The Cyprus Securities and Exchange Commission (CySEC) has announced the adoption of new European Banking Authority (EBA) guidelines that will impact FX/CFD brokers operating as Cyprus Investment Firms (CIFs). According to the latest circular from the market watchdog, they will take effect at the beginning of 2025.

Cyprus Regulator Introduces New Capital Test Rules for Investment Firms

The guidelines, set to take effect next year, clarify the application of the group capital test for investment firm groups under Article 8 of the Investment Firms Regulation (IFR). Under Article 8, investment firm groups are required to meet consolidated regulatory requirements, much like banking groups under the Capital Requirements Regulation (CRR).

This includes obligations regarding capital adequacy, risk management , and governance on a consolidated basis, ensuring that the entire group meets prudential standards, not just individual firms within the group.

“CySEC has adopted the Guidelines by incorporating them into its supervisory practices and regulatory approach,” the regulator commented in a circular signed by Dr. George Theocharides, the watchdog’s Chairman. “The Guidelines specify how competent authorities should implement Article 8(1) and Article 8(4) of IFR to allow investment firm groups to apply the group capital test, or to hold a lower amount of own funds.”

The guidelines outline specific conditions under which Cypriot Investment Firms (CIFs), including FX/CFD brokers, may be considered sufficiently simple and low-risk. This classification could potentially allow companies to apply for special permissions regarding their capital requirements.

Under the new framework, FX/CFD brokers in Cyprus seeking to implement Article 8 provisions or hold reduced own funds must submit comprehensive information through CySEC's portal. This includes detailed group structures, descriptions of trading activities, and precise capital requirement calculations.

A key feature of the guidelines is the introduction of a potential threshold for granting lower capital amount permissions. CySEC may consider such permissions when a CIF’s own funds requirements under Article 8(3) exceed those under Article 7 by at least 125%.

CySEC emphasized its authority to revoke permissions if conditions are no longer met, which could result in groups being subjected to consolidated supervision under Article 7 of the IFR.

Cyprus Sets Deadline Ahead of EU Regulations

In a separate move, CySEC has announced another deadline, this time for crypto-asset service providers as the European Union prepares to implement new regulations. CySEC will stop accepting notifications from European Economic Area (EEA) firms for cross-border crypto services on October 30, 2024. This deadline comes just two months before the Markets in Crypto-Assets (MiCA) regulation takes effect for crypto service providers on December 30, 2024.

Firms that notify CySEC by the October 30 deadline will be allowed to continue their cross-border operations during a transitional period until July 1, 2026, or until they receive a decision on their MiCA authorization, whichever comes first. CySEC has already stopped accepting registrations for Crypto-Asset Service Providers (CASPs) under national rules as of October 17, 2024.

These changes are part of a broader effort across the European Union to implement MiCA, which aims to create a harmonized regulatory framework for crypto-assets. Crypto-asset service providers in Cyprus now face a clear timeline: they must submit notifications to CySEC by October 30, 2024, prepare for MiCA compliance by December 30, 2024, and obtain MiCA authorization by July 1, 2026, at the latest, to continue operations.