CySEC Blows The Whistle for CIFs, While Waving a White Flag on Capital Requirements

As the regulator reminded brokerages to check on their risk policies a new law has lowered capital requirements for Cyprus

cysec_new_logo_pictureIn an announcement made today, the Cyprus Securities and Exchange Commission (CySEC) highlighted a key obligation for Cyprus Investment Firms (CIFs) in relation to their risk managing, monitoring and mitigation policies.

The regulator also reminds CIFs that the established policies must be periodically reviewed while taking into account market conditions.

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The announcement comes as an umbrella after the rain, since the industry has suffered from a substantial loss of capital in the aftermath of the Swiss National Bank’s decision to remove the Swiss franc floor.

The SNB fallout caused 24 CIFs losses to the tune of $47.9 million (€42.5 million). Back on January 17, CySEC issued an order to all Cyprus Investment Firms (CIF) to ascertain the extent of any potential damages to their respective business. Of the 182 licensed CIFs contacted, 158 of the 182 experienced no negative on their capital adequacy.

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Despite the losses, the affected 24 CIFs maintained the requisite equity and capital adequacy ratio above the minimum, as stipulated by CySEC law.

Coincidentally authorities in Cyprus picked a bad time to reduce capital requirements for brokerages. According to a new directive, the operation of regulated markets and other related matters has been amended and under the provisions of the amended law, the minimum-capital initial requirements for CIFs have been reduced.

CIFs who are market makers will have a minimum-capital requirement totalling €730,000, down from €1,000,000. Brokers who are safeguarding clients’ funds will need to set aside €125,000, down from €200,000, while brokers which are not safeguarding clients’ funds will need to put down €50,000 instead of €80,000.

The move will exacerbate the backlash against MiFID passporting by FCA regulated brokers and is likely to lead to intensified discussions about the matter.

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