Investment Services Law 2017 — Flashcards

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Scope & application

Which EU directive does Law 87(I)/2017 transpose into Cypriot law?
It transposes Directive 2014/65/EU (MiFID II), together with its implementing regulation EU/2017/565. Law 87(I)/2017 replaces the Investment Services Law of 2007–16 unless otherwise specified.
To whom does Law 87(I)/2017 apply?
To Cypriot investment firms (CIFs), market operators, data reporting service providers (DRSPs), and third-country firms that provide investment services or activities through the establishment of a branch in the Republic.
What does Law 87(I)/2017 regulate?
The authorisation conditions for CIFs and operating conditions for investment firms, third-country firms operating through a branch, the authorisation and operation of regulated markets and of DRSPs, and the supervision, cooperation and enforcement by competent authorities.
How must all multilateral systems in financial instruments operate under the Law?
Either in accordance with the authorisation and operating conditions for CIFs, or with the conditions for the regulated markets of the Republic. When executing client orders outside a regulated market, MTF or OTF, a firm must follow the transparency requirements for systematic internalisers and OTC trading.

Third-country firms

How can a third-country firm serve eligible counterparties and professional clients WITHOUT a branch in Cyprus?
By registering in the register of third-country firms maintained by ESMA. This requires an EU equivalence decision for that country, that the firm is licensed and effectively supervised at home, and that cooperation arrangements exist between ESMA and the third-country authority.
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?
CySEC authorises and supervises CIFs, investment firms and regulated markets in the Republic, maintains a publicly accessible register of CIFs, and communicates all CIF authorisations, rejections and revocations to ESMA.
What register must CySEC establish and maintain?
A public register of all persons acting on behalf of a CIF or of an investment firm of another EU member state. Those persons must be of sufficiently good repute and possess appropriate general, commercial and professional knowledge.
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?
At least annually. The frequency and intensity of reviews are set according to the size, systemic importance, nature, scale and complexity of the CIF's activities, applying the principle of proportionality.
When may CySEC refuse to provide information or cooperate with an investigation?
Where it would adversely affect the sovereignty, security or public order of the Republic; where judicial proceedings have already been initiated against the same persons for the same actions; or where a final court judgment has already been delivered in the Republic on the same persons and actions.
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?
CIFs; branches of investment firms of other member states (voluntarily); branches of third-country investment firms; and AIFMs and management companies that provide certain investment and ancillary services. Membership is mandatory — a firm cannot provide investment services unless it is a member.
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.
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