Four companies licensed by the Cyprus Securities and Exchange Commission (CySEC) banked with Silicon Valley Bank (SVB) and Signature Bank, the two US banks which recently collapsed, according to statements made by the commission on Wednesday.
The information on the impact of the two banks’ downfall was provided during the annual press conference held by the commission to provide updates on its actions and activities, as well as any future initiatives and plans.
SVB & Signature Bank
In regards to SVB and Signature Bank and the companies that had their deposits at the two banks, chairman George Theocharides was reassuring, saying that these are the two companies’ own deposits and not their clients’ funds, noting that the American authorities have stated that all deposits will be protected.
CySEC vice chairman George Karatzias said that the commission had first requested information from the supervised entities when the issue with the two banks originally arose.
“There are four companies with deposits at the two banks, the vast majority of which had been withdrawn due to the rumours of risk surrounding them,” he said.
“When the problem materialised there was a small amount of each company’s own money still with the two banks, but this does not concern their customers’ money,” he added.
Theocharides clarified that these are small amounts and do not affect the companies’ operations.
“They may seem big to us, but to these companies, it is a small amount of money,” he said.
“In any event, American authorities have decided to protect all deposits,” he added.
CySEC’s role going forward
Theocharides also announced the expansion of the regulator’s role, while emphasising its continuing investment in technological upgrades and its preventive supervision measures, to enhance investor protection while encouraging the development of the market.
In addition, Theocharides also said that at the end of 2022, the number of supervised entities had risen to 837, up from 806 in 2021, an increase of 3.9 per cent, while approximately 100 new applications are under review and pending licensing.
This represents an increase of 12 per cent when compared to 2019, before the outbreak of the pandemic.
Further development of the sector
During 2022, a total of 86 applications for licenses were approved for all types of entities under the supervision of CySEC.
CySEC rejected 6 applications for Cyprus Investment Firms (CIFs) licenses and a further 15 applications were withdrawn, including applications for CIF licences and collective investments.
As outlined by Theocharides during the press conference, the supervisory role of CySEC will be further expanded as two new groups of supervised entities now fall under its authority.
The first is that of European Crowdfunding Service Providers (ECSPs), which can provide pan-European services from the Republic of Cyprus, under European Regulation 2020/1503.
The Policy Statement and the relevant Directive have already been published, allowing interested parties to submit their application.
The other group is the Providers of Pan-European Personal Pension products (PEPP), which stems from European Regulation 2019/1238.
In November 2022, CySEC was appointed by the Ministry of Finance as one of the authorities for examining, evaluating, and approving applications.
Supervisory activities: inspections, monitoring and sanctions
During 2022, the Supervision Department carried out 359 remote, thematic and on-site inspections of CIFs, as well as the monitoring of the implementation of requirements for reporting transactions/derivatives contracts.
Additionally, it conducted 119 remote document inspections and the monitoring of the requirements for Collective Investment Institutions.
Also, during 2022, the Department continued to monitor the online marketing practices of CIFs through its specialised system, which allows it to collect and analyse information in relation to them. It concluded the evaluation of advertising material of more than 10 CIFs, and potential violations have been identified from the findings.
The CIFs were asked to make the necessary modifications to comply with the legislative framework that governs them. Additionally, the advertising material of another 37 CIFs is under examination.
The Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) Department has completed on-site inspections of 14 supervised entities and is in the process of a further 15 inspections, for which possible violations of existing legislation may be identified.
The Department of Market Surveillance and Investigations conducted 15 raids, completed 39 investigations, and had 48 further investigations in progress by the end of 2022.
Following Russia’s military intervention in Ukraine and the restrictive measures taken by the Council of the European Union against Russia, the supervisory departments of CySEC are closely monitoring developments, calling on supervised entities to submit information regarding business relationships with individuals subject to sanctions.
In 2022, CySEC imposed administrative fines totalling approximately €2.9 million, of which the overwhelming majority related to fines and settlements for CIFs.
In the past two years, administrative fines of over €4.2 million have been imposed, of which over €3.6 million stemmed from CIFs. Over the past 10 years, CySEC has imposed fines and settlements totalling €34.2 million.
“€720 million by Cyprus Investment Services Companies (CIFs) has so far been frozen and another €719 million has also been frozen and held by administrative service providers (ESPs) under the supervision of the Cyprus Securities and Exchange Commission,” Theocharides said.
Technological upgrade
During 2023, CySEC will advance the processes for creating a control and management system for licensing applications.
“With the completion of the system, all applications for licensing of supervised entities will be submitted electronically, as well as any changes submitted periodically by the supervised entities, such as the members of their Board of Directors,” the commission said.
As explained during the conference, the development of an online portal for the registration and examination process for obtaining certification offered by CySEC is also underway.
Through the portal, certified individuals will have the ability, using a code, to electronically manage all the information concerning their certification and to apply for renewal and re-registration in the records for which they are certified.
Regarding preventive supervision, in 2022, new upgrades were made to the Risk-Based Supervision Framework (RBS-F) system, in order to take into account all the developments and changes that may pose risks to the market.
Also, as part of the expansion of RBS-F with the integration of risk indicators regarding sustainable investments (ESG factors and climate-related risks), a request has been submitted to The Directorate-General for Structural Reform Support of the European Union (DG REFORM) in the provision of technical assistance programme for 2023 (TSI 2023).
Completion of the Enterprise Risk Management Framework (‘The ERM-F’), which started in 2020, is also expected during the course of 2023.
What is more, in 2022, CySEC also acquired access to the reporting and analysis platform Power BI.
Theocharides referred to the new European legislative regulations concerning the Sector saying that, by 2023, CySEC will issue a Policy Statement finalising the rules for the process of remote customer identification through innovative technological methods.
Investor education
Finally, the commission said that training and education are given great importance by CySEC, in order to enable investors to be able to evaluate the risks and returns involved in different investment options.
“The establishment of an annual award for two university students, for which CySEC offers a cash prize of €1000, is also included in the promotion and strengthening of financial education in Cyprus, particularly among young people,” the commission concluded.
