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Please find below our observations/comments when reviewing some of our Customer Compliance Reviews that took place in 2022
- Part Six of Regulation (EU) 2019/2033 of the European Parliament and of the Council of 27 November 2019 on prudential requirements for investment firms and amending Regulations (EU) No 1093/2010, (EU) No 575/ 2013,
- (EU) No 600/2014 and (EU) No 806/2014 (the “IFR”)
- Law of the Securities and Exchange Commission of Cyprus providing for the prudential supervision of investment firms (“L.165(I)/2021”)
1.Calculations of capital requirements:
a) Calculation of fixed overheads:
In accordance with article 13 of the IFR, the fixed overhead requirement amounts to at least one quarter of the
general expenses of the previous year.
Some firms used fixed overhead costs from the 2020 audited financial statements even though the 2021 audited financial statements were available and therefore they should have used them.
b) K-COH (customer orders processed), K-CMH (customer money held) and K-ASA (assets safeguarded and administered) calculations (see Excel file ‘DATA.xlsx‘):
The calculations and data extractions for K-COH, K_CMH and K-ASA were poor and we had great difficulty understanding how these are used to calculate the k-factors above.
The Ifs should have policies and procedures in place to ensure that the data required by the COREP forms is easily extracted based on the correct methodology (IFR Articles 20, 18 and 19).
c) K-Net Position Risk Calculation (NPR)
Some Ifs have not subtracted the reporting currency of the business in accordance with Articles 21 and 22 of the IFR; thus inflating the capital requirement for market risk.
Pillar III report:
Some Ifs have not correctly updated their Pillar III report with the appropriate legislation, namely:
- Part Six of Regulation (EU) 2019/2033 of the European Parliament and of the Council of 27 November 2019 on prudential requirements for investment firms
- Amending Regulations (EU) No. 1093/2010, (EU) No. 575/2013, (EU) No. 600/2014 and (EU) No. 806/2014 (the “IFR”),
- Law of the Securities and Exchange Commission of Cyprus providing for the prudential supervision of investment firms (“L.165(I)/2021”).
If they have included in their reports the below legislation / previous prudential framework which is not relevant:
Eight of Regulation (EU) No 575/2013 instead of the new applicable prudential framework;
- Directives DI144-2014-14 & DI144-2014-14(A)
In some cases, even if disclosures were included, they were of poor quality or insufficient:
- The K-factor requirements calculated, in accordance with Article 15 of the IFR, in aggregate form for RtM, RtF and RtC, are not fully disclosed and in accordance with the capital statement;
- Liquidity requirements are not disclosed in accordance with article 43 of the RIF;
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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