CIF, Capital adequacy and consolidated supervision

The Cyprus Securities and Exchange Commission (CySEC) has requested, for the first time, that Cyprus Investment Firms (CIF) submit in writing whether they fall under consolidated supervision or not, in terms of the Capital Adequacy Ratio (CAR). Therefore, the Executive Directors of the Cypriot Investment Firms and the external auditors of the firms must submit the relevant declaration to CySEC, by the end of September 2019.

Going further, CySEC asked firms to submit granular details of the group structure, such as the holding of the CIF, the total assets and the off balance sheet items, of;
– the CIF’s subsidiaries and associates,
– the CIF’s parent companies,
– the holdings of the CIF’s direct parent companies,
– the CIF’s indirect EU and non-EU parent companies,
and a declaration as to whether there is a consolidated supervision by another competent authority.

The Capital Requirements Regulation (CRR) No. 575/2013 and the CySEC Directive 144-2014-14, specify the details required by the consolidated entities.

In this commentary, we will simplify the regulation and provide guidance for the firms to decide whether they fall under a consolidated supervision by CySEC or by another competent authority.

CIFs fall under consolidated supervision by CySEC when

1. The CIF is a parent CIF or is an EU parent institution, meaning that
– the CIF or the EU member state institution, has an institution (credit institution or investment firm) or a financial institution as a subsidiary, or
– the CIF or the member state institution, holds participation in an institution or financial institution, and the CIF or the EU member state institution is not a subsidiary of
o another institution authorized in Cyprus or in any EU member state, or
o a financial holding company, or
o a mixed financial holding company, which is a parent undertaking other than a regulated entity and at least one of its subsidiaries its regulated entity and it is set up in Cyprus or in any EU member state.

2. The CIF is controlled by a single parent financial holding company or a mixed financial holding company, and
a) the parent does not have other subsidiaries, or
b) the parent is incorporated in Cyprus, or
c) the parent is not incorporated in Cyprus but the CIF has the largest balance sheet among the subsidiaries.

3. The CIF is controlled by more than one parent financial holding company or a mixed financial holding company, with the head office in different member state, and
a) the parent companies do not have other subsidiaries, or
b) one of the parents is incorporated in Cyprus and another parent is not incorporated in an EU member state of another subsidiary, or
c) one of the parent is incorporated in Cyprus, another parent is incorporated in an EU member state of another subsidiary and the CIF has the largest balance sheet among the subsidiaries.

It is worth noting that when the parent company is incorporated in a third-country, CySEC may request the setup of a financial holding company or a mixed financial company in order to apply consolidated supervision as per the CRR and CySEC Directive 144-2014-14.

Consolidated supervision is exercised by another competent authority and not by CySEC when

1. The CIF is controlled by a single parent financial holding company or a mixed financial holding company, and
a) the single parent has one or more credit institutions as subsidiary, or
b) the single parent is incorporated in an EU member state (other than Cyprus) and has one or more institutions (other than credit institutions) as subsidiaries in that EU member state, or
c) the single parent is incorporated in an EU member state (other than Cyprus) and a subsidiary incorporated in another EU member state has the largest balance sheet.

2. The CIF is controlled by more than one parent financial holding company or a mixed financial holding company, with the head office in different member state, and
a) there is one or more credit institutions as subsidiary, or
b) one of the parent is incorporated in Cyprus and a subsidiary in an EU member state of another parent has the largest balance sheet, or
c) none of the parents is incorporated in Cyprus and they are incorporated in other EU member states. Then consolidated supervision is subject by the competent authority of the institution with the largest balance sheet.

3. The CIF has a parent an institution or a financial holding company or a mixed financial holding company in a third-country. If the third-country supervisory authority considers that the CIF is subject to a consolidated supervision, then may request consolidated reporting.

If your firm is uncertain as to whether it falls under consolidated supervision by CySEC or another competent authority, we are here to help. Our specialized team can provide support in all capital adequacy requests; either by providing guidance on the preparation of the semi-annual consolidated capital adequacy forms for 31st of December and onwards, or with the solo quarterly capital adequacy forms.

We remain at your disposal if you require further information. Talk to us.

The information provided in this article is for general information purposes only. You should always seek professional advice suitable to your needs.

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