We need more people to continue to be a successful regulator, says CySEC Chairman

One of the key takeaways from the press conference called by the Cyprus Exchange and Commission (CySEC), in the context of accountability and transparency, was that it needs a significant boost in its human capital to remain a competent authority in an ever-growing market.

By the end of 2022, the number of supervised entities had risen to 837 (up from 806 in 2021) an increase of 3.9%, while approximately 100 new applications are under review pending licensing, with the sector now employing over 19,000 professionals. Indeed, last May, the European Securities and Markets Authority (ESMA) – the EU’s securities markets regulator – made a recommendation to CySEC to increase its human resources, particularly in the supervision of cross-border services of Cypriot investment firms. According to CySEC Chairman, Dr George Theocharides, the regulator now employs 153 people, with another 50 coming in during the summer of 2023. However, he stressed, more positions need to be filled.

Sector development

During the press conference, Dr Theocharides also noted that the regulator's supervisory role will expand as two new groups of supervised entities now fall under its authority, further evidence of the pressing need to increase the regulator's human capital. First, the European Crowdfunding Service Providers (ECSPs) can now provide pan-European services from Cyprus under the European Regulation 2020/1503. Second, the Providers of Pan-European Personal Pension products (PEPP), which stems from European Regulation 2019/1238 – in November 2022, CySEC was appointed by the Ministry of Finance as one of the authorities for examining, evaluating, and approving applications.

Supervisory activities

During 2022, the Supervision Department carried out 359 remote, thematic and on-site inspections of Cyprus Investment Firms (CIFs), as well as monitoring the implementation of requirements for reporting transactions/derivatives contracts. Additionally, it conducted 119 remote document inspections and the monitoring of the requirements for Collective Investment Institutions. Also, in the same year, the Department continued to monitor the online marketing practices of CIFs through its specialised system, which allows it to collect and analyse information in relation to them. According to Dr Theocharides, it concluded the evaluation of advertising material of more than 10 CIFs, and potential violations have been identified from the findings. The CIFs were asked to make the necessary modifications to comply with the legislative framework that governs them. Additionally, the advertising material of another 37 CIFs is under examination.

The Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) Department has completed on-site inspections of 14 supervised entities and is in the process of a further 15 inspections, for which possible violations of existing legislation may be identified.

The Department of Market Surveillance and Investigations conducted 15 raids, completed 39 investigations, and had 48 further investigations in progress by the end of 2022.

Following Russia's military intervention in Ukraine and the restrictive measures taken by the Council of the European Union against Russia, the supervisory departments of CySEC are closely monitoring developments, calling on supervised entities to submit information regarding business relationships with individuals subject to sanctions.

In 2022, CySEC imposed administrative fines totalling approximately €2.9 million, of which the overwhelming majority related to fines and settlements for CIFs. In the past two years, administrative fines of over €4.2 million have been imposed, of which over €3.6 million stemmed from CIFs. Over the past 10 years, CySEC has imposed fines and settlements totalling €34.2 million.

Tech upgrades

As part of its efforts to stay ahead of an increasingly digitised market, in 2023, CySEC will advance the processes for creating a control and management system for licensing applications. With the completion of the system, all applications for licensing of supervised entities will be submitted electronically, as well as any changes submitted periodically by the supervised entities, such as the members of their Board of Directors.

The development of an online portal for the registration and examination process to obtain CySEC certification is also underway. Through the portal, certified individuals will have the ability, using a code, to electronically manage all the information concerning their certification and to apply for renewal and re-registration in the records for which they are certified.

Regarding preventive supervision, in 2022, new upgrades were made to the Risk-Based Supervision Framework (RBS-F) system (essentially, a taxonomy of risk), in order to take into account all the developments and changes that may pose risks to the market. Also, as part of the expansion of the RBS-F with the integration of risk indicators regarding sustainable investments (ESG factors and climate-related risks), a request has been submitted to The Directorate-General for Structural Reform Support of the European Union (DG REFORM) in the provision of technical assistance programme for 2023 (TSI 2023).

Completion of the Enterprise Risk Management Framework (‘The ERM-F’), which started in 2020, is also expected during the course of 2023.

In 2022, CySEC also acquired the innovative reporting and analysis platform Power BI.

Dr Theocharides referred to the new European legislative regulations concerning the Sector saying that, by 2023, CySEC will issue a Policy Statement finalising the rules for the process of remote customer identification through innovative technological methods.

Investor education

Finally, Dr Theocharides mentioned that investor training and education are given great importance by the regulator, which includes an online quiz on investment knowledge, and a comprehensive research to better understand investor habits and behaviours. Interestingly, the research showed a worrying reliance on the so-called 'finfluencers' – social media personas that offer information and advice on investments. What is more, in the context of promoting financial education, CySEC established an annual award for two university students with a cash prize of €1,000.