grow faster.

Our founder Gabriel Styllas mentioned: “On behalf of FiveComply I would like to thank my colleagues, friends, clients, associates, partners and potential clients for such a successful event for FiveComply. Your interest in FiveComply global licensing, compliance, internal audit and risk Management solutions as well as your positive comments and feedback for our services encourage our team to move forward offering more options / solutions to our clients globally.”

FiveComply team would also like to thank the organizers of the iFXEXPO for a successful and fruitful event. We measure our success through our clients; how well we are regarded by them and the depth of the service offering that we provide. So let’s help your business grow in a compliant way!

Please feel free to contact our team of experts any time, should you require additional information about global licensing, compliance support, internal audit and risk management solutions.

Enjoy the highlight video we prepared!