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CySec Issues New Prudential Framework for Investment Firms: Key Changes and Requirements
In a significant move, Cyprus Securities and Exchange Commission (CySEC) has issued a new prudential framework for investment firms, aimed at enhancing the regulatory regime for these entities. The new framework, which comes into effect on June 26th, 2021, will replace the current Capital Requirements Regulation (CRR)/Capital Requirements Directive (CRDIV) regime.
Category 2 Investment Firms: Key Characteristics
Investment firms that do not meet the conditions of Class 1a or 1b and exceed one of the threshold values to qualify as a Class 3 investment firm will fall under the new Category 2. These firms must establish that they are not a Class 1 (1a or 1b) investment firm and meet the requirements of this category.
Class 3 Investment Firms: Eligibility Criteria
Investment firms classified as small and non-interconnected, meeting all the conditions set out by CySEC, will be subject to the new prudential framework with certain exceptions. These firms will need to demonstrate their eligibility under this class.
Three-Pillar Regulatory Model
The new regime is based on the Three-Pillar regulatory model of Basel II, comprising:
- Minimum capital and liquidity requirements (Pillar 1)
- Accountability to the regulator for capital and liquidity adequacy (Pillar 2)
- Publication of information about prudential requirements, risk management, and remuneration policy (Pillar 3)
Key Changes and Requirements
The new framework introduces a simpler applicable framework for Pillar I capital requirements, focused on the nature of the investment firm’s business and resulting risks. CySEC has also issued Circular C426, providing guidance on the implementation of the new prudential regime.
Action Required from Investment Firms
CySEC urges all Cyprus Investment Firms (CIFs) to:
- Identify their class by June 26th, 2021
- Familiarize themselves with new templates and capital requirement calculation methods
- Collect and report necessary data, including K-Factors
- Review internal records and systems to ensure availability of required historical data
Early Assessment and Compliance
Investment firms are expected to assess the impact of the new regime on their funds, concentration risk, liquidity risk, disclosure, reporting, remuneration requirements, and take early actions to ensure compliance by June 26th, 2021.
Resources and Contact Information
A copy of Circular C426 is available here. The practical guide for the new prudential framework issued by CySEC can be accessed here. For further information on our Financial Services & Regulation practice, please contact us.
Disclaimer
This note serves as a general overview of relevant Cyprus and EU legislation and should not be considered legal advice or relied upon without prior consultation with a qualified professional. G.C. Hadjikyprianou & Associates LLC disclaims any liability for damages incurred by reliance on this information. Use of the information provided is subject to our Terms of Use.