New initiatives by CySEC aim to ensure investor protection
The Cyprus Securities and Exchange Commission (CySEC) is enhancing its supervisory capabilities through the use of new technologies and other tools. This was the focal point of CySEC Chairman Dr George Theocharides’ speech delivered during a press conference on Tuesday, 1 February 2022, focusing on CySEC’s goals for 2022 and the sector’s trends and developments in 2021.
Following a brief overview of the past year, Dr Theocharides pointed to the continued growth of the investment sector. By the end of the year, CySEC had 806 entities under its supervision, compared to 788 at the end of 2020, recording an increase of 2.28%, with interest in the sector remaining steady.
CySEC’s Department of Supervision conducted a total of 308 desk-based and thematic reviews of Cyprus Investment Firms (CIFs). CySEC also evaluated the desk-based reviews it held in 2020 and reviewed 18 annual compliance and internal audit reports and one Internal Capital Adequacy Assessment Process (ICAAP) report. At the same time, CySEC monitored the marketing communications of 27 CIFs.
The Supervision Department also carried out 460 desk-based and on-site reviews of the documents of Collective Investment Funds and a desk-based review of the Central Securities Depository (CSD).
In 2021, the AML/CFT Department carried out checks to evaluate the adequacy and appropriateness of specific measures and procedures implemented by supervised entities. In 2021, the organisation conducted on-site reviews into 60 supervised entities. The Department also reviewed 478 annual compliance reports and the Internal Audits , including examining the practices of the Boards of Directors of 239 CIFs, ASPs and AIFs.
It also received information from 431 supervised entities, based on Circular 416 of 11/2020, on the “Business relationship with persons who have acquired Cypriot citizenship under the Cyprus Investment Programme(CIP)”.
The Market Surveillance and Investigations Department investigated a number of cases in relation to the violation of the current legislation by issuers, CIFs and ASPs proceeding with 4 entry – investigations and completed 41 investigations. At the end of the year, there were an additional 30 ongoing investigations. Four cases were sent to the Attorney-General of the Republic who will determine whether any criminal offences were committed by the companies or natural persons.
Referring to the administrative sanctions that were imposed as a result of investigations and supervisory reviews, Mr. Theocharides stressed that fines totalling over €1.34 million were imposed, with the vast majority of the sum relating to fines and settlements for CIFs that violated the law governing the provision of investment services, known as MiFID II.
Over the past two years, CySEC has imposed over €4.53 million in fines, with €3 million of the fines imposed on CIFs. A total of €31 million fines have been imposed over the past nine years.
In 2021, CySEC suspended the operating license of 6 CIFs, revoked the operating license of 4 CIFs and called more than 70 supervised entities to take specific actions within a specific timeframe to remediate weaknesses and/or omissions that were identified during the supervisory checks.
CySEC aims to strengthen its ability to identify bad practices in a timely fashion, working proactively to prevent their implementation.
CySEC’s enhanced supervisory approach includes:
- The use of new technology to monitor and supervise the marketing and social media activities of regulated entities. CySEC has acquired a specialised system for monitoring supervised entities’ online marketing activities/materials. This tool will enhance CySEC’s ability to collect, analyse and monitor the marketing communications of CIFs. Specifically, the system has the ability to detect all related mentions from any source globally including social media, news sites, forums, blogs, video sites and ad networks, and covers 187 languages. In addition, it has the ability to carry out real time monitoring with an instant alert trigger on any related keyword combination.
- Expanding CySEC’s supervisory team to increase the level and frequency of supervision. A total of 32 new staff members have joined CySEC since October 2021, of whom 15 have supervisory duties.
- Adoption of of Big Data management systems. CySEC is responding to the need to manage Big Data with RegTech systems that use Artificial Intelligence and Cloud Computing. These solutions will enable CySEC to quickly screen data from a large and varied volume of trading activity in order to automatically detect risks and irregularities at an earlier stage and, thus take proactive action against them.
Also, in 2021, the Risk-Based Supervision Framework (RBS-F) was upgraded so that it is continuously updated to take into consideration any new developments or changes that could pose a risk to the market.
The ongoing modernisation of the regulatory framework of the securities market remains very high on CySEC’s list of priorities, said Dr Theocharides. New legislative developments are expected to take place in 2022.