In preparation for the entry into force on 3 January 2018 of the European Securities and Markets Authority’s guidelines for the assessment of knowledge and competence, set out in its publication ESMA/2015/1886 dated 17 December 2015, the Cyprus Securities and Exchange Commission (CySEC) has published circular C-181 assisting Cyprus Investment Firm (“CIFs”) to meet their obligation to act in the best interests of their client when providing information
n concerning the services and instruments offered.
Circular 181 (“the Circular”) applies to anyone, including employees and tied agents of CIFs, who communicates with CIF clients (existing and potential clientele) with the purpose of providing information to clients regarding the services and instruments offered. The Circular has no bearing on employees working in the provision of technical support as well as in back-office function.
CIFs must ensure that that the persons employed possess the necessary knowledge and competence to meet the relevant regulatory and legal requirements as well as the standards of business ethics and approach.
The level and intensity of knowledge and competence expected for the persons employed should be determined by the CIFs, considering the scope, size and complexity of the relevant services provided.
In accordance with ESMA guidelines, the ‘necessary competence and knowledge’ inter alia means the following:
Understanding of the key characteristics, risk and features of the services and instruments provided as for instance any general tax implication and costs to be incurred by the client in the context of transactions
Understanding of how the financial markets function and how they affect the value and pricing of the services and instruments provided to the Client
Understanding of the difference between the past performance and future performance scenarios as well as the limits of predictive forecasting
Understanding of issues pertaining to market abuse and money laundering
Understanding of the specific market structures and trading venues of the instruments provided.
Further, the employee should:
when communicating with client use his/her real name and an alias as well as never give false information regarding his/her credentials (NB. It is the CIF’s responsibility to ensure this through proper monitoring)
should avoid exercise intense and constant pressure to a retail client to deposit money and invest in complex instruments
CIFs must ensure “hard-selling” practices such as frequent and repeated telephone calls to clients as well as use of aggressive language never takes place.
In brief CIFs are required to closely monitor and review their policies and procedures to ensure that they comply with the requirements set out in this Circular and be adamant that any person employed possesses the necessary knowledge and competence, as well as to take all necessary corrective measures and rectify any weaknesses and discrepancies that may exist without delay. More importantly, CIFs are required to provide CySEC with written confirmation by their board regarding these matters no later than the 2nd of May 2017.