As you may know by June 2021, Cyprus is obliged to introduce into its legislation the new prudential regime of the EU, regulated by the Investment Companies Regulation (EU) 2019/2033) (IFR) and the Investment Companies Directive (EU) 2019/2034) (IFD ). Thus a number of changes will take place in the investment service provider system (investment companies) in the near future.
In particular, there will be introduction of a new classification system for investment firms and the tightening of regulatory requirements for the capital of companies.
It is worth noting that the new classification will be based on the type of activity of Cypriot companies, their systemic importance, size and the relationship between firms.
Investment firms are expected to be divided into the following categories:
- Systemically important firms with assets of € 30 billion or more that require a license to operate as a credit institution regulated by the CRR2 CRDV rules. The regulation stipulates that companies of this size will have to apply by December 27, 2020.
- Investment firms with assets of up to €15 million, which have their own funds and do not conduct high-risk activities. They are supervised by the Cyprus Securities and Exchange Commission CySEC, as part of the CRR2 CRDV.
A Cypriot investment firm will be categorized in accordance with the CySEC criteria.
'Large investment companies with assets of EUR 30 billion or more are considered systemic, and therefore must have capital requirements as credit institutions. That is why, under the new structure, these firms are licensed by central banks,' said a Finance Ministry spokesman in the parliamentary finance committee.
It is noted that according to the new regime, investment firms are required to partially disclose aspects of their remuneration policy.
The IFR regulation sets requirements for the size and composition of the initial capital, liquidity, equity capital, etc. Among other things, it also defines the criteria for calculating the level of risk, regulates disclosure and reporting.
Prior to the entry into force of the IFR / IFD regime, Cypriot investment firms will need to:
- determine the class to which they will be assigned starting from June 26, 2021;
- learn the calculation methodology of the new capital requirements;
- learn about the information that will need to be submitted as part of the reporting;
- reassess their internal systems and reporting and implement the necessary changes.