Please find below our observations/comments during the review of some of our clients Compliance Reviews taken place in 2022
Applicable Requirements
- Part Six of the Regulation (EU) 2019/2033 of the European Parliament and of the Council of 27 November 2019 on the prudential requirements of investment firms and amending Regulations (EU) No 1093/2010, (EU) No 575/2013,
- (EU) No 600/2014 and (EU) No 806/2014 (the "IFR")
- Cyprus Securities and Exchange Commission's Law to Provide for the Prudential Supervision of Investment Firms ("L.165(I)/2021")
1.Own funds requirements calculations:
a) Fixed Overhead Calculation:
In accordance with Article 13 of the IFR, the fixed overheads requirement shall amount to at least one quarter of the fixed overhead of the preceding year.
Some firms used the fixed overheads of the 2020 audited financial statements even though the 2021 audited financial statements were available and as a result they should have used them.
b) K-COH (Client Orders Handled), K-CMH (Client Money Held) & K-ASA (Assets Safeguarded and Administered) calculations ( refer to excel file 'DATA.xlsx'):
Workings and data extractions for the K-COH, K_CMH & K- ASA were poor and we had a great difficulty to understand how these are used to calculate the k-factors above.
The Ifs needs to have implemented policies and procedures that data required by the COREP forms are easily extracted based on the correct methodology (Articles 20, 18 and 19 of the IFR).
c) Calculation of K-Net Position Risk (NPR)
Some Ifs did not substract the reporting currency of the firm in accordance with Articles 21 and 22 of the IFR; hence inflating the capital requirement for market risk.
Pillar III Report:
Relevant legislation
Some Ifs failed to correctly update their Pillar III report with the appropriate legislation namely:
- Part Six of the Regulation (EU) 2019/2033 of the European Parliament and of the Council of 27 November 2019 on the prudential requirements of investment firms
- Amending Regulations (EU) No 1093/2010, (EU) No 575/2013, (EU) No 600/2014 and (EU) No 806/2014 (the "IFR"),
- Cyprus Securities and Exchange Commission's Law to Provide for the Prudential Supervision of Investment Firms ("L.165(I)/2021").
Ifs included in their reports the below legislation / previous prudential framework which is of no relevance:
Eight of Regulation (EU) No 575/2013 instead of the new prudential framework applicable;
- Directives DI144-2014-14 & DI144-2014-14(A)
In some cases even though disclosures were included they were of poor quality or insufficient:
- Own funds disclosure templates issued by the EBA for Class 2 firms and adopted by CySEC are not disclosed
-
They did not illustrate Templates EU IF CC1.01, EU IF CC2, EU IF CCA - for more details refer to https://www.eba.europa.eu/eba-issues-new-supervisory-reporting-and-disclosures-framework-investment-firms);
- 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 line with the own funds form;
- Liquidity requirements are not disclosed in accordance with Article 43 of the IFR;
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.