Summary of CySEC's Circular C426
Memo #04-2021
CySEC Circular No: C426
Date: 02/02/2021
Subject: Updates for the new prudential framework of Investment Firms (IFD/IFR)
Purpose: To provide CIFs with updates regarding the IFR and IFD that will enter into force on 26/06/2021.
In Summary:
CySEC has issued the Circular C426 on 02/02/2021 to provide the Cyprus Investment Firms (the “CIFs”) with updates regarding the Investment Firms Regulation (EU) 2019/2033 (‘IFR’) and Investment Firms Directive (EU) 2019/2034 (‘IFD’) that will enter into force on 26/06/2021.
With the entry into force of IFR and IFD, all CIFs authorised under the Investment Services and Activities and Regulated Markets Law of 2017 will be subject to a new prudential regime, different and independent from the Regulation EU No. 575/2013 (CRR) and Directive DI144-2014-14 which are applicable today.
The updates provided with the Circular C426 are the following:
A. European Banking Authority (‘EBA’) published seven final draft technical standards regarding IFD/IFR
These final draft Regulatory Technical Standards (RTS), are part of the phase 1 mandates of the EBA roadmap on investment firms.
For the reason that additional final draft RTS are expected to be issued by the EBA early this year in regards to the IFR/IFD, CySEC urges all CIFs to subscribe to CySEC’s RSS Feeds so as to be notified at all times for any further updates that may be published via CySEC's website.
B. Reporting and disclosure requirements under IFR/IFD
On 4th June 2020, the EBA issued its draft Implementing Technical Standards (ITS) on reporting requirements for investment firms under Article 54(3) of IFR and on disclosures requirements under Article 49(2) of IFR.
Along with the ITS, EBA introduced a set of templates and instructions for class 2 investment firms (Annexes I and II of the Draft ITS) and a set of templates and instructions for class 3 firms (Annexes III and IV of the Draft ITS), where the supervisory reporting framework incorporates different and tailored reporting templates with different frequencies.
These templates can be found on a link on the Circular C426. CySEC notes that The EBA will issue the final version of this ITS, along with the final templates, within the upcoming weeks. CySEC further notes that upon issuance of the final version, CySEC will adopt and enhance the templates so as to publish the new forms that the CIFs will use for the calculation of their capital adequacy requirements based on IFD/IFR.
C. Launch of Consultation Papers and Public hearing by the EBA
The public consultation launched by EBA includes two (2) different Consultation Papers (‘CP’), as follows:
i. Consultation paper on draft Guidelines on sound remuneration policies for Investment Firms under Directive (EU) 2019/2034 (EBA/CP/2020/26).
ii. Consultation paper on draft Guidelines on internal governance for Investment Firms under Directive (EU) 2019/2034 (EBA/CP/2020/27)
CySEC notes that CIFs are invited to send their comments on the above EBA consultation papers by clicking on the ‘send your comments’ button which can be found on the links provided on Circular C426. The deadline for the submission of comments directly to EBA is on 17th March, 2021.
CySEC also notes that CIFs are urged to study the IFR/IFD carefully, along with the final draft RTS issued, so as to:
i. Identify the class they will be categorized at from 26th June 2021,
ii. Familiarise themselves with the new templates and the way their new capital requirement will be calculated,
iii. Identify the data needed to be collected and reported, especially in regards to the calculation of K-Factors,
iv. Review their internal records and systems and make the necessary changes to ensure that the required data for the K-Factors(i.e. assets under management, daily trading flow, clients’ orders held, etc) will be available to calculate their new capital requirements. This information should be readily available at all times.
Finally, CySEC notes that CIFs should make their own assessment on the impact that the IFR and IFD will have on their own funds, concentration risk, liquidity risk, disclosure, reporting, remuneration requirements and take the necessary early actions to ensure compliance by the date of entry into force i.e. on 26th June 2021.
The package of seven (7) final draft Regulatory Technical Standards (RTS) can be found on the following link: https://www.eba.europa.eu/sites/default/documents/files/document_library/Publications/Draft%20Technical%20Standards/2020/RTS/961461/Final%20draft%20RTS%20on%20prudential%20requirements%20for%20Investment%20Firms%20%28EBA-RTS-2020-11%29.pdf
The EBA roadmap on investment firms can be found on the following link: https://www.eba.europa.eu/sites/default/documents/files/document_library/Regulation%20and%20Policy/Investment%20firms/884436/EBA%20Roadmap%20on%20Investment%20Firms.pdf
The EBA's draft Implementing Technical Standards (ITS) on reporting requirements for investment firms under Article 54(3) of IFR and on disclosures requirements under Article 49(2) of IFR can be found on the following link: https://www.eba.europa.eu/sites/default/documents/files/document_library/Publications/Consultations/2020/CP%20on%20Reporting%20and%20disclosures%20for%20investment%20firms/884616/EBA-CP-2020-07%20CP%20on%20Reporting%20and%20disclosures%20for%20investment%20firms.pdf
Read the CySEC Circular C426
Read more news at Regulatory News
