What are the rules for tied agents, eligible counterparties and crowdfunding?

A tied agent is an individual or a company acting for a single investment firm and under that firm's full and unconditional responsibility. It may promote the firm's services, bring in clients, receive and pass on their orders, place financial instruments and advise on the instruments and services the firm offers. Cyprus has not used the MiFID II option allowing tied agents to hold clients' money or instruments, so tied agents here do not hold them.

The CIF answers for anything the agent does or fails to do while acting for it. It must make the agent tell clients, when contacting them or before dealing, in which capacity it acts and for which firm, monitor the agent, and make sure the agent's other business does not harm the work done for the firm.

Agents established in Cyprus must be on CySEC's public register, which requires good repute and suitable general, commercial and professional knowledge; a company acting as agent must employ a person who meets that standard. A CIF notifies CySEC before using the agent, who may act only once registered and appointed; an investment firm from another Member State either follows the same procedure or uses the passport procedure through its home authority. CySEC may decide on a complete notification within three months. When a registered agent moves to a new principal, the agent reports the end of the old relationship, the new principal notifies only the appointment, and CySEC approves it within one month at most. A principal that ends a relationship tells CySEC at once, CySEC updates the register within three working days (unless the agent is moving to a new principal), and the principal publishes the termination and its date on its website.

Eligible counterparties are investment firms, credit institutions, insurance undertakings, UCITS funds and the companies managing them, pension funds and their managers, other financial institutions authorised or regulated under EU or national law, national governments and their public debt offices, central banks and supranational organisations. When a CIF executes orders, deals on its own account or receives and transmits orders with them, most conduct rules fall away, including the client information and suitability rules, best execution and client order handling. The firm must still behave honestly, fairly and professionally, and its communications must be fair, clear and not misleading, taking account of the counterparty's nature and business.

An eligible counterparty may ask to be treated as an ordinary client, generally or for particular transactions. CySEC also recognises other undertakings that meet predetermined proportionate requirements, including quantitative thresholds, and third-country entities equivalent to the listed categories. Only for undertakings recognised because they meet those requirements, in the EU or in third countries, must the CIF get the counterparty's express confirmation that it accepts this treatment, either once as a general agreement or separately for each transaction.

The exam material teaches CySEC's national directive of 2020 on crowdfunding in transferable securities. Under it, a CIF needed CySEC's prior consent and a website of its own used only for the platform; it had to act as an independent intermediary, without taking fees to steer investors to particular projects or acquiring securities in projects on its platform; it checked investors and project owners, looking at credit risk, verifying identity and running AML checks; and it listed a project only after checking the Key Investment Information Sheet (KIIS) issued by the project owner. Money raised went to the project owner only once the funding target was reached. A bulletin board could let investors signal interest to buy or sell, but a board that matched orders or carried binding prices would be a trading venue needing its own licence.

Since 10 November 2021 the EU Crowdfunding Regulation (EU) 2020/1503 has governed investment-based and lending-based crowdfunding offers of up to €5 million per project owner over 12 months, and national regimes could continue only until 10 November 2023. Providers now need authorisation as crowdfunding service providers and fall outside MiFID II; in Cyprus, Law 123(I)/2024 names CySEC as the competent authority. Familiar ideas survive: the project owner draws up the KIIS, the provider checks project owners and may not take part in offers on its platform, and a bulletin board may not be an internal matching system. Non-sophisticated investors also take an entry knowledge test and get a four-day reflection period.