CySEC to conduct on-site visits at some investment firms to check their MiFID II compliance
The Cypriot regulator is planning to conduct on-site visits and desk based reviews on a sample of regulated entities that provide investment services of investment advice and/or portfolio management.
The Cyprus Securities and Exchange Commission (CySEC) today issued a circular to inform the firms it regulates regarding its actions in response to the 2020 Common Supervisory Approach (CSA) on ‘MiFID II suitability requirements’ that the European Securities and Markets Authority (ESMA) announced in February 2020.
ESMA is launching the CSA 2020 with national competent authorities (NCAs) on the application of MiFID II suitability rules across the European Union (EU). The CSA will be conducted during 2020. The CSA 2020 will focus on the application on the assessment of suitability as performed by the relevant entities and, where applicable, by their branches in host Member States.
In the context of the CSA, the Cypriot regulator intends to conduct on-site visits and desk based reviews on a sample of regulated entities that provide investment services of investment advice and/or portfolio management. The action is set to allow CySEC to assess how the regulated entities apply the MiFID II suitability requirements. It is also poised to help the regulator in the analysis of whether, and how, the costs of investment products are taken into account by the regulated entities when recommending an investment product to a client and/or when providing portfolio management services.
CySEC advises the firms it regulates to ensure that they fully comply with the MiFID II suitability requirements.
The assessment of suitability is one of the key obligations for investor protection. It applies to the provision of investment advice (whether independent or not) and portfolio management. In accordance with the obligations set out in Article 25(2) of MiFID II and Articles 54 and 55 of the MiFID II Delegated Regulation, investment firms providing investment advice or portfolio management have to provide suitable personal recommendations to their clients or have to make suitable investment decisions on behalf of their clients.
Suitability has to be assessed against clients’ knowledge and experience, financial situation and investment objectives. To achieve this, investment firms have to obtain the necessary information from clients.
The obligations have been further strengthened and detailed by including the following main requirements:
- reference to the fact that the use of electronic systems in making personal recommendations or decisions to trade shall not reduce the responsibility of firms;
- the requirement for firms to provide clients with a statement on suitability (the so called ‘suitability report’) prior to the conclusion of the recommended transaction;
- further details on conduct rules for firms providing a periodic assessment of the suitability;
- the requirement for firms performing a suitability assessment to assess, taking into account the costs and complexity, whether equivalent products can meet the client’s profile;
- the requirement for firms to analyse the costs and benefits of switching from an investment to another;
- the strengthened requirement for firms to consider the clients’ risk tolerance and ability to bear losses;
- the extension of suitability requirements to structured deposits.