The Cyprus Securities and Exchange Commission issued a circular today (Wednesday), updating the requirements for verifying customer identities under the country’s anti-money laundering law. The circular applies to all entities regulated by CySEC, including investment firms that offer Contracts for Difference.

Funds Returned If Verification Not Completed

Under the new rules, total deposits from a customer cannot exceed €2,000 before full verification is complete. Funds must come from a bank account in the customer’s own name. Firms must complete verification within 15 days of first contact or the initial deposit. If they do not, they must end the relationship and return all funds and any profits, after deducting losses.

“CIF entities can onboard clients who are considered low risk as per the AML assessment, while they can complete client DD and verification within 15 days of establishment of business or if deposit exceeds 2,000 EUR.” Evdokia Pitsillidou, Global Chief Risk & Compliance Officer, SALVUS, commented.

Funds cannot be frozen unless the firm files a report with the Money Laundering Reporting Authority. Customers must be informed in advance if the firm intends to apply this exception, and their consent must be obtained.

Firms are required to update their anti-money laundering procedures to reflect the new rules. Importantly, no funds can be accepted without at least initial identification and an economic profile of the client.

“The allowance seemed very good at start yet has some implications as CIF entities may not collect the DD requirements and must close client accounts on 15 days. CIF entities may remain exposed to CRS obligations for inadequate collection of data, and their systems shall flag the clients that must closed. On the other hand, this allowance permit entities to onboard low risk clients easier,” Pitsillidou added.

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CySEC Updates Rules on Client Verification

The updated rules affect how firms onboard new clients, especially when accepting early deposits. Firms are generally required to verify the identity of clients and beneficial owners before starting a business relationship or allowing any transactions. This includes collecting proof of ownership for corporate clients.

However, the law allows firms to begin a relationship before completing full verification if certain conditions are met. CySEC has now set out stricter requirements for using this exception.

ASPs Excluded from Verification Exception

Administrative Service Providers are excluded from using the exception due to their higher risk profile. They must verify identities before beginning any business relationship, unless they provide written justification explaining why early verification would disrupt operations and why the risk remains low.

CySEC has urged firms to prioritize full verification before starting any business activity. It also warned against frequent or unnecessary use of the exception.

While the circular applies broadly, the updated measures are likely to influence how CFD providers handle small deposits and monitor early-stage risks when onboarding clients.