CySEC’s Karatzias: €6m fines in the past three years – 12% rise in regulated entities

The Cyprus Securities and Exchange Commission (CySEC) has imposed administrative fines totalling €6m on Cyprus-based firms over the past three years for failure to comply with its stringent supervisory framework, as it continues to step up its regulatory reach and authority to ensure Cyprus is a credible and reliable investment destination, and that its investors are fully protected.

And even with these strict regulations and a difficult financial environment brought on by external factors, the number of CySEC-regulated entities has increased 12% over the past four years alone.

CySEC’s Vice Chairman, George Karatzias, told a media briefing: “Despite the difficult financial environment, mainly due to external factors, over the past four years, the number of regulated entities recorded a 12% increase, which indicates that Cyprus continues to have substantive advantages as an investment destination”.

Over the past three years, CySEC has imposed administrative fines totalling €6m, of which €5.3m was against CIFs for violation of the Investment Services and Activities and Regulated Markets Laws of 2017. One CIF alone was fined €1m.

“I would like to stress that the fines are not a means to an end. Our goal is to ensure the full compliance of the regulated entities with their obligations under the institutional framework,” Karatzias said.

And so, he added, there are instances where the individuals responsible for the CIF’s failure to comply are found liable, with a number of such cases currently under review.

Moreover, CySEC has rejected applications to license a CIF, revoked licences until measures are taken by the CIF to comply, or even revoked a CIF’s licence. It also recommends corrective measures to CIFs to improve their internal procedures, regulations and practices, to ensure their full compliance with their legal obligations.

According to Karatzias, the number of CySEC-regulated entities has increased from 746 in 2019 to 837 at present, with another 90 new applications currently under review.

“The investment services sector, despite the constant challenges in the financial environment, continues to grow at a steady rate, contributing positively to the broader financial services sector and the Cyprus economy,” said Karatzias. “CySEC continues to enrich the sector with new legal regulations, to ensure investor protection as well as the uninterrupted operation and growth of the market through the provision of new investment products. As such, Cyprus’ regulatory and supervisory framework is fully aligned with the rest of the European Union.”

Of the 847 entities currently under regulation, 252 are Cyprus Investment Firms (CIFs) which provide investment services ranging from managing portfolios and providing investment advisory services to taking, conveying and executing orders of various financial products, such as shares, securities and derivatives.

“Another significant part of CySEC’s supervisory authority is the collective investment and asset management sector through the modernisation of the institutional framework, as these investments are an alternative source of financing for the Cyprus economy,” Karatzias explained.

There are currently 322 Registered Alternative Investment Funds (RAIFs) under CySEC’s supervision, managing capital in excess of €10.7b.

CySEC now also regulates and supervises crowdfunding providers, who can now provide their services from the Republic of Cyprus to the rest of Europe, based on the EU regulation 2020/1503. On top, a bill is about to be submitted to the House to regulate fund administrators.

CySEC also supervises the Cyprus Stock Exchange and the Multilateral Trading Facility (MTF), more commonly known as the CSE’s Emerging Companies Market.

It supervises 52 CSE-listed companies as well as 11 issuers that trade in other stock markets abroad, ensuring they comply with the laws on transparency, reporting and acquisition proposals.

Furthermore, the Commission supervises 135 Administrative Service Providers under the anti-money laundering and counter terrorist financing (AML/CTF) laws.

And it manages the Cyprus Trusts Beneficial Owners Registry – aka CyTBOR – while it recently became the national supervisor for providers of the Pan-European Pension Product (PEPP).

CySEC will also soon be managing European Long Term Investment Funds (ELTIF), in line with the EU’s ELTIF Regulation that was published in the Official Journal of the European Union back in March 2023. “This specific regulation involves standard AIFs that finance infrastructure projects, including energy projects which is of interest to Cyprus,” Karatzias explained. “The regulations bypass restrictions regarding supply and demand, and specify the range of eligible assets and investments, the composition of the portfolio and the diversification requirements, lending conditions and other capital regulations, including sustainability factors. The amendments will also facilitate private investors to invest in ELTIFs, while at the same time ensuring they are adequately protected.”

One very important aspect of CySEC’s work is of course rapidly advancing technology. “Technology is one of the biggest challenges, which is why CySEC continues to invest in proactive supervision, utilising a number of specialised systems that allow it to keep up with the sector’s rapid digitisation,” said Karatzias. In addition, the commission has invested in automating its procedures, human resources and supervision systems to ensure it is efficient and effective.

It recently acquired a specialised system that monitors the online marketing material and social media activity of CIFs, which according to Karatzias enables CySEC officers to check ads and other marketing material as well as social media posts of its regulated entities, in an easy, swift and effective manner, in multiple languages.

As regards its supervision, Karatzias explained that implementing the Risk-based Supervisory Framework has significantly upgraded CySEC’s supervision. With the system, regulated entities fall under one of four categories: High Risk, Medium to High Risk, Medium to Low Risk and Low Risk.

As for the investors themselves, one of CySEC’s main strategic goals is to promote financial literacy and raise awareness among investors. It issues public warnings and participates in or organises campaigns to inform and protect investors, through its website and social media channels.

“I would like to stress that CySEC closely monitors and actively participates in the decision making centres at a European level, making Cyprus a safe, responsible and competitive destination for the provision of investment services worldwide,” Karatzias pointed out. “Our aim is for CySEC to act proactively, prevent potential threats, and ensure the smooth operation of the market, and for the severity of its decisions to reflect the importance it attributes to investor protection and the sector’s credibility.”