The Cyprus Securities and Exchange Commission (CySEC) on Tuesday released a statement requiring Cyprus Investment Firms (CIFs) to adopt the European Banking Authority (EBA) guidelines on the application of the group capital test, which will take effect on January 1, 2025.
According to the commission, these guidelines aim to establish uniform regulatory practices for calculating capital requirements for investment firm groups in accordance with Article 8 of Regulation (EU) 2019/2033 (the IFR).
Moreover, the purpose is to ensure that investment firms maintain adequate capital levels to safeguard the financial system and protect clients, especially for firms operating as part of larger groups.
CySEC’s adoption of the EBA guidelines means that CIFs must adhere to these rules for assessing their capital needs, which include provisions for applying the group capital test.
This allows firms to potentially lower their required capital, provided they meet certain conditions.
Specifically, firms deemed to be sufficiently simple in structure, and posing limited risk to the market and clients, may be eligible to hold a lower amount of own funds compared to the amount calculated under standard regulatory requirements.
The guidelines also outline conditions under which investment firm groups may be deemed eligible for reduced capital requirements.
CySEC highlighted that these groups must demonstrate simplicity and minimal risk to qualify.
Otherwise, they must hold higher levels of capital. Competent authorities, like CySEC, are authorised to permit a reduction in capital if the calculated own funds requirements exceed those under the standard test by at least 125 per cent.
Moreover, the commission explained that to obtain permission for the group capital test, investment firms must submit an application to CySEC, which includes detailed information on the group’s structure, its activities, and the capital requirements calculated both at individual and consolidated levels.
CySEC stated that it will assess these factors before deciding whether to grant permission for the reduced capital requirements.
The announcement also said that if CySEC determines that the conditions for the group capital test are no longer met, it can revoke the permission.
In such cases, the group would be subject to higher consolidated capital requirements in line with Article 7 of the IFR.
In addition, the commission said that any firms wishing to apply for this reduced capital requirement must submit their request through CySEC’s online portal under the designation “IFR group capital test permission”.
Meanwhile, on the same day, CySEC also published the results of the certification examinations conducted in September, in line with the directive on the certification of individuals and the maintenance of certification registers. The full results can be viewed on the commission’s website.
