Summary of CySEC's Circular C398
Memo #42-2020
CySEC Circular No: C398
Date: 07/07/2020
Subject: Thematic review on the inactivity fees charged by Cyprus Investment Firms
Purpose: To inform CIFs about the key findings of a review carried out of the circumstances when CIFs apply inactivity fees to clients.
In Summary:
CySEC has issued the Circular C398 on 07/07/2020 in order to inform about the key findings of a Review carried out of the circumstances that are considered by Cyprus Investment Firms (the ‘CIFs’) when applying inactivity fees to clients.
The objective of the Review was to assess the degree of CIFs’ compliance with the provisions of paragraphs 1, 3(a) and 4(a) of Article 25 of Investment Services and Activities and Regulated Markets Law (the ‘Law’) when applying an inactivity fee.For the purposes of the Review, a sample of 35 CIFs were reviewed, mostly providers of CFDs and the sample of CIFs was selected based on both the size of the CIF’s client base and the CIF’s risk.
The Review has shown that almost all CIFs that apply inactivity fees, have set out the circumstances under which a client and/or his trading account may be considered as inactive.
Additionally, the Review has indicated that a number of CIFs has taken steps to ensure that the ex-ante disclosures made to potential clients or clients regarding the inactivity fees are fair, clear and not misleading and, are provided in good time.
The Review also uncovered several areas of concern that CySEC wishes to highlight to all CIFs, despite the fact that the Review covered only a sample of CIFs.
This Cicular provides more details of the key findings of the Review that include:
• Inactivity fee circumstances
• Size of inactivity fees
• Ex-ante disclosure of inactivity fees
A number of good practices identified during the Review for the CIFs’ application of inactivity fee are also referred in this Circular.
CySEC requests all CIFs to consider whether they comply with their obligations as per paragraphs 1, (3)(a) and 4(a) of Article 25 of the Law when applying inactivity fees, and, where appropriate, to take corrective measures.
CySEC notes that all CIFs should consider the issues raised in this circular against their policies and arrangements in place in relation to their application of the inactivity fee as well as to the relevant disclosures made to potential clients or clients.
If, when reviewing the policies and arrangements in place, CIFs identify any weaknesses - they must take immediate actions to ensure compliance.
CySEC further notes that it will continue the assessment of the CIFs’ policies and arrangements relating to the inactivity fees and will consider, if deemed necessary, taking further actions. Up to today, the CySEC Board has decided to call upon a CIF to submit its written representations for the possible violation of Article 25(1) of the Law due to the unfair size of inactivity fees applied to its clients.
Read the CySEC Circular C398
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