CySEC issues stern warning to local investment firms — ‘no tolerance for non-compliance’

The Cyprus Securities and Exchange Commission (CySEC) this week issued a warning to board members of Cyprus Investment Firms (CIFs), reminding them of their roles and responsibility to meet all regulatory standards.

According to an announcement by the commission, CySEC called on local investment firms to “enhance their performance and promote a culture of integrity and high ethical standards”, following recent supervisory actions that exposed gaps in terms of compliance.

The commission has already issued a series of warnings to the industry following the introduction of stricter supervision measures.

CySEC chairman George Theocharides stressed there would be no tolerance for CIFs that do not comply with the regulatory framework.

“Cyprus is open for business, but only to the ones that take into consideration the best interest of their clients by fulfilling at all times their regulatory requirements,” Theocharides said.

“This is the basis for a healthy, strong market, with new products and services deploying financial technology and innovation,” he added.

Theocharides’ remarks came as he set out CySEC’s expectations, in the context of the the current regulatory environment in Europe, at online workshops for local investment firm board members, highlighting regulatory compliance and investor protection.

Outlining actions by the European Securities and Markets Authority (ESMA) and CySEC to further strengthen the supervision of cross-border retail financial services, he said that “there are a lot more restrictions on the way”.

“Only firms with a strong compliance culture will be able to survive within this intense regulatory environment,” he added.

Theocharides also explained that “CySEC takes any misconduct by supervised entities seriously and firmly believes that through intense supervision and continuous monitoring, investors’ protection and market integrity will be enhanced”.

“To this end, CySEC is determined to bring non-compliant operations to a halt,” he stressed.

He also noted that the provision of cross-border services, especially the high-risk products offered to retail clients, continues to pose significant investor protection concerns.

The chairman explained that the fast-paced developments in the digitalisation of financial services and the increasing use of social media to promote investments provide retail investors with easy access to financial products that can exhibit diverse risk profiles, which are not always fully understood by all retail investors.

The commission has ramped up regulatory supervision in recent years, resulting in increasingly robust repercussions for violating companies.

Over the last three years, CySEC has imposed fines amounting to €5.3 million against CIFs for infringements of the Investment Services and Activities and Regulated Markets Law of 2017, including a €1 million fine against a single firm alone.

CySEC has also been investing in human resources and new supervisory systems that seek to strengthen its supervisory infrastructure and enhance its overall efficiency and effectiveness.

A key acquisition has been a specialised system that analyses and monitors the online marketing materials and social media activities of Cyprus investment firms.

CySEC has also placed financial literacy and promoting awareness of investor education among its key strategic objectives.

Stricter enforcement and supervision measures introduced by CySEC include potential personal liability for the key persons found responsible for the CIF’s non-compliance, and there are currently several administrative procedures against natural persons.

“CySEC has also moved to reject applications for acquiring a CIF licence, withdraw licences, and suspended licenses until specific actions were taken to remediate weaknesses or omissions identified during supervisory checks,” the commission underlined in a statement.

Meanwhile, in line with its annual Supervisory Action Plan, CySEC has conducted desk-based and thematic reviews of CIFs, and carried out on-site inspections, while its Anti-Money Laundering & Combating the Financing of Terrorism department (AML & CFT) carried out further checks to evaluate the adequacy of specific measures and procedures implemented by supervised entities.

CySEC noted that these checks included reviewing compliance reports and internal audits.

“We urge you to consider the issues raised today regarding your responsibilities as members of the Boards of CIFs and take immediate actions to ensure that you respond and fulfil your duties,” Theocharides stressed.

“There is no more tolerance or grace period for firms with non-compliance behaviour,” he added.

“The exercise of effective supervision and further enhancement of a strong compliance function within supervised entities is one of CySEC’s utmost objectives,” Theocharides concluded.

CySEC currently supervises 838 entities out of which 250 are Investment Firms (2023), compared to 248 in 2022 and 243 in 2021.

From these, 159 firms provide forex products (CFDs) for retail investors and 90 firms offer traditional products.