CySEC issues MiFID 2 CIF Product Governance requirements Circular

CySEC published circular on MiFID 2 CIF Product Governance requirements giving Forex brokers, CIFs, UCITs MC and AIFMs guidance about product governance.

18 September, AtoZForex The Cyprus Securities and Exchange Commission (CySEC) has issued an important circular for CIFs, UCITs MC and AIFMs. The Cypriot financial regulator wants to inform the registered entities about their obligations in regards to the product governance requirements.

The requirements are provided in the Investment Services and Activities and Regulated Markets Law L. 87(I)/2017 (the ‘Law’)3 and in other documents issued pursuant to this.

MiFID 2 CIF Product Governance requirements Circular

The CySEC notes that the requirements will be valid from the 3rd January 2018. Moreover, the primary financial regulator of the island outlined the reasons for the necessity of the full compliance:

‘In order to avoid and reduce from an early stage potential risks of failure with investor protection rules, investment firms manufacturing and distributing financial instruments should comply with product governance requirements.

Furthermore, the CySEC states that for the purpose of product governance requirements, some firms should be considered as manufacturers of financial instruments. These include investment firms that create, develop, issue and/or design financial instruments, including when advising corporate issuers on the launch of new financial instruments.

In addition, investment firms that offer or sell financial instruments and services are considered distributors.

Product Governance Requirements purpose

Additionally, CySEC has mentioned the objectives of the product governance requirements. The regulator believes that product governance requirements aim to improve the level of investor protection. The CySEC has listed the legal documents that are relevant to the product governance requirements:

i. The Law .

ii. Commission Delegated Directive (EU) 2017/593 with regard to the safeguarding of financial instruments and funds belonging to clients, product governance obligations and the rules applicable to the provision or reception of fees, commissions or any monetary or non-monetary benefits5 (Chapter III).

iii. Guidelines on MiFID II product governance requirements – ESMA35-43/620.

How Product Governance Requirements enhance the level of investor protection?

The requirements are regulating all steps of the life-cycle of products or services. This is done in order to ensure that distributors and manufacturers act in the clients’ best interests. Moreover, the product governance requirements address some issues that are specific to manufacturers and distributors.

You can familiarize yourself with the MiFID 2 CIF Product Governance requirements in detail here.

CySEC clarifies Negative Balance Protection rules for CIFs

Today, CySEC also has issued another clarifying announcement in regards to the circular that is dated back to 30th November 2016. The regulator has clarified the rules for the marketing and sale of financial contracts for difference (CFDs) and other speculative products to retail clients:

'Further to Circular 168 (the “Circular”), the Cyprus Securities and Exchange Commission (‘CySEC’) wishes with this Announcement to clarify that the negative balance protection referred to in Paragraph 3(iii)(c) of the Circular, applies on an account basis and therefore CIFs should take the necessary measures, in order to ensure that the maximum loss for the clients on an account basis, never exceeds the clients’ available funds in the specific account.'

Initial CySEC circular can be found here.

MiFID II leveraged products advertisement

AtoZForex has also received some extra information from various sources on leveraged products advertisement in Europe and outside. There is a strong possibility that EU regulators will restrict brokers advertisement throughout Europe, unless they have the psychical presence in the specific country.

Indeed, we have seen how similar approach has impacted the industry so far. Cyprus brokers must get a local compliance advise from every country they target in order to on-board traders.

Now, the question is if your broker is ready for the upcoming changes? We have a nice project coming up within the next 3 weeks which will serve traders and brokers. Contact AtoZForex for more information (*Forex brokers only with company email).

Think we missed something? Let us know in the comments section below.

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