The Cyprus Securities and Exchange Commission (CySEC) has published a Consultation Paper to propose the introduction of specific rules and obligations on promoters of applications that engage in the submission and promotion of applications for the granting of a license to a regulated entity of CySEC or other material changes.
CySEC’s regulatory initiative is designed to enhance the quality of applications submitted to CySEC by requiring promoters of applications to carry out due diligence and KYC procedures to clients that wish to apply to CySEC for a license. This regulatory initiative is expected to enhance the use of anti-money laundering procedures when promoting investments and ultimately increase the quality of services provided to regulated entities and the entities undergoing the procedure of being granted a license.
The regulator notes that the vast majority of applications it receives by CySEC, whether these are for the granting of a license of a supervised entity (for example Investment Firms, AIFMs, AIFs or UCITS or other type of licensed entity), or the submission of material changes in licensed entities, are submitted by legal persons who act as promoters and represent these entities in their dealings with CySEC.
Most of these promoters of applications are already established accounting, audit of legal firms which fall under the definition of “obliged entities” according to the Anti Money Laundering Law. There are however many promoters which are not regulated by any regulating body, the services they provide are not regulated and they have no legal obligation to comply with any rules when they provide these services.
Promoters of applications usually provide the following services:
- preparations and/or submission of an application for the granting of an operational license according to the relevant legislation of CySEC.
- submission of notifications for material changes in relation to the relevant legislation.
- representation and liaising with CySEC during the examination and evaluation of an application or notification of a material change.
CySEC proposes that the above mentioned services provided by promoters, are added under section 4 of the ASP Law as administrative services, for which an entity needs a license as an ASP.
It will not be compulsory for regulated entities to use the services of a promoter when liaising with CySEC. Applications submitted by the regulated entity itself, without the use of a promoter will be excluded from the scope.
Periodic notifications submitted by regulated entities or issuers of regulated markets, obliged to do so by statute, will also fall outside the scope of this arrangement.
The submission and promotion of applications or notifications of material changes to CySEC by audit/accounting firms and legal firms will not require an ASP license because these entities according to the ASP law are considered to be exempted persons and can provide administrative services without an ASP license. CySEC expects these entities however to apply AML procedures when acting as promoters of their clients.
Under the proposed rules, Section 4 of the ASP Law will be amended in order to add a new administrative service. Legal persons that wish to continue to act as promoters and are not already exempted persons or ASPs, will need to apply for an ASP license that will include the said service.
CySEC eventually plans to create a Register of Promoters, which will include the ASPs and exempted entities that wish to act as promoters and provide the services described above. Only entities included in this register will be able to act as promoters in relation to CySEC applications and notifications for material changes.
A new section will be added in the ASP Law to provide that ASPs need to set up certain basic policies on corporate governance and ensure that their board of directors includes also non-executive independent members.
Finally, a Code of Conduct for promoters is proposed, in order to give guidance to ASPs that wish to act as promoters, and set the minimum level of due care that is expected from them when providing the said service.
Responses will be accepted no later than July 1, 2021.