Accurate and compliant reporting of the ICF in CAR

The Cyprus Securities and Exchange Commission (CySEC) released another circular urging the Cyprus Investment Firms (CIF) to ensure compliance with their capital adequacy ratio (CAR) reporting.

In particular, the new circular (C334) issued by CySEC makes reference – once again – on the treatment of the Investment Compensation Fund (ICF) contribution when calculating the firms’ own funds. In parallel, the regulator provides further guidance on how to comply with the Upgraded Legal Framework of the Investor Compensation Fund.

Treatment of the Investment Compensation Fund (ICF) contribution in Capital Adequacy Ratio (CAR) reporting

During June, in supporting firms we work with and ensure compliance with the capital adequacy requirements, we adjusted the reporting of their ICF contribution in their CAR reports accordingly. In addition, we have published an article discussing the CySEC findings from the several inspections conducted by the commission to help compliance professionals, CIFs, and other interested parties stay compliant. We also provided additional compliance tips for the Investment Firms to correctly calculate their capital adequacy (CAR) forms.

One of the many findings relating to the Tier 1 capital is provided herein below, while further information can be found within the article dedicated on the matter.

Firms are not deducting the Investors Compensation Fund (ICF) contribution from Tier 1 Capital.
Compliance Tip 3: As of the 10th of October 2016, firms must deduct the ICF contribution from the Tier 1 Capital, as ‘additional deductions of CET1 Capital’, and they should no longer consider the ICF as a risk-weighted amount of the ‘public sector entities credit exposure’.

Guidance on how to comply with the Upgraded Legal Framework of the Investor Compensation Fund (ICF)

Within the new circular (C334), CySEC officially announces the obligation of the CIFs towards the new so-called extraordinary contribution. In the below paragraph we provide a piece from the related published article, where we discuss the amendments and the new regulatory framework related to the ICF.

A new so-called extraordinary contribution is created to cover material excessive claims. Therefore, the new directive requires the ICF members to keep in a separate bank account an independently audited minimum cash buffer of 3‰ of their clients’ eligible funds and financial instruments as at the previous year. Now, the members of the ICF are obliged to submit the confirmation form 87-07-05 signed by the Board of Directors and the internal auditor, that attests to the fulfillment of the obligation.

Therefore, the CIFs holding client funds must deduct the extraordinary contribution from the Common Equity Tier 1 capital when calculating their capital adequacy ratio. The new treatment of the ICF applies for the submission of the CAR forms with deadline 11th of November 2019 and onwards.

Feel free to ask any question or clarification in regards to the treatment of the ICF contribution or Capital Adequacy Reporting in general. We can help.

You can contact us through our website or directly at info@salvusfunds.com.

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