The Cyprus Securities and Exchange Commission (CySEC) is once again on the wires today with another new announcement. The regulator is proposing a new legislative framework that governs the Cyprus Investment Firm (CIF) Investor Compensation Fund (ICF) in the country.
A ‘universal change’ in the operation of the fund is being proposed with an amendment to the annual contribution which companies are making to the fund. ICF members are being notified about a period of consultation.
A study has been commissioned by the regulator to assess what the necessary requirements for the fund to withstand adverse scenarios will be. CySEC is also exploring the split of the ICF in two categories related to specific members. A possible limit on the extraordinary contributions which firms may be required to submit is also on the line.
The changes come as CySEC highlights that “the sector in which a large part of ICF members operate poses increased risks.”
“The covered funds and the financial instruments of ICF members show an upward trend in recent years, while raising funds from member contributions is disproportionally lower, due to several restrictive factors included in the legal framework of operation of the ICF currently in force,” the consultation paper on the matter states.
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Higher Contributions for Brokers are Very Likely
CySEC outlines in the newly issued consultation paper that CIFs are likely to face increased contributions to the ICF. In addition the regulator says that the operational costs of the facility are also likely to increase due to the higher number of members of the compensation scheme.
Notably, CySEC highlights that the initial contribution to the ICF is very low and companies that do not hold client funds or assets might also be required to chip in.
The step should be welcomed by the industry as CySEC is materially increasing pressure on the industry to adhere to the European regulatory framework. While the costs of operation for brokerages will be somewhat higher, the consultation period which CySEC is giving to regulated companies should be enough to ascertain acceptable levels of contributions.
The full text of CySEC’s consultation paper follows below: