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INVESTMENT FIRMS-REGULATED MARKETS - FAQs
 
Question Number: 1
  Relevant Provisions: General - Law 144(Ι)/2007
  Issue: Spot foreign currencies transactions
  Question: Do the spot foreign currencies transactions fall into the ambits of the Law 144(I)/2007)?
  Answer: No. The provision of this service is licensed and supervised by the Central Bank of Cyprus.
   
Question Number: 2
  Relevant Provisions: Section 11 - Law 144(I)/2007
  Issue: Memorandum of Association amendment
  Question: Does a CIF that intends to amend its Memorandum of Association need the prior approval of the Cyprus Securities and Exchange Commission?
  Answer: No, the prior approval of the Cyprus Securities and Exchange Commission is not required. The CIF has to submit to the Commission a certified copy of its amended Memorandum of Association after the issuance of a court order.
   
Question Number: 3
  Relevant Provisions: Section 21(5) - Law 144(I)/2007
  Issue: Use of initial capital
  Question: Is it possible the amount blocked in a bank account, pursuant to section 21(5) of the Law 144(I)/2007, for the payment of the issued share capital, to be used after the granting of a CIF authorisation or are there any restrictions?
  Answer:

Yes it is possible and there aren’t any restrictions but the CIF is urged, before to do this, to take into account the provisions of the Directive DI144-2007-05 re the capital adequacy of IFs and the fact that the use of the amount will not be in a way that will be considered as the conducting of an activity as a regular business on a professional basis.

   
Question Number: 4
  Relevant Provisions: Section 36(1)(e) – Law 144(I)/2007 and paragraph 17 – DI144-2007-02
  Issue: Warrants and Rights – Appropriateness test – complex financial instruments
  Question: Do you consider warrants and rights as complex financial instruments?
  Answer: Warrants and rights are financial instruments falling under paragraph (c) of the definition ‘transferable securities’, section 2(1) of the Law 144(I)/2007. Therefore, they are considered as complex financial instruments according to paragraph 17 of the Directive DI144-2007/02.
   
Question Number: 5
  Relevant Provisions: Section 45(1) - Law 144(Ι)/2007
  Issue: Transaction Reporting of instruments
  Question: Do I have to report transactions that I execute on commodity, foreign and interest rate derivatives?
  Answer:

According to the public statement of CESR ‘New Arrangements for the reporting of derivatives in accordance with MiFID’ (CESR/07-627b, http://www.cesr-eu.org/popup2.php?id=4824) transaction reports on commodity, foreign and interest rate derivatives or in any other non-security derivatives would be made by the regulated market, on which the trading was done, to the regulatory authority responsible for that market. Therefore, IFs that execute transactions in these financial instruments will not be required to make transaction reports in these instruments to the Cyprus Securities and Exchange Commission.

   
Question Number: 6
  Relevant Provisions: Section 45(I) - Law 144(Ι)/2007
  Issue: Transaction Reporting by branches
  Question: In case of a branch established in the Republic by an investment firm licensed by a competent authority of another member state, which transactions should be reported to the Cyprus Securities and Exchange Commission?
  Answer: According to section 45(1) of the Law 144(I)/2007, the branch has the obligation to report to the Cyprus Securities and Exchange Commission details of all transactions executed by it in any financial instrument admitted to trading on a regulated market, as quickly as possible an no later than the close of the following working day.

More specifically, taking into account the ‘CESR Level 3 Guidelines on MiFID Transaction reporting’ (Ref: CESR/07-301), all transactions executed by a branch where the service is provided within the territory of the Republic should be reported to the Cyprus Securities and Exchange Commission whereas other transactions executed by the branch (outside of the territories of the Republic) should be reported to the competent authority of the home member state of the investment firm.

 

However, CESR recognizes that from a practical point of view, it would be burdensome for branches of investment firms to be obliged to report their transactions to two competent authorities. Therefore, all transactions executed by the branch, could be reported to the Cyprus Securities and Exchange Commission if the investment firm elects to do so. In this case, transaction reports should follow the rules of the Cyprus Securities and Exchange Commission. However, where an investment firm chooses to use two reporting channels, as stated in the previous paragraph, this choice will not be challenged by the Cyprus Securities and Exchange Commission.

   
Question Number: 7
  Relevant Provisions: Article 5 - Regulation 1287/2006
  Issue: Transaction Reporting
  Question: What is a transaction?
  Answer: The meaning of the term ‘transaction’ is outlined in article 5 of the Commission Regulation (EC) No 1287/2006 as ‘the purchase and sale of a financial instrument’.
   
Question Number: 8
  Relevant Provisions: Section 41(1) – Law 144(I)/2007
  Issue: Transactions of a CIF with an eligible counterparty
  Question: Can a CIF take advantage of the provisions of section 41(1) of Law 144(I)/2007, when dealing with a client who can be categorised as “eligible counterparty” (as this term is defined is section 41(2) of Law 144(I)/2007) in order to avoid the application of sections 36,38 and 39(1) when (a) providing only custody services or (b) when providing such ancillary service in combination with (i) the reception & transmission of orders, execution of orders, dealing on own account &/ or (ii) portfolio management to such client?
  Answer: From the reading of section 41(1) of Law 144(I)/2007, it can be derived that a CIF which is authorized to receive and transmit orders and/or to execute orders on behalf of clients and/or to deal on own account, may bring about or enter into transactions with eligible counterparties without being obliged to comply with the obligations under sections 36, 38 and subsection (1) of section 39:
a) when providing only custody services, provided that these custody services can be considered as directly related to the transactions between the relevant CIF and its eligible counterparty regarding reception and transmission of orders, execution of orders and/or dealing on own account and b) when providing custody services in combination with the reception and transmission of orders, execution of orders and/or dealing on own account.
It is noted though that the eligible counterparty category only applies in relation to the services identified in section 41(1) of Law 144(I)/2007, i.e. reception and transmission of orders, execution of orders and dealing on own account. It does not apply in a situation of portfolio management. Hence, a CIF cannot take advantage of the provisions of section 41(1) of Law 144(I)/2007 when providing custody services to an eligible counterparty in combination with portfolio management to such an eligible counterparty.
   
Question Number: 9
  Relevant Provisions: Section 3(2)(d) - Law 144(I)/2007
  Issue: Εxemption - group activities
  Question: Is Law 144(I)/2007 applicable or to what extent are the rules applicable for a CIF which provides services solely to entities within the same Group?
  Answer: Section 3(2)(d) of Law 144(I)/2007 states that persons which provide investment services exclusively for their parent undertakings, for their subsidiaries or for other subsidiaries of their parent undertakings, are outside the scope and application of the Law and therefore do not need to acquire a license from CySEC.
   
Question Number: 10
  Relevant Provisions: Section 3(2)(d) - Law 144(I)/2007
  Issue: exemption - group activities (2)
  Question: Does the exemption of section 3(2)(d) of Law 144(1)/2007 extend to the provision of investment services to clients of the parent undertaking?
  Answer: The exemption of article 3(2)(d) does not extend to the provision of investment services to clients of the parent undertaking. i.e. the exemption of section 3(2)(d) does not apply to the situation where a Cyprus-registered company is providing investment services to the clients of the parent undertaking.
   
Question Number: 11
  Relevant Provisions: Section 114 - Law 144(I)/2007
  Issue: Group financial accounts
  Question: Should CIFs belonging to the same group of companies submit their audited financial accounts on a solo or on a consolidated basis under section 114 of Law 144(I)/2007?
  Answer: Section 144 provides that CIFs must submit to CySEC those financial accounts that the CIFs are obliged to issue in accordance with the applicable accounting standards and rules. If, under the applicable accounting standards those group companies are obliged to issue consolidated financial statements then those are the ones that need to be submitted to CySEC.
   
Question Number: 12
  Relevant Provisions: Section 2 - Law 144(I)/2007
  Issue: Tied agent
  Question: Does an entity not established in a Member State fall within the definition of the term «tied agent»
  Answer: An entity which is not established in a Member State does not fall under the definition of the term “tied agent”.
   
Question Number: 13
  Relevant Provisions: Section 22- Law 144(I)/2007
  Issue: Timeframe for obtaining CIF authorisation
  Question: How long does it take to obtain Cyprus Investment Firm authorization (CIF license) from CySEC?
  Answer: CySEC has to approve or reject an application for obtaining Cyprus Investment Firm authorization (CIF license) within, maximum, six months from the submission of a duly completed application.
   
Question Number: 14
  Relevant Provisions: Section 45(1) - Law 144(I)/2007
  Issue: Repurchase Agreements (REPO) – reporting obligations
  Question: Do Repurchase Agreements (REPO) (also known as sale and repurchase agreements) fall under Section 45(1) of Law 144(I)/2007?
  Answer: Repurchase agreement ( REPO) transactions do not fall under Section 45(1) of the LAW 144(I)/2007 since according to article 5 of the Commission Regulation 1287/2006, for the purposes of the Regulation, securities financing transactions (including REPOs) are excluded from the definition of ‘transaction’. Similarly, in CESR’s Guidelines on transaction reporting, (CESR/07-301) securities financing transactions are excluded from the transactions that should be reported to the competent authorities.
   
Question Number: 15
  Relevant Provisions: Section 2 – “Investment Services and Activities”
  Issue: Introducers / Introducing Brokers
  Question: (a) Are introducers who merely put clients in touch with other investment firms considered to be receiving and transmitting orders? (b) Is the answer different if the introducers are receiving a commission fee from the investment firms for the introductory services provided to them?
  Answer: (a) No. If all they do is introduce others to investment firms so that they can provide investment services to those clients, this in itself does not bring about a transaction and so will not amount to receiving and transmitting orders. But if these introducers do more than merely introduce, for example introducing brokers, they are likely to be receiving orders on behalf of their clients and transmitting these to clearing firms and therefore may fall within the scope of LAW 144(I)/2007. (b) The mere fact of obtaining a commission fee from the investment firms for the introductory services provided to them does not in itself bring about a transaction and so will not amount to receiving and transmitting orders.
   
Question Number: 16
  Relevant Provisions: Part III of the Third Appendix - Law 144(I)/2007 - “financial instruments”
  Issue: Binary Options
  Question: Are binary options regulated by CySEC?
  Answer:

As of May 3rd 2012, following a review at European level of how binary options are classified and regulated in other EU member-states, CySEC has decided to include binary options in the list of financial instruments that fall within the remit of the Investment Services and Activities and Regulated Markets Law of 2007-2009 (the ‘Law’). For more details please see CySEC’s announcement of 3/5/2012 posted, in English, here and in Greek here.

   
Question Number: 17
  Relevant Provisions: Article 18 (2) (d) of Law 144(I)/2007
  Issue: Outsourcing
  Question: Is it possible for a CIF to outsource activities to a third party?
  Answer: Yes, it is possible for a CIF to outsource activities to a third party. In fact, a CIF may outsource to third party the performance of investment services or activities or operational functions which would otherwise be undertaken by the CIF itself. Article 18(2) (d) of Law 144(I)/2007 provides that when a CIF relies on a third party for the performance of investment services or activities or operational functions which are critical for the provision of continuous and satisfactory service to clients and the performance of investment activities on a continuous and satisfactory basis, the CIF must take reasonable steps to avoid undue additional operational risk. Outsourcing must not be undertaken in such a way as to materially impair the quality of its internal control and the ability of CySEC to monitor the CIF's compliance with all its obligations.
Furthermore, paragraph 16(1) of Directive 144-2007-01 of 2011 explicitly states that where a CIF outsource critical or important operational functions or any investment services or activities, the CIF remains fully responsible for discharging all of its responsibility under Law 144(I)/2007. In particular, outsourcing arrangements must not result in the delegation by senior management of its responsibility, and must not alter the relationship and obligations of the firm towards its clients.
   
Question Number: 18
  Relevant Provisions: Paragraph 16 of Directive 144-2007-01 of 2011
  Issue: Outsourcing
  Question: What are the conditions for outsourcing critical or important operational functions or investment services or activities that need to be fulfilled?
  Answer: The conditions that need to be fulfilled are outlined in paragraph 16 of Directive 144-2007-01 of 2011. Amongst other things, the CIF must ensure that the service provider (i.e. the third party that has been outsourced with the specific functions) has the ability, capacity, and any authorisation required by law to perform the outsourced functions, services or activities reliably and professionally.
CySEC may, at its absolute discretion, not allow the outsourcing of a service/function where it believes that the conditions for outsourcing outlined in paragraph 16 of Directive 144-2007-01 of 2011 are not being fulfilled or in case where the outsourcing materially impairs the quality of the CIF’s internal control and the ability of CySEC to monitor the CIF's compliance with all its obligations under Law 144(I)/2007.
   
Question Number: 19
  Relevant Provisions: General
  Issue: Directors of a Cyprus Investment Firm (CIF) - executive and non-executive Directors
  Question: Is there a distinction between executive and non-executive directors of a CIF?
  Answer: No. There is no distinction between executive and non-executive directors under Law 144(I)/2007(the “Law”). All members of the board of directors of a CIF have the same duties and responsibilities (whether they are executives or non executives) and must fulfil the criteria set out in section 12 of the Law.
   
Question Number: 20
  Relevant Provisions: General
  Issue: Nominee Directors
  Question: Are nominee directors treated differently under Law 144(I)/2007?
  Answer: No. The concept of nominee director is not recognised under Law 144(I)/2007. Nominee directors have the same duties and responsibilities as all members of the board of directors of a CIF.
   
Question Number: 21
  Relevant Provisions: Section 21(5) of Law 144(I)/2007 and Directive DI144-2007-05
  Issue: Share Capital
  Question: According to section 21(5) of Law 144(I)/2007, when CySEC is at the final stage of assessment of the application for the granting of a CIF authorisation, it shall demand from the applicant, for the submission of a confirmation by one or more member states' credit institutions, in which it shall be stated that the entire initial capital required according to this Law is blocked in a bank account held by the aforementioned institution or institutions, and that it will remain blocked until the CIF authorisation is granted.(i) Can this deposited amount be in the form of shares or EDR (European Depository Receipts)? (ii) Can the applicant take this amount as a loan from a credit institution/bank?
  Answer: (i) The deposited amount representing the applicant’s initial share capital can be in the form of shares or EDRs only if such shares or EDRs can be readily valued and liquidated in cash. This is important since, as of day one of its operation, the CIF will have to comply with the capital adequacy requirements (Directive DI144-2007-05).
(ii) The applicant cannot take the amount of its initial capital as a loan from a credit institution/bank. The initial capital must be injected in the company by the shareholders and not by the company itself. However, the shareholders are free to obtain this sum in any way they want including by obtaining personal loans from a Bank.
   
Question Number: 22
  Relevant Provisions: Part III of Law 144(I)/2007 and Directives DI144-2007-01 of 2011, DI144-2007-03 of 2011 and DI144-2007-03(A) of 2011
  Issue: Granting of a CIF authorization
  Question: What is the application procedure for obtaining CIF authorisation from CySEC?
  Answer: The relevant applicable law for CIF licensing is Law 144(I)/2007 and the Directives issued pursuant to Law 144(I)/2007 and the Directives issued under Law 144(I)/2007. Of relevant importance with regards to the granting of a CIF authorization is Part III of Law 144(I)/2007 which outlines the conditions for granting CIF authorization and Directives DI144-2007-01, DI144-2007-03, DI144-2007-03(A) of 2011 and DI144-2007-03(A) of 2012 (posted on http://www.cysec.gov.cy/legal_framework_en.) Furthermore, attention should also be given to Part V of Law 144(I)/2007 which outlines the CIF operating conditions and the continuous CIF obligations.
CySEC has to approve or reject an application for obtaining Cyprus Investment Firm authorization (CIF license) within, maximum, six months from the submission of a duly completed application.
The application for granting CIF authorisation must be accompanied by the relevant fee as set out in Part I of Directive DI144-2007-04 of 2011 and Directive DI144-2007-04A of 2012.
   
Question Number: 23
  Relevant Provisions: General
  Issue: Execution of orders on behalf of clients (Third Appendix, Part I)
  Question: When is a CIF considered to be providing the investment service of executing orders on behalf of clients? Is the mere transmission of orders to third parties for execution considered to be “executing orders on behalf of clients”?
  Answer: The CIF must participate in the execution of an order on behalf of its client (i.e. conclude the agreement to buy or sell the financial instrument) in order to be considered as providing the said investment service. A CIF is considered to be executing orders on behalf of clients either when dealing in investments as agent (i.e. by entering into an agreement to buy or sell a financial instrument in the name of its client or in its own name, but on behalf of its client) or, in some cases, by dealing in investments as principle (i.e. by back to back or riskless principal trading).
Merely arranging the relevant deal (i.e. by transmitting an order to a third person for execution) will not amount to providing the investment services of executing orders on behalf of clients or dealing on own account. Moreover, the third parties to whom the orders are being transmitted are not considered to be executing orders on behalf of their clients.
   
Question Number: 24
  Relevant Provisions: Section 18(2)(j) of Law 144(I)/2007
  Issue: Clients’ money
  Question: Can a CIF use clients’ money for securing or otherwise covering present or future, actual or contingent or prospective obligations, such as margin?
  Answer:

According to section 18(2)(j) of Law 144(I)/2007, when holding funds belonging to clients, a CIF must make adequate arrangements to safeguard the clients’ rights and, except in the case of credit institutions, prevent the use of client funds for its own account.

The whole issue revolves around the question as to whether the margin should be considered clients’ money. As long as the margin is in the clients’ account, in effect, the parties agree that it is clients’ money.

However, the CIF could have the following arrangement with the client, in order to be able to use the margin:

(a) The margin could be transferred by the client to the CIF outright, in other words, the margin will leave the clients’ account and will be transferred to the account of the CIF to be kept by the latter as security and be returned by the CIF to the client on the completion of the trades.

(b) In this case the margin will be considered as a debt due by the CIF to the client and not as clients’ money and, therefore, it could be used by the CIF subject to the repayment obligation.

In other words, at the end of the day, the matter is one of an agreement between the parties. Such agreement should always be clearly and explicitly documented.

   
Question Number: 25
  Relevant Provisions: Section 76(1) and Section 24 of Law 144(I)/2007
  Issue: Establishing a branch of a CIF in another Member State/ Provision of services by a branch
  Question: Is it possible for most of the services to be provided by a CIF to be carried out by its branch established in another Member State? The branch is intended to become the major business center of the CIF in question.
  Answer: According to section 76(1) of Law 144(I)/2007, “a CIF may provide investment and ancillary services or/and perform investment activities through the establishment of a branch the territory of another member state or/and a third country, provided that these services or/and activities are covered by the authorisation granted to the CIF. Ancillary services may only be provided together with an investment service or/and activity.” Consequently, the branch can only provide those services that the CIF is authorised to provide.
However, according to section 24 of Law 144(I)/2007, a CIF authorisation will lapse where the CIF does not make use of its authorisation within twelve months from the date of its issue or where a CIF has not provided investment services or/and performed investment activities for the preceding six months. Moreover, it is also provided that if the CIF partially uses its authorisation, the authorisation will lapse with regards to those services or/and activities for which the authorisation has not been used.
As a result of the above, if the CIF does not make use (itself and not the branch), of its authorisation within twelve months from the date of its issue or has not provided (itself and not its branch) investment services or/and performed investment activities for the preceding six months, the CIF’s authorisation will lapse. It is therefore not possible for services to be provided by the branch alone because if such services are not also carried out by the CIF itself, then the CIF’s authorisation to provide those services will lapse (either within 12 months from the date that the authorisation was granted, if the service was never provided or if the services was not provided for a period of six months) and hence the branch cannot carry those.
   
Question Number: 26
  Relevant Provisions: Directive DI144-2007-01 of 2011
  Issue: Internal auditors – requirements
  Question: Could a chartered certified account with a license to undertake external audits be able to engage in internal audits of a CIF and make reports to Cysec? Could a properly qualified internal auditor be a related party to a client (e.g. the broker) or should he be an independent person?
  Answer: Directive DI144-2007-01 of 2011 outlines the duties of internal auditors. In practice there are no codified requirements for the internal auditor. They are reviewed on a case by case basis by Cysec. The internal auditor can be an employee of the CIF or an external consultant. If the appointment is outsourced to an external corporation, then the CIF must name the person from that corporation that will be in charge and or carry out the duties of the internal auditor.
   
Question Number: 27
  Relevant Provisions: Proposed Directive for the certification of employees of Investment Firms and Credit Institutions and the public register of certified persons
  Issue: Certification of persons employed by a CIF
  Question: How would the new proposed Directive for the certification of employees of Investment Firms and Credit Institutions and the public register of certified persons, affect the future validation of professional certificates from other financial authorities?
  Answer: The general part of the exams under the old regime, corresponds to the two exams (basic and advanced certification) under the new regime (paragraphs 5 and 9 of the proposed directive).

The purpose of the registration in the public registry (as to the basic and advanced certification) is to provide assurance to the supervisory authorities that the employees of Investment Firms have sufficient knowledge of the legal framework in Cyprus, under which they will be called to perform their specific duties.

Basic certification, as in basic knowledge of the legal framework (for the investment services of paragraph 4(1) -reception and transmission of orders - and paragraph 4(2) -execution of orders) and advanced certification, as in advanced knowledge of the legal framework (for all investment services/activities).

Under the new regime there would be no specific exams for each investment service/ activity.

According to paragraph 20 of the proposed Directive, if a person has passed the general part of the exams under the old regime (in the previous two sittings of December 2010 and June 2011), he/she will be registered in the public registry as a certified person for the basic certification under the proposed new regime which gives him/her the right to carry out the investment services of paragraph 4(1) reception and transmission of orders) and paragraph 4(2) (execution of orders), provided that the Investment Firm has ensured that he/she fulfills the requirements of the Cyprus Securities and Exchange Commission (CySEC) Guidelines issued to Investment Firms on 17/5/2012.

Passing the advanced examination gives the right to candidates to carry out all investment services/activities provided again, that the Investment Firm has ensured that they fulfill the requirements of the CySEC’s Guidelines.

The CySEC Guidelines to Investment Firms, mentioned above, outline the procedures that Investment Firms should have in place when recruiting employees to provide investment or ancillary services or investment activities, stipulating, among other things, the minimum qualifications (academic/professional) that the employees should possess in addition to their registration in the public register of certified persons. The qualifications mentioned in the said Guidelines, are in line with the qualifications of the Notification of the Minister of Finance (ΚΔΠ 217/2008), which were required until now under the old regime.
   
Question Number: 28
  Relevant Provisions: Article 2(1) and Third Appendix of Law 144(I)/2007
  Issue: Automatic execution of trade signals
  Question: A service provider is interested in setting up a website which will give its clients the opportunity to choose one or more third parties that provide trade signals which are listed on the website. Once the client chooses a signal provider and authorises the service provider to automatically transmit orders on its behalf, the service provider transforms each individual signal received into a buy or sell order to be executed by the service provider itself or transmitted the orders for execution to another firm, without further intervention from the client. Does the above activity constitute an investment service or activity under Law 144(I)/2007? If yes, then which one of the investment services and activities of Third Appendix, Part I of Law 144(I)/2007 does this fall under?
  Answer: Relevant answer to the above question has been issued by ESMA (June 2012) on the following link http://www.esma.europa.eu/system/files/2012-382.pdf

Article 2(1) of Law 144(I)/2007 defines ‘portfolio management’ as “managing portfolios in accordance with mandates given by clients on a discretionary client-by-client basis where such portfolios include one or more financial instruments”. This investment service is characterised by the fact that investment decisions are implemented without any intervention being necessary by the client other than the conclusion of an agreement (‘mandate’) between the service provider and the client on the nature and details of the discretionary service to be provided.

In light of this feature, where the service described in the question is provided in relation to any of the financial instruments outlined in Annex I, Part III of Law 144(I)/2007, it requires a CIF authorisation under Law 144(I)/2007- in particular, in relation to portfolio management. In the model described, the service provider exercises investment discretion by automatically executing the trade signals of third parties.

Where the client sets certain trading parameters such as the amount of money he wishes to invest or is prepared to lose, this will not affect the characterisation of the service as portfolio management.

On the contrary, where no automatic order execution occurs because client action is required prior to each transaction being executed, the activity performed will not amount to portfolio management and, depending on the interaction with the client, other investment services may still be relevant (e.g. investment advice in the case of personal recommendations, or reception and transmission or execution of orders).

Examples of such situations where the investment decisions are taken by the client himself rather than the service provider in regard to the decisions to buy or sell the individual investments in question include the following:

• the trade signals are investment advice (or a general recommendation), and the client is required to confirm each recommendation received in the form of a trading signal before any order is executed or transmitted for execution on his behalf;
• the trade signals themselves are fully determined by the client himself who is required to set the detailed parameters for each signal/order/transaction, such as the precise market conditions that will trigger a particular signal, e.g. the purchase or sale of instrument A when its price on market B reaches level C.
   
Question Number: 1
  Relevant Provisions: Point 5, Table 1, Paragraph 6, Part 1, Annex Χ, Part C of Directive DI144-2007-05 for the capital requirements of Investment Firms.
  Issue: Basic Indicator: The basis of calculating the relevant indicator.
  Question: The net finance income/(cost) and foreign exchange gain/(loss) must be included in the calculation of the indicator as other income?
  Answer: Yes, since assets & liabilities management is an integral part of running an Investment Firm.
   
Question Number: 2
  Relevant Provisions: Paragraphs 6 and 7, Part 1, Annex Χ, Part C of Directive DI144-2007-05 for the capital requirements of Investment Firms.
  Issue: Basic Indicator: Qualifications.
  Question: The salaries of employees providing investment services should be included in the expenses for investment services (item 2 of Table 1 of paragraph 6) or in the operating expenses (paragraph 7)?
  Answer: The salaries of employees providing investment services should be included in the operating expenses (paragraph 7).
   
Question Number: 1
  Relevant Provisions: Paragraph 11(c), Part IV of Directive DI144-2007-06 for the large exposures of Investment Firms.
  Issue: Exemptions from the application of the imposed limits: Deposits at Cypriot banks up to €100,000.
  Question: Exposures in the form of deposits in Cypriot banks up to €100,000 may be exempted from the limitations of paragraph 6(1) since they are protected by the Deposit Protection Scheme of the Central Bank of Cyprus?
  Answer: No because this plan refers to the establishment and operation of the Deposit Protection Fund which cannot be considered a government guarantee.
   
Question Number: 1
  Relevant Provisions: Annex VI, Part C of Directive DI144-2007-05 for the capital requirements of Investment Firms
  Issue: Cash and shares in transit - credit risk treatment
  Question: How cash and shares in transit should be treated when completing the CoRep templates?
  Answer: a) Cash in transit - Please refer to paragraph 82, Annex VI, Part C: ‘Cash items in the process of collection shall be assigned a 20% risk weight’ and shall be classified under Other Items.
b) Shares in transit - Here the treatment is based on the accounting treatment followed by the CIF which in all cases must be consistent. There are two alternatives:
(i) If shares in transit are booked at the trade date and are recorded as an asset then the calculation of the credit risk will depend on which asset class the shares are classified i.e.:
• Unlisted shares – High Risk items and 150% Risk Weight,
• Listed shares – Other Items and 100% RW and
• Shares issued by institutions - RW 100% and reported in the Institutions CoRep template either listed or unlisted.
(ii) If shares in transit are booked as receivable then again depending on the counterparty that this receivable relates to, they will be classified in one of the asset classes appropriate and receive the relevant risk weight.
   
Question Number: 1
  Relevant Provisions: Paragraph 2(1)(b), Chapter 1, Part B of Directive DI144-2007-05 for the capital requirements of Investment Firms
  Issue: Unconsolidated own funds: Inclusion of interim profits
  Question: If the CIF's auditors review interim profits in accordance with the International Standard on Review Engagements 2410 'Review of interim financial information performed by the independent auditor of the entity', can these profits be included in CIF's unconsolidated own funds?
  Answer: No they cannot. Interim profits can be included provided that these profits have been audited by certified auditors and it is proved to the satisfaction of the Commission that the amount thereof has been evaluated in accordance with the principles set out in the International Financial Reporting Standards and is net of any foreseeable charge or dividend. More specifically, the certified auditors' report must state whether the interim financial statements give a true and fair view of the financial position of the CIF.