Launching of Risk Based Supervision Framework by CySEC

Risk Based Supervision Framework by CySEC
Risk Based Supervision Framework by CySEC

When Demetra Kalogerou, the Chairwoman of the was referring to the enormous importance attached to the improvement and modernization of the CySEC itself through substantial simplifications and automations of its operations, as part of her speech during a press conference last week to present the priorities of CySEC for 2014, none of us had expected that CySEC would move so swiftly in putting its actions where its mouth is…

It now becomes evident that the Cypriot regulator is well on its course of recovery from the shock of last year’s crisis on the island, and it is determined to do its utmost in order to maintain the country’s status as a preferred financial services centre. Within this framework CySEC appears to recognize that it needs to increase its efficiency and effectiveness as a supervisor, which will in turn also ensure that all entities under its jurisdiction will maintain their healthy operation.

In order to achieve this goal, CySEC issued a circular on 29th January 2014 addressed to all Cyprus Investment Firms, UCITS Management Companies and Administrative Services Providers, informing them that it is currently in the process of devising a framework for the risk-based supervision of all its regulated entities. According to CySEC this new framework under development will include the processes and procedures, methodology and software tools that will be used by the Commission in its supervisory role, all of which will in turn enable the regulator to determine its supervisory approach, by evaluating and accounting for the risks faced by each regulated entity.

The expectation is that through successfully implementing this new project the operation of CySEC will improve significantly and it will become more transparent, consistent, effective and efficient due to the increased objectivity under which the supervision will be conducted, taking into account both the internal and external risks faced by each regulated entity.

The regulator informs the entities under its supervision that this plan is still at an early stage and that it will take more than 12 months to complete, also stressing that it requests and requires the input of all regulated entities in order to be successful in this endeavor. Consequently and as an initial stage towards this new framework, CySEC included a table as an Appendix in the circular, which it asks all CIFs to complete and submit by 3rd February 2014.

The data that the CySEC will obtain through this table, will be instrumental for the further design and development of the risk-based supervision framework and this is why each CIF is asked to provide information based on its 2013 figures, concerning its total number of active clients and their breakdown per category (e.g. retail, institutional or eligible counterparty) the country of origin of the clients (from Cyprus, other EU countries, CIS countries, Israel or other), as well as the total volume and value of transactions in EUR processed by the entity for 2013, be they from customers or on a CIF’s own funds, as well as volumes of a CIF as a market-maker, that is clients’ transactions executed against the entity’s own funds. Finally CIFs are asked to indicate the balance of clients’ assets both as regards on balance sheet items and off balance items.