Investment Services Law 2017
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Know the numbers? Now learn the why.Read the Investment Services Law and the ICF study notes: short answers, key numbers and the law behind each rule.
- What does Law 87(I)/2017 cover, and who must follow it?
- How can a firm from outside the EU serve clients in Cyprus?
- Which firms and activities does Law 87(I)/2017 exempt?
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Scope & application
- Which EU directive does Law 87(I)/2017 transpose into Cypriot law?
- Exam material: Directive 2014/65/EU and 'EU/2017/565', which it calls MiFID II. Since 3 January 2018: Law 87 transposes MiFID II, which is Directive 2014/65/EU, together with two articles of the Capital Requirements Directive; Delegated Regulation (EU) 2017/565, like MiFIR, applies directly and has never been transposed. The Law replaced the Investment Services Law of 2007 (Law 144(I)/2007), except for the articles it keeps in force.
- To whom does Law 87(I)/2017 apply?
- Exam material: CIFs and other investment firms, market operators, data reporting service providers (DRSPs), and third-country firms providing investment services or activities through a branch in Cyprus. Since 1 January 2022: DRSPs are outside the Law, authorised and supervised by ESMA under MiFIR, except APAs and ARMs with a derogation, which CySEC supervises. Banks providing investment services follow selected provisions, with the Central Bank as supervisor.
- What does Law 87(I)/2017 regulate?
- Exam material: the authorisation conditions for CIFs and the operating conditions for investment firms; third-country firms operating through a branch; the authorisation and operation of Cyprus regulated markets and of DRSPs; and supervision, cooperation and enforcement by the competent authorities. Since 1 January 2022: the DRSP item is deleted, as DRSPs moved to MiFIR and, mostly, to ESMA.
- How must all multilateral systems in financial instruments operate under the Law?
- Exam material: Law 87 requires every multilateral system to operate under the authorisation and operating conditions for CIFs or under those for Cyprus regulated markets, and firms executing client orders outside a regulated market, MTF or OTF to follow the transparency rules for systematic internalisers and OTC trading. Since 17 October 2025: the rule is no longer in Law 87 but in MiFIR Article 1(5b), applicable since 28 March 2024; multilateral systems operate as a regulated market, MTF or OTF, systematic internalisers follow MiFIR Title III, and other OTC trades MiFIR Articles 20 and 21.
Third-country firms
- How can a third-country firm serve eligible counterparties and professional clients WITHOUT a branch in Cyprus?
- Exam material: by registering in ESMA's register of third-country firms, which covers eligible counterparties and per se professional clients, on three conditions: a Commission equivalence decision for the home country, authorisation and effective supervision at home, and cooperation arrangements between ESMA and the home authority. Since 26 June 2021: a fourth condition, arrangements to report yearly to ESMA. No equivalence decision had been adopted by September 2026, so in practice firms use a Cyprus branch under CySEC Directive DI87-04.
- What must a third-country firm do if it does not meet the ESMA/MiFIR conditions but wants to provide services in Cyprus?
- It must be authorised in the country where its head office is established, comply with the Law, and establish a branch in the Republic — supervised by CySEC or the Central Bank of Cyprus.
Exemptions
- Are insurance, reinsurance and retrocession undertakings covered by Law 87(I)/2017?
- No — they are exempt from the Law (as defined in the insurance and reinsurance law).
- Are collective investment undertakings and pension funds covered by the Law?
- No. Collective investment undertakings, pension funds, and their depositaries and managers are exempt from Law 87(I)/2017.
- Give examples of entities exempt from Law 87(I)/2017.
- Insurance/reinsurance undertakings; intra-group service providers; members of the European System of Central Banks; collective investment undertakings and pension funds with their depositaries/managers; certain persons dealing on own account; central securities depositories (CSDs); and persons giving investment advice incidental to another regulated profession.
- Which requirement still applies even to organisations exempt from the Law?
- The requirements on position limits and position management controls in commodity derivatives, and the related reporting requirements, remain applicable even to exempt organisations.
Competent authorities
- Which are the competent (supervisory) authorities in the Republic under the Law?
- The Cyprus Securities and Exchange Commission (CySEC) and the Central Bank of Cyprus (CBC).
- What is CySEC's role in relation to investment firms?
- Exam material: CySEC authorises and supervises CIFs, investment firms and regulated markets in Cyprus, keeps a public register of CIFs and their services, and communicates every authorisation, rejection and revocation to ESMA. Since 3 January 2018 (Law 87 Articles 5(3) and 8(2)): ESMA is told of each authorisation and each revocation, not of rejections.
- What register must CySEC establish and maintain?
- Exam material: a public register of everyone who acts for a CIF or for another Member State's investment firm, who must be of good repute and have appropriate knowledge. Since 3 January 2018 (Law 87 Article 30(3)): it is a public register of tied agents established in Cyprus, whether they act for a CIF or for another Member State's firm; CySEC enters a tied agent only if it is of sufficiently good repute and has appropriate general, commercial and professional knowledge and competence. CySEC also keeps a public register of CIFs.
- What supervisory powers do the competent authorities hold?
- They may demand information and summon and question persons, request telephone and data-traffic records, demand cessation of any practice contrary to the law, freeze or sequester assets, temporarily prohibit professional activity, carry out on-site inspections, and appoint auditors or experts to conduct investigations.
- How often must CySEC review the arrangements and risks of CIFs?
- Exam material: at least annually, with the frequency and intensity set by the firm's size, systemic importance, nature, scale and complexity. Since 5 November 2021: there is no general yearly minimum; CySEC sets the frequency and intensity in proportion to each firm and decides case by case for small and non-interconnected firms. At least annual updates remain only for firms under the Capital Requirements Regulation in CySEC's supervisory examination programme.
- When may CySEC refuse to provide information or cooperate with an investigation?
- Exam material: where it would harm the sovereignty, security or public order of the Republic; where judicial proceedings have already begun against the same persons for the same actions; or where a final judgment has already been given in the Republic on them. Since 3 January 2018: CySEC may refuse a request from another EU authority only on the two judicial grounds, and must then inform that authority and ESMA. The sovereignty ground remains only in the CySEC Law, for requests from foreign supervisors generally.
- Can CySEC suspend or revoke a CIF's authorisation?
- Yes. CySEC may revoke, or wholly or partially suspend, a CIF authorisation, and is responsible for ensuring the sound and prudent management of a CIF.
Investor Compensation Fund
- What is the purpose of the Investor Compensation Fund (ICF)?
- To secure the claims of covered customers against members of the ICF by paying them compensation when a member cannot meet its obligations.
- Who are the members of the ICF?
- Membership is compulsory for CIFs, branches of third-country investment firms, and AIFMs and UCITS management companies that provide portfolio management or related investment services; they must apply as soon as CySEC asks and may not provide investment services until they are members. Branches of investment firms from other Member States are covered by their home scheme and may join only voluntarily, to top up that cover.
- What is the maximum compensation the ICF pays a covered client?
- The lower of €20,000 or 90% of the cumulative covered claims of the covered client.
- Within what period must the ICF pay compensation after its decision?
- Within three months of notifying its decision (the compensation amount and the beneficiaries) to the covered client.
- Who is NOT covered by the ICF?
- Institutional and professional investors; states and supranational organisations; central and local administrations; companies closely connected to the member; the member's managers, administrators and 5%+ shareholders and their close relatives; and clients who caused or benefited from the member's financial difficulties.
- What are the minimum placement rules for ICF funds?
- At least 70% of total assets in government securities, interest-bearing bank accounts in the Republic or another member state, or an ICF account at the Central Bank of Cyprus; and at least 10% in interest-bearing current accounts in banks operating in the Republic.
Offences
- What is the penalty for providing false or misleading information to, or withholding material information from, CySEC or the CBC?
- It is a criminal offence under Article 94. On conviction it is punishable by imprisonment of up to five years and/or a fine of up to €700,000. Where the offence is committed by a legal person, consenting board members and managerial, supervisory or auditory officers may also be criminally liable.