Cyprus’ CySEC requires licensees to exclude compensation fund contributions from capital accounting

Cyprus’ CySEC requires licensees to exclude compensation fund contributions from capital accounting

CySEC Cyprus

The Cyprus Securities and Exchange Commission (CySEC) issued on Tuesday a notice, informing holders of a Cypriot Investment Firm (CIF) license they should no longer include contributions to the Investors Compensation Fund (ICF) as ‘exposure to public sector entities’ when calculating the amount of total risk exposure. The change is into effect, starting immediately.

“In particular, CIFs must deduct the ICF contribution presented in their records from Common Equity Tier 1 Capital and must no longer risk weight the relevant amount, when total risk exposure amount is calculated,” the regulator said in the notice.

By now, the ICF contribution was categorized as an ‘exposure to public sector entities’ and risk weighted accordingly. The newly-introduced change is for capital adequacy purposes. It aims to establish rules that ensure CIFs hold enough capital to ensure continuation of a safe and efficient market and able to withstand any foreseeable problems.

All CIFs are obliged to be members of and to contribute to the ICF by default. In cases when entities’ own funds or their capital adequacy ratio fall below the minimum requirement, CIFs should act accordingly to apply with the new specifications no later than the end of 2016. Under the CIF, retail clients of licensed entities can receive a compensation of up to €20,000 of their investments in case of default of a CIF.

The CySEC noted that it expects CIFs’ own funds and capital adequacy ratio as at December 31, 2016, which will be reported to the regulator by February 11, 2017, will be above the minimum allowable limits.

The CySEC licenses, supervises, and regulates players on the local capital market, including forex and binary option brokers. Its managing board consists of five members, each one of which serves a term of five years.

Brokers that fall under the regulation of the Cypriot financial authority include Trading 212, XM, FxPro, ForexTime (FXTM), FxGrow, HotForex, RoboForex, Orbex, HiWayFX, Royal Financial Trading, IGM Forex, and many others.

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