The Investment Services and Activities and Regulated Markets
Law, Law 144(I) of 2007, requires Cyprus Investment Firms
("CIFs") that hold clients' funds to take every
possible measure to protect their clients' interests. The
Cyprus Securities and Exchange Commission ("CySEC") has
issued detailed guidance to CIFs regarding these obligations in its
Directive DI144-2007-01 of 2012, which requires CIFs to have
adequate arrangements in place to minimize the risk of the loss or
diminution of clients' assets, as a result of misuse, fraud,
poor administration, inadequate record keeping or negligence.
CySEC has recently issued a circular reminding CIFs that maintain a
merchant account for the clearing or settlement of payment
transactions that any such merchant account must be completely
segregated and may not be used by anyone other than the CIF. In no
circumstances may CIFs' merchant accounts be used by connected
persons or third parties, as this does not provide the required
degree of segregation and protection of client funds.
CIFs must ensure that clients' funds are transferred to
clients' bank accounts immediately after the clearing or
settlement of the relevant transactions.
In order to minimise the risk of loss, CIFs must exercise all due
skill, care and diligence in the selection and periodic review of
the payment service providers with whom merchant accounts are
maintained. Only payment service providers licensed and regulated
by a competent authority of an EU Member State or of a third
country applying the same standards are to be used. For purposes of
transparency CIFs should include on their website a list of the
payment service providers they use and the relevant supervisory
authority. In their assessments of capital adequacy and large
exposures, CIFs are required to apply the provisions of the
relevant CySEC Directive and EU regulation to any balances they
have with payment service providers. The circular notes that
payment service providers do not fall under the definition of
institutions as defined in article 4(3) of Regulation (EU)
575/2013.
CIFs that are not currently complying with these requirements are
required to take corrective measures as soon as possible and in any
event no later than 12 March 2015.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
