Prudential requirements for CIFs – when shall CySEC be notified?

The Cyprus Securities and Exchange Commission (CySEC) has issued Circular C513 informing the Cyprus Investment Firms (CIFs) of their obligation to on-going monitor their prudential requirements. The CySEC reminded all CIFs, about the necessary steps that they must take when they no longer meet their own funds requirements and/or concentration limits. The following steps should be taken:

  1. Class 2 and class 3 CIFs should notify CySEC as soon as they become aware that their own funds fall below their own funds requirement.
  2. Class 2 CIFs should notify CySEC without delay when they exceed the concentration limits.
  3. All CIFs should have sound administrative and accounting procedures to enable them to monitor their own funds, own funds requirements, concentration risk and all other obligations from IFR
  4. Establish an effective internal control framework as per Final Report on Guidelines on Internal

Governance under Directive (EU) 2019/2034 and CySEC Circular C508.

  1. CIFs which are notifying CySEC, that they have not met their relevant prudential requirements, through their normal submission of the Prudential Forms 165-01 or 165-02 is not sufficient as CIFs in this case either do not monitor their prudential requirements on an on-going basis or willingly fail to inform CySEC.

Therefore, CySEC expects from all CIFs to:

  1. Implement sound administration and accounting procedures and adequate internal control mechanisms, appropriate and proportionate to the nature, scale and complexity of the risks inherent in the business model and the activities of the CIF, which will enable them to monitor on an on-going basis all their prudential requirements accordingly.
  2. Be notified without undue delay and in any case prior to the normal submission of the Prudential Forms 165-01/165-02, when any of the following cases occur, on a solo and/or consolidated basis, for the date of the occurrence:
    1. the own funds of the CIF have decreased below its own funds requirement, calculated in accordance with Article 11 of IFR, which amounts to at least D, where D is defined as the highest of the following:
      • The CIF’s fixed overheads requirement calculated in accordance with Article 13 of IFR;
      • The CIF’s permanent minimum capital requirement in accordance with Article 14 of IFR;
      • The CIF’s K‐factor requirement calculated in accordance with Article 15 of IFR
    2. The composition of own funds has been decreased below the minimum requirement, as calculated in accordance with Article 9 of IFR.
    3. The CIF’s liquid assets are below its liquidity requirement, calculated in accordance with Article 43 of IFR, ie. less than the one third of the fixed overhead requirement calculated in accordance with Article 13(1) of IFR.
    4. The CIF has exceeded the concentration risk limits, as defined in Articles 37(1) and 37(3) of IFR.
  3. Verify that their internal control framework (i.e., compliance, risk management and internal audit functions, where established) ensures compliance with laws, regulations and supervisory requirements at all times.

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