What must a CIF report country by country, and what rules govern variable pay?

The exam material says that from 1 January 2015 CIFs disclose each year, on a consolidated basis and for each Member State and third country where they are established, six items: names, nature of activities and location; turnover; staff numbers in full-time equivalents; profit or loss before tax; tax on that profit or loss; and public subsidies received. The data is factual and looks back over the financial year. It is audited and, where possible, annexed to the annual or consolidated financial statements. The firm also reports return on assets, which is net profit divided by the total balance sheet.

These are CRD rules, which now apply to banks and Class 1-minus CIFs (for CIFs, Law 97(I)/2021 sections 49 and 50). Since 5 November 2021 Class 2 CIFs have published the same six items only if they have a branch, or a subsidiary that is a financial institution, in another EU country or outside the EU (Law 165(I)/2021 section 21). Class 3 CIFs are outside the rule, and return on assets has no IFR equivalent. The exam material cites the 2009 law on auditors and the statutory audit of annual and consolidated accounts. Since 2 June 2017 the audit has been carried out under the Auditors Law, Law 53(I)/2017, which repealed the 2009 law.

The rules cover senior management, risk-takers, staff in control functions and anyone paid at least as much as the lowest-paid senior manager or risk-taker, where their work materially affects the firm's risk profile. The policy is proportionate, clearly documented, gender-neutral and consistent with sound risk management, supports the firm's long-term interests and guards against conflicts of interest. The board adopts it, reviews it periodically and oversees it, and its implementation is reviewed centrally and independently at least annually. Control function staff are independent of the units they oversee and are paid according to their own objectives. The pay of senior officers in risk management and compliance is overseen directly by the remuneration committee or, if there is none, by the board. Fixed pay reflects experience and responsibility, and variable pay reflects sustainable, risk-adjusted performance. Fixed pay must also be large enough for the firm to pay no bonus at all (Law 165(I)/2021 section 24).

A remuneration committee prepares the board's pay decisions, weighing the public interest and the long-term interests of investors, shareholders and others with a stake in the firm. Its chair and members are board members without executive roles, with employee representatives where Cyprus law provides for them. The exam material ties it to significant CIFs; for Class 2 CIFs, Law 165(I)/2021 requires a gender-balanced committee in firms above the €100 million test and allows it to be set up at group level.

Performance is assessed over several years and combines the individual, the business unit and the whole firm, using financial and non-financial criteria. Total variable pay must not limit the firm's ability to strengthen its capital. Guaranteed variable pay is exceptional: only for new staff, only in the first year and only where the capital base is strong. Termination payments must not reward failure or misconduct. At least 50% is paid in shares, share-linked or other eligible instruments subject to retention, and at least 40% is deferred over three to five years, or 60% for particularly high amounts, vesting no faster than pro rata. Up to 100% can be reduced or clawed back. Discretionary pension benefits are held for five years if the employee leaves early, or paid in instruments with a five-year retention on retirement. Staff must not use personal hedging to undermine these effects.

The exam material caps variable pay at 100% of fixed pay for each person, or 200% if shareholders approve by 66% of votes where at least half the shares or ownership rights are represented, and otherwise by 75% of those represented. Staff affected may not vote, CySEC is told of the proposal and the decision, and a discount rate may apply to up to 25% of variable pay, if that part is paid in instruments whose deferral lasts at least five years. Since 5 November 2021, Law 165(I)/2021 has let Class 2 CIFs set their own ratio with no statutory cap. The cap, the approval procedure and the discount rate now apply only to banks and Class 1-minus CIFs, whose deferral period is four to five years (for Class 1-minus CIFs since 26 June 2021). Class 2 CIFs with average assets of €100 million or less over four years are outside the instrument, deferral and pension rules. So are staff whose variable pay is €50,000 a year or less and no more than a quarter of their total pay; CySEC's Circular C736 of October 2025 confirms both exemptions. Class 3 CIFs are outside these prudential pay rules altogether. The MiFID II conduct rules on staff pay still apply to every CIF.