When can CySEC step in early at a weakening CIF, and what can it require?

Early intervention sits between normal supervision and resolution. CySEC may act if a CIF infringes, or is likely in the near future to infringe, the prudential rules (the CRR or, for most CIFs, the IFR), the Investment Services Law and its directives, Title II of MiFID II or listed articles of MiFIR. The breach need not concern capital: conduct and market rules count too. Likelihood is judged, among other things, by a rapidly deteriorating financial condition, for instance worsening liquidity, a rising level of leverage, non-performing loans or a concentration of exposures.

The assessment rests on a set of triggers, which may include own funds at the own funds requirement plus 1.5 percentage points. The exam material frames early intervention around own funds and gives 'own funds +1.5%' as its example trigger. Since 18 March 2016, Law 20(I)/2016 has treated the 1.5 figure as one trigger a set may include, measured in percentage points above the requirement. It has also let likely breaches of conduct and market rules open the way to early intervention. For how the requirement is built, see What counts as own funds, and which capital ratios and buffers must be met? and What are the Pillar 1 risks, and how are credit, market and operational risk defined?

The law gives CySEC at least the following measures, on top of its other supervisory powers. It may require the management body to implement measures from the recovery plan, or to update the plan where circumstances differ from its assumptions and implement it within a set time; to examine the situation and draw up an action programme with a timetable; to convene a shareholders' meeting, for which CySEC may set the agenda and require certain decisions to be considered; to remove or replace directors or senior managers found unfit for their duties; to draw up a plan for negotiating a restructuring of debt with some or all creditors; to change the business strategy; and to change the legal or operational structure. CySEC may also require, and pass to the resolution authority, the information needed to update the resolution plan, prepare for a possible resolution and value assets and liabilities. The BRRD adds that it may gather this information through on-site inspections.

The exam material says the shareholders' meeting is convened with immediate effect. The law's point is who convenes, not how fast: since 18 March 2016 it has let CySEC require the board to call the meeting and, if the board does not, call it directly. In both cases CySEC may set the agenda.

The measures work through the firm's plans, owners, managers and structure. Suspending or withdrawing authorisation is a separate licensing power under the Investment Services Law (see When can CySEC suspend or withdraw a CIF's authorisation, and what happens to clients?), and resolution belongs to the CBC. Once the conditions are met, CySEC informs the resolution authority without delay, and it may set a deadline for each measure.

If the CIF's financial situation deteriorates significantly or there are serious breaches, and the measures above are not enough, CySEC may require the removal of the senior management or the management body, as a whole or individually. The new members need CySEC's approval. If replacing management is not enough either, CySEC may appoint one or more temporary administrators (see Who appoints a temporary or a special administrator, and what can each one do?). Where a group is involved, CySEC notifies the EBA and consults the other competent authorities. If several authorities plan measures or a temporary administrator for more than one group entity, they aim for a joint decision within five days. If a matter is referred to the EBA, it decides within three days.