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On 10 of March 2022, the European Securities and Markets Authority (ESMA) issued Recommendations to the Cyprus Securities and Exchange Commission (CySEC) on the supervision of cross-border activities of Investment Firms.
For the first time in its history ESMA, pursuant to Article 16(1) of the ESMA Regulation and in accordance with Article 30(4) of the ESMA Regulation, has issued two specific recommendations to CySEC.
The European Authority has published its peer review report, in which it assessed how National Competent Authorities (NCAs) supervise the investment services that are provided to retail clients by such firms and credit institutions on a cross-border basis using a MiFID II passport.
ESMA recognized that home NCAs supervision is not sufficient and effective with regards to firms cross-border activities. In particular out of the six jurisdictions covered in the peer review, Cyprus had the highest level of outgoing cross-border activities and the highest number of complaints relating to investment firms cross-border activities as well as requests from other NCAs.
Accordingly, the peer review identified that CySEC supervisory activities have overall proven insufficient at addressing the risks posed by Cypriot firm’s cross border services, in particular:
- Passport notifications;
- Ongoing supervision arrangements;
- Day to day supervision;
- Inspections and investigations;
- Cooperation and exchanges with NCAs;
As such, the specific instructions by the Supervisory Authority aim to increase the human resources needed for the supervision of cross border services of Cypriot Investment Firms (CIFs). Furthermore, the recommendations point towards CySEC to strengthen its supervisory activities with regards to enforcement and monitoring of compliance procedures.
Thus, CySEC is expected in two months to inform ESMA with it’s intended compliance. Additionally, CySEC is anticipated to update ad-hoc and periodically the Supervisory Authority to assess that the recommendations are effectively addressed.