What this chapter covers
MiFID II, transposed in Cyprus by Law 87(I)/2017 and filled in by Delegated Regulation 2017/565, sets the rules an investment firm follows once it is authorised. The first notes cover the firm's own house: its organisation, risk management and internal audit, the compliance function, the recording of calls and messages, outsourcing, and the safeguarding of client money and instruments.
The middle notes deal with the client relationship: identifying and managing conflicts of interest, the information clients receive, the appropriateness test, client categories, and what firms must say about products, costs and charges. The last group covers independent and non-independent advice, the suitability assessment, best execution and the handling of client orders.
Several current rules are not reflected in the exam material: sustainability preferences joined suitability and conflicts in August 2022, the 2022 quick fix eased cost and format rules, payment for order flow has been banned since March 2024, and the best execution reports were removed in 2025. Each note teaches what the exam tests and says what applies today.
The 12 topics
Each note starts with a short answer and a table of the facts to remember.
Organisation and control
- What organisation, risk management and internal audit must an investment firm have?Decision-making, controls, records and continuity, and when risk management and internal audit must be independent.6 min
- What must an investment firm's compliance function do, and how independent must it be?What the compliance function monitors and reports, the conditions for its independence and the Cyprus certification rule.At least annually6 min
- What must an investment firm record of telephone calls and electronic communications?Which calls and messages are recorded, what clients are told, face-to-face orders and how long records are kept.5 years7 years5 min
- What rules apply when an investment firm outsources critical or important functions?When a function is critical or important, why responsibility stays with the firm, and what the outsourcing agreement must allow.6 min
- How must an investment firm safeguard client money and financial instruments?Keeping client assets separate, reconciliations, the 20% cap on group deposits and the ban on title transfer with retail clients.20%5 min
Conflicts and client information
- How must an investment firm identify, manage and disclose conflicts of interest?The five situations to check, the written policy, disclosure as a last resort and the rules for investment research.At least annually7 min
- What information must clients receive, and when is an appropriateness test needed?Fair, clear and not misleading information, past and future performance, the appropriateness test and execution-only.5 years12 months7 min
- How are clients categorised as retail, professional or eligible counterparties?Retail, professional and eligible counterparties, the large-undertaking test and how clients opt up or down.€20m / €40m / €2m€500,0006 min
- What must clients be told about financial instruments and about costs and charges?Explaining instruments and their risks, aggregating costs and charges, and the annual cost report.6 min
Advice, suitability and execution
- What is the difference between independent and non-independent investment advice?What makes advice independent, the ban on keeping inducements and offering both kinds of advice.5 min
- How must an investment firm assess suitability for advice and portfolio management?What the firm must learn about the client, sustainability preferences, switching and the suitability report.At least annually7 min
- What do best execution and client order handling require?The execution factors, total consideration for retail clients, the execution policy and fair order handling.At least annually7 min
The numbers to know
Every figure in this chapter, with the note that explains it.
| Figure | What it is | Note |
|---|---|---|
| 5 years (up to 7) | How long recordings of calls and electronic communications are kept, extended to seven years where CySEC asks | Topic 3: What must an investment firm record of telephone calls and electronic communications? |
| 20% | Most client money a firm may deposit with banks or money market funds of its own group, unless it shows the cap is disproportionate and notifies CySEC of its assessment | Topic 5: How must an investment firm safeguard client money and financial instruments? |
| €20m · €40m · €2m | Balance sheet, net turnover and own funds of a large undertaking: two of the three make it a per se professional client | Topic 8: How are clients categorised as retail, professional or eligible counterparties? |
| 10 per quarter | Average number of significant transactions over the previous four quarters, one of the opt-up criteria | Topic 8: How are clients categorised as retail, professional or eligible counterparties? |
| €500,000 | Portfolio of cash deposits and financial instruments above which one of the opt-up criteria is met | Topic 8: How are clients categorised as retail, professional or eligible counterparties? |
| 5 years | Past performance period shown to clients, or the whole period if the instrument or service is younger | Topic 7: What information must clients receive, and when is an appropriateness test needed? |